"We need fundamental reforms, otherwise Pakistan will not be able to grow"
Published in Nov-Dec 2021
Muhammad Ali Tabba speaks to Aurora about the need to change the culture of doing business in Pakistan and the reasons behind the success of the Yunus Brothers Group.
AURORA: Let’s start with an overview of the Yunus Brothers Group (YBG).
MUHAMMAD ALI TABBA: The Yunus Brothers Group (YBG) was established in 1962, as a company trading in textiles, rice and other commodities – primarily for export and with limited exposure in the domestic market. The foundations of the business were laid down by my grandfather and eventually by my father and uncle. Subsequently, we went into manufacturing; our first venture in this direction was Lucky Textile Mills, a weaving mill we set up in 1981, then in 1987 we bought a spinning mill in Karachi and in 1988, we set up Gadoon Textile Mills in Gadoon Amazai in KPK. After this, we started to diversify and invest further into manufacturing. In 1994, we established Lucky Cement in the Lakki Marvat area in KPK. We started with a production of about two million tons; today Lucky Cement has a capacity of over 15 million tons in Pakistan and about five million tons outside Pakistan, so a total of 20 million tons. In 2012, when their foreign shareholders divested, we bought ICI Pakistan. We have also ventured outside Pakistan and set up cement factories in Iraq and the Democratic Republic of the Congo.
A: For clarity, are all these companies part of YBG?
MAT: Officially we are the Yunus Brothers Group. However, because most of our companies are registered under the name of Lucky, many people refer to us as the Lucky Group. Tabba is our surname, so sometimes we are also referred to as the Tabba Group.
A: Cement, textiles and chemicals, is that the total of YBG’s interests? MAT: We are also into real estate development. In terms of chemicals, ICI has four businesses – pharmaceutical, polyester fibre, soda ash and life sciences. We are into infant formula milk with Morinaga, which is a joint venture. We are into the auto business with KIA. We are also into energy with wind farms and a 616-megawatt coal-based power plant and we have recently gone into mobile manufacturing. We call ourselves a business house with very diversified business interests. Diversification has helped us gain a deeper understanding of how the economy works. As a Group, we would like to change the culture of doing business in Pakistan.
A: Change the culture in what way?
MAT: If you look at the history of this country, after nationalisation in 1974, Pakistan started to rapidly deindustrialise, and most of the businesses that were established post-nationalisation were trading companies – in fact, from an industrialising country, Pakistan turned into a trading country. But at YBG we took a leap of faith. We believe Pakistan needs to create more jobs, more exports and a lot more import substitution; only then can Pakistan revert to the sixties, which everyone claims were the golden period. However, this will only be possible if we change our mindset, and believe and invest in this country over the long-term. Investing in manufacturing involves looking at a horizon stretching from 50 to 75 years. The trading culture that came into Pakistan in the 1970s was because people stopped believing in investing in Pakistan; there was so much uncertainty and unpredictability and rather than invest in long-term ventures, the mindset became one of import, sell and make money. This became the norm for doing business in Pakistan. Then the Soviet invasion of Afghanistan brought in a smuggling culture, because of the Afghan Transit Trade – and along with this, came the culture of tax evasion and under-invoicing. This was the proverbial nail in the coffin, in terms of destroying the fabric of our society and the norms and ethics of doing business in Pakistan. As a consequence, small and medium size enterprises (SMEs) began to suffer; goods that were supposed to go to Afghanistan were sold in Pakistan instead – and without paying any taxes. Tax evasion became the norm and the black economy took hold. The money generated from the black economy was either sent abroad or invested in real estate – which is how we have lost the culture of doing business the right way. Now, due to foreign pressures, and issues such as FATF (Financial Action Task Force), we are trying to curb the flight of capital, but the fact is that the black economy has become part of Pakistan’s real economy. Nobody knows its actual value, but I guess that it ranges between 30-50%, which means that if the GDP of the documented economy is about $300 billion, we are looking at an undocumented economy worth between $100-150 billion. Unless we curb these practices, Pakistan will not be able to achieve its potential.
A: Do you think this situation is contributing to the fact that the economy seems to be in a never-ending boom and bust cycle?
MAT: The reason for the constant boom and bust is the fact that our imports are too high – as a result, our current account goes into deficit and this becomes unsustainable over some time. So then we devalue the currency and raise interest rates, which slows down the economy and from growth mode, we move into contraction mode. Then after fixing the problem, which by the way is a temporary fix, a new government comes in and decides to stimulate the economy and goes down the same path as previous governments. The issue is that there are no long-term policy measures. Our democratic system is such that every five years a new party is elected with a different mandate, but with the same intent to expedite growth – which then cannot be sustained. We need to clamp down on the black economy, make sure people pay their taxes and put a stop to corrupt practices, such as tax evasion and under-invoicing. We need fundamental reforms, otherwise, Pakistan will not be able to grow by more than three to three and a half percent.
A: What is the likelihood of such reforms ever being implemented?
MAT: One of the fundamental reasons why people do not come out in the streets to protest in Pakistan is because until recently, the country has always had a good agricultural output, but this is changing and we are becoming a food deficit country. There used to be a food surplus in Pakistan and this gave governments a lot of room; people could buy wheat, lentils, sugar and oil at reasonable prices and they managed to make ends meet. Now, because of rising commodity prices, Pakistan has to import to meet its basic food requirements and this is becoming a very scary situation, and unless we can structurally reform our agricultural sector, Pakistan is likely to face significantly more problems going forward. The other major issue is that Pakistan is a net importer of energy; we import crude oil, diesel, petrol and now we have started to import gas. A situation where a food deficit is now piling on top of a long-standing energy deficit should be cause for concern for everyone.
A: What factors are contributing to Pakistan’s food problems and can they be solved?
MAT: I am not an agricultural expert, but from what I understand from talking to different people is that when massive subsidies are given to a sector, that sector becomes complacent, and when complacency sets in, there is no compulsion to change habits and therefore no innovation takes place. In terms of agriculture, we are still using the same methods we used 40 years ago. We have not invested in seeds, mechanised farming or modern technology. Unless our farmers start to change their farming methods and governments start to gradually remove all subsidies, there will be no innovation in agriculture. That is one way to do it. Another way is for the government to initiate public-private partnerships with the larger corporates, identify land which has not been cultivated before and introduce new agricultural practices. All it will take is for one or two success stories and others will see the benefits that come with the introduction of best practices and progressive farming methods – that is all it takes to change habits.
A: Given the serious nature of the problems you have highlighted, what do you attribute to the success of YBG?
MAT: Since our inception in 1962, we have always believed in doing business ethically and ensuring that we have a proper corporate governance structure within our various group companies. We have always believed in Pakistan. We believe this country has a lot more to offer and that we can reverse this culture of trading back to one that is manufacturing-focused. I also believe that if you are passionate about doing something, no one except the Almighty can stop you. I believe in adopting the best global practices because they create strong foundations within a company; foundations that help build other businesses over time. No doubt we face the same set of challenges other industries in Pakistan do, but we are cushioned from those challenges because we do not leverage our businesses and this enables us to navigate the economy’s boom and bust cycles less painfully than most other companies. In Pakistan, you need to be aggressive, but at the same time be mindful of your strengths and weaknesses, and rather than undertaking something that exposes your weakness, you need to keep building on your strengths.
A: Given that we are living in the age of disruption, how do you see the future of Pakistani business shaping up?
MAT: Pakistan has a population of 220 million people and there is so much that can be done in terms of agriculture, manufacturing, mining and exports. You name it and the opportunity is there. There is so much opportunity in the manufacturing sector, especially in terms of import substitution. Several industries can be set up and do up to eight to 10 million dollars worth of import substitution; up to five to six million dollars in agriculture alone and eight to 10 million in manufacturing. There are so many opportunities to grow existing businesses because of disruption and trade tensions among the larger economies. However, opportunities come and go and if you do not capitalise on them in time, they are gone. With the changing cost of doing business in countries like China and Vietnam, Pakistan has many opportunities and we have to be creative if we are serious about taking our exports and our investment strategy to the next level. Another opportunity is mining because Pakistan has huge untapped mineral resources. It is a question of looking at different sectors and putting together the resources and working with the government to develop policies that enable the private sector to come forward and invest in areas that have so far been ignored. Yes, the government has not been able to provide basics, such as education, healthcare, infrastructure, municipal cleaning, but the private sector has to step up. If we keep waiting for the government to do something, we will always be in waiting mode and never be able to achieve real growth. In India, it was not the government that turned the country around; the government formulated the policies to enable the private sector to step up and invest – and it was the responsibility of the government to protect those industries and make sure they prospered. The private sector in Pakistan needs to move out of its comfort zone and start taking risks. Yes, there will be challenges, but there will be rewards as well.
A: How many people in the private sector are thinking in the same direction?
MAT: In Pakistan, if someone does something that works, others follow. Look at what the new generation is doing in terms of start-ups, apps, e-commerce, fintech – they are all game-changers for Pakistan. If we can capitalise across all the sectors I have mentioned, we can build this country.
A: What is your take on the China Pakistan Economic Corridor (CPEC)?
MAT: I have always maintained that Pakistan needed investment, and no one except China was willing to extend a helping hand. However, along with CPEC came a lot of baggage in terms of higher costs of setting up power plants. Yes, CPEC has helped Pakistan overcome its energy shortages, but it has also increased the circular debt. But maybe at that time, it was the country’s only option.
A: Going forward do you think CPEC will eventually turn out to have positive aspects to it?
MAT: Rather than begging other countries to invest in Pakistan, why not step up ourselves? Why not encourage the private sector to take on that role, and instead of giving red carpet facilities to foreign investors, I think that if the same advantages are given to local investors, the results will be much better.
Muhammad Ali Tabba was in conversation with Mariam Ali Baig. For feedback: firstname.lastname@example.org
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