Pakistan, Land of Entrepreneurs

Financier Arif Habib thrives by serving Pakistan’s middle class | “Foreigners don’t come here, so the field is wide open”

Naween Mangi

Habib takes a turn at bat near his 2,100-acre Karachi development


On a warm Sunday morning in November, Arif Habib leaves his posh home near the seafront in southern Karachi and drives across town in a silver Toyota Prado SUV. About half an hour later, he arrives to check up on his latest project: a 2,100-acre residential development at the northern tip of this city of 20 million. He hops out, shakes hands with young company call-center workers who are dressed for a cricket match, and joins them at the edge of the playing field for a traditional Pakistani breakfast of curried chickpeas and semolina pudding. After a quick tour of the construction site, he straps on his leg pads, grabs his bat, and heads onto the field. “The principles of cricket are very effective in business,” says Habib, 59. “The goal is to stay at the wicket, hit the right balls, leave the balls that don’t quite work, and keep an eye on the scoreboard. I feel that my childhood association with cricket has contributed to my success.”

Habib, who started as a stockbroker more than four decades ago, has expanded his Arif Habib Group into a 13-company business that has invested $2 billion in financial services, cement, fertilizer, and steel factories since 2004. His group and a clutch of others have become conglomerates of a kind that went out of fashion in the West but seem suited to the often chaotic conditions in Pakistan. Engro, a maker of fertilizer, has moved into packaged foods and coal mining. Billionaire Mian Muhammad Mansha, one of Pakistan’s richest men, is importing 2,500 milk cows from Australia to start a dairy business after running MCB Bank, Nishat Mills, and D.G. Khan Cement.

These companies have prospered in a country that, since joining the U.S. in the war on terror after Sept. 11, has lost more than 40,000 people to retaliatory bombings by the Taliban. Political violence in Karachi has killed 2,000 Pakistanis this year, and an energy crisis — power outages last as long as 18 hours a day — has led to social unrest. Foreign direct investment declined 24 percent to $244 million in the four months ended Oct. 31, according to the central bank.

At the same time, some 70 million Pakistanis — 40 percent of the population — have become middle-class, says Sakib Sherani, chief executive of Macro Economic Insights, a research firm in Islamabad. A boom in agriculture and residential property, as well as jobs in hot sectors such as telecom and media, have helped Pakistanis prosper. “Just go to the malls and see the number of customers who are actually buying in upscale stores and that shows you how robust the demand is,” says Azfer Naseem, head of research for Elixir Securities in Karachi. “Despite the energy crisis, we have growth of 3 percent.”

Sherani of Macro Economic Insights estimates the middle class doubled in size between 2002 and 2012. “Those who understand the difference between the perception of Pakistan and the reality have made a killing,” Habib says. “Foreigners don’t come here, so the field is wide open.” The KSE100, the benchmark index of the Karachi Exchange, has risen elevenfold since mid-2001. Shares in the index are up 43 percent this year alone. Over the past decade, stocks have been buoyed by corporate earnings, which were bolstered in turn by rising consumer spending.

Habib’s parents emigrated to newly created Pakistan in 1948 from Bantva, in the Indian state of Gujarat, leaving behind a tea-growing venture and several properties. When the family arrived, all they had was the gold jewelry tied to his mother’s waist. The youngest of nine siblings, Habib was born in Karachi. “Growing up, I remember my father, who had gone back to India, used to send us 200 rupees ($3.60 at today’s rates) a month. Those were very tough times for us,” he says. In 1970, Habib’s elder brother bought a trading license at the stock exchange and hired Habib, who at age 17 had just finished 10th grade, at 60 rupees a month.

Habib spent his day in the trading hall where shares changed hands through the open-outcry system. When companies issued statements that were read out on the floor, he would analyze them for others. “This way, investors started coming to me with queries, and this gave me the impetus to increase my knowledge,” he says. Habib was voted president of the exchange in 1992. He computerized trading and formalized a system for buying stocks on margin.

The reforms boosted trading volume, and his business expanded. In 2000, Habib set up the nation’s second private fund management company, which now manages 37 billion rupees ($434 million). When state companies were sold off, he bought cement and fertilizer makers and set up a steel plant, a bank, and a wind farm. Habib admits that corruption is a problem. “Pressure does come, and we make our case as soundly as possible so that we can withstand the pressure. But sometimes we have to give in to a limited extent,” he says. “Otherwise we can’t get our legal rights.”

In 2008 regulators imposed trading limits on stocks during the global financial crisis. While the curbs prevented the KSE100 from falling for four months, the index fell 48 percent in less than two months after they were lifted. Habib’s stock market clients defaulted on their obligations. “I became deeply depressed, didn’t leave the house for weeks, and thought death was a better option,” says Habib. Eventually a rise in corporate earnings lifted the market.

Today, Habib has 11,000 employees and annual revenue of 100 billion rupees. He plans to expand into commodities trading and warehousing. “I’ve created all my wealth in Pakistan and reinvested all of it here,” says Habib, who drives himself to his cricket matches and is never accompanied by security guards. In 1998, when Pakistan’s share index fell to a record low after the government tested nuclear weapons, Habib bought shares even though “people thought I was mad.”

Outsiders may think he’s mad even now. The economy has expanded well below the 7 percent or more analysts say is needed to create jobs for the 2 million people joining the workforce every year. Blackouts and a drop in textile exports have sapped expansion. “Pakistan will improve because with a free media, people will use their vote wisely,” says Habib. “If we can just get a government that is not dishonest, even if it’s not that smart, Pakistan will move ahead. The advantages of resources, population, and location are huge.”

The bottom line Despite political turmoil and falling foreign investment, Pakistan has bred a generation of entrepreneurs.


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