Order and Anarchy

Lately the international financial scene has been hit by the news of the implication of a Pakistani banker, one Hafiz Muhemmed Zubair Naseem, in insider trading in US markets and profiting immensely from his scheme. He has been charged with 25 counts of securities fraud and one count of conspiracy for revealing details of deals on which Credit Suisse advised. And guess what?? He was not alone.

The SEC has charged Hafiz Naseem, an investment banker with Credit Suisse, with illegally divulging non – public information to a person believed to be a banker in Pakistan concerning the leveraged buyout of TXU Corp. by an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group. Naseem misappropriated the information from his employer, Credit Suisse, which served as a financial advisor to TXU in connection with the buyout. The SEC has filed a complaint with the US District Court for the Northern District of Illinois alleging insider trading in TXU Call Options ahead of the TXU buyout. The Comission further charged Naseem of breach of duty in telephoning his colleague in Pakistan, another prominent banker, and divulging to him material but non – public information regarding the buyout. Naseem has also been alleged to have been tipped others concerning atleast eight additional merger deals worked upon by Credit Suisse since he joined in March 2006.

Well, the icing on the cake is yet to come. Dawn reports that the other banker in Pakistan indicated above is Ejaz Rahim, former Group Head of the Investment Banking Group at Faysal Bank. Ejaz Rahim has further confirmed that he is under investigation by the SEC. Both Naseem and Rahim have earlier worked together at American Express in Lahore (and both have been accused of illegal banking practices over there as well). Although Ejaz Rahim denies any wrongdoing on his part, he accepts making $5 million on a leveraged deal of 6,700 Call Options just three days before the buyout was announced; but he maintains that the deal was purely based on market analysis data provided to him by a London based energy sector analyst. At that time, the Call Options gave Rahim the right to buy TXU stock at prices between $57.50 and $60 by March 2007, through a brokerage account at UBS in London. And when the TXU deal was announced on Feb. 26, its stock shot up $7.91 from the day before, to $67.93. This way, Rahim was able to net $5 million, the SEC maintains.

The SEC does not only stop here on the TXU deal, but further adds that other investors similarly benefitted. From January 29th to February 20th, Seema and Sunil Seghal, who are believed to be British citizens, bought several hundred TXU call option contracts, which expired in March and April 2007. Together, they made more $271,600 in profits. In late February, Francisco Javier Garcia, believed to be a resident of Switzerland, bought similar TXU securities through Fimat Banque Frankfurt based on inside information; he reaped trading profits of more than $150,500. The SEC has sued them all.

Dawn further reports that these two are just a peek into the dark world of insider trading. A number of additional Pakistani bankers, whose names haven’t been released as yet because of they being “big guns”, are also involved and are now worried about their skin as the powerful SEC pursues the case further. Dawn comments:

The banking fraternity is up in arms as this has dealt quite a blow to the reputation of the industry in the international banking arena. It is feared that the recent influx of investment by foreign banks will suffer a setback because of the fraud.

No doubt it’s got to reflect badly particularly on Pakistani bankers, who are famous for their skills and acumen, and on the Pakistani banking industry in general. However, one more unintended fallout of this saga has been that western audiences have come in motion to implicate the religion of Islam in all this. Blogs have been discussing this and accusing Eastern societies and the religion of Islam in particular for being responsible. It couldn’t have gotten worse than this. Well, all such Islamophobic and rascist remarks and sentiments aside, as they are the by – product of the larger ill – will that runs across the globe at this moment in time, one thing is certain that internationally, Pakistani reputation hasn’t been helped at all by this incident.

However, as further impact of this incident takes hold, we can expect to get more details and certainly more names. Pakistani authorities should also step ahead and take action. But, to think that any strong action will be taken here in Pakistan is naive at best as insider trading is supposed to be the rule of the game to make big bucks. And it’s not just here in Pakistan. Every market must be having big fish ready to plunge into this illegality to make the big buck, and it’s true for US markets also. However, this time the powerful SEC got wind of this activity and now it will not spare a dime in processing all the relevant insider trading regulations to take offenders to task.

Pakistan, though, is another story. They never catch the big fish over here and history is replete with examples of the big culprits being let free. So for those additional Pakistani bankers who now fear that the SEC will get them, the SEC will sure do its best to get them but they can rest assured that they wouldn’t be safer anywhere else than in Pakistan.

On 27th September, 2006, the Economic Coordination Committee of the federal cabinet gave its go – ahead to a deal worth $43.13 billion, to be entered into by the Port Qasim Authority on behalf of Pakistan and UAE based real estate developer Emaar Properties. The agreement envisages the transformation of two islands just off Karachi into modern model cities complete with all ameneities to support a self contained community. Dr. Ashfaq Hassan Khan, while divulging details about the agreement on Geo News TV channel, informed that the islands, Bundal and Buddo are just 1.5 Km from DHA Phase VIII. Emaar, with 85 per cent equity in the project, will develop the city in 13 years. The PQA will have 15 percent equity, in the shape of land.

On the same news program, giving out the details of the agreement, Dr. Ashfaq informed that the government has instructed the PQA to form a panel of legal and financial experts to come up with an agreement that would be vetted by the Federal Ministry for Law and Justice and that would require adequate guarantees from the UAE firm; apparently, this has to be done to ensure transparency and to ensure that proper and suitable operational procedures are followed. On the question of transparency, Dr. Ashfaq couldn’t answer the question regarding whether the government publicized the offer through advertisements. Although he told that there were four firms in the race for the contract out of which Emaar succeeded, he was unclear and ignorant about whether proper procedures were followed in inviting these companies. So there arises the primary question of transparency in the deal. Then, it was in news today that the Sind Chief Minister, Dr. Arbab Ghulam Rahim has been saying that the Sind government was not taken into confidence prior to the green light that was given by the ECC for the deal to go through.

In May 2006, Emaar signed $18 billion accord with Port Qasim Authorities to build a mixed-use development project comprising homes, hotels and golf courses in Karachi involving investment of $2.4 billion. These developments include a series of master planned communities that will set new benchmarks in commercial, residential and retail property within Pakistan. Emaar has already commenced the first – ever international sales of its overseas master – planned communities with Canyon Views in Islamabad.

Anyways, these were only the details of what this deal and other Emaar activities are all about. Although this would result in attracting foreign investment in the country, should one look at the larger implications of such projects? Given the objectives that such projects seek to achieve – providing quality housing and a high standard of living for the population being the most important – the answer should definitely be in the positive.

Keeping aside the case of Islamabad which, surely looks like somewhat detatched from the rest of the country in terms of facilities, planning and amenities, we look at Karachi; rather, we look at the rest of the country.

Karachi is home to the most chronic of problems any community could face. All around, one finds broken roads, high street crime, severely malfunctioning drainage system, pathetic state of affairs of public transportation, lack of access to clean drinking water in a number of localities, a large portion of the city covered by slums, etc. You name a civic problem and you’ll definitely find it in Karachi. Similar is the situation in more or less every part of the country.

All this, and the government wants to embark upon a project that advertises the most luxury. Infact, the government advisor (Dr. Ashfaq) translated the new city as no less than another Dubai. Oh my God!....A palace on an overflowing gutter!!

Some time back the government, through the Karachi Port Trust decided to gift the people of Karachi a giant water fountain on the coastline near Clifton. Thinking that the people were entertainment starved, the authorities decided to be considerate towards the poor people and acted to create an entertainment spot by installing a huge water fountain that would spew sewerage many many feet into the open air. In its frenzy, the City District Government Karachi has already embarked upon constructing the tallest building of the country at Hassan Square – that same Hassan Square that serves as home to the City Government’s offices and that same Hassan Square, where even the mildest of showers or even a slight drizzle would create a pool for the relevant departments’ officers to swim in.

Another example of a project which, thankfully hasn’t materialized yet but which seems to be in the pipeline, is the bullet train project. Nawaz Sharif was quite passionate about it. So is the current government. Nawaz Sharif wanted a study to be conducted upon its feasibility. The current government has commissioned the feasibility to be prepared. Now someone should tell the assholes who run the affairs of this unfortunately poor country of ours that a bullet train would certainly put a huge drain on the already tight resources, that first these guys should try to improve and sustain the already crippled railway system.

I’m not against such projects. But we should look at our priorities. Do we want to serve a small minority who already live in the wildest of luxuries or are we here to provide relief to the common man who travels from one corner of the city to the other in a public bus, thoroughly humiliated, to earn and to strive to provide a somewhat of a decent living to his family? Such huge and expensive projects suit only those societies which have walked a considerable distance to cover the rich – poor gap and which provide adequate measures for addressing all citizens’ needs.

So why do governments have a penchant to embark upon projects that don’t serve to be of any value to the majority of the country’s masses? It’s simple reasoning. Big projects bring big publicity. The government and its ministers are certain to recieve good credit for “making efforts in transforming the fate of the country” by initiating huge projects. It doesn’t matter if the projects are usefull or not; that’s another story. But if the same ministers would act to channel public money in repairing roads and sewerage lines, in providing access to clean drinking water and all such stuff at the micro level, the efforts would definitely not come to the notice of a wide spectrum of people in the society. This would ensure that their names die out from the collective memory of the masses. So infact, useless mega projects serve the vested interests of the government of the day.

God save the people from such governments.

The Pakistani ruling elite spares no word for praising the miracles that the current dispensation has brought to the poor Pakistani nation in the shape of an economic turnaround, highlighting the “fact” that the myth of the lost decade is over now and bright sunshine lies ahead. Well, in a way, these guys aren’t incorrect. How? The evidence is quite visible on our roads and in our various neighbourhoods. In days bygone, untill the “lost decade”, the trademark of the Pakistani road was elaborately decorated minibuses and colourfully painted trucks alongwith that ubiquitous devillish creature of human intelligence, the ever noisy and smoke emitting auto – rickshaw. This scenic collage of the Pakistani road now has a different, more contrasting element: the hi – end luxury car. To be more specific, Porsche.

Some time back, the coming up of a Rolls – Royce dealership was announced. Soon after, there was news of Porsches starting to be sold to Pakistanis. And I write this post after witnessing it in reality for the first time in this godforsaken country, and I’ve learnt from people who have a strong interest in cars, that these toys of the rich are being sold for a starting price of Rs. 5,773,000 ($95,770). No doubt, this affords credibility to the elitist claims that the Pakistani economy has now taken off. No doubt, the GDP showed a growth of 8.4% (second behind China) and 6% in the last two years and the foreign exchange reserves now stand at a record high of $13 billion plus, but the economy still stands on fragile foundations. The so – called growth is consumption driven, fuelled by easy bank credit. What has it resulted in? The culmination is record inflation, acute supply shortages, increased hopelessness and exploitation and never ending menace of poverty caused by unemployment.

Let’s not get into details of the 9/11 bonanza, the main reason behind the “turnaround”; it’s been already talked about much. But the Porches, the Rolls – Royces, the Creek City, the high – rise craze and the megalomania of all sorts isn’t benefiting the common man – you and me. A number of reasons are cited for this paradox and the primary amongst them is the highly skewed distribution of assets, causing the rich to get richer and making the poor to stand where they initially were. The resultant increase in prices of essentials makes decreases the purchasing power of the have – nots, increasing the rich – poor gap and the rich wouldn’t care enough.

The $ 6.8 billion acquisition deal of London – based Peninsular & Oriental Steam Navigation Co. (P&O) by Dubai Ports World is reported to have been delayed. This offer came from Dubai Ports World after the furore in Washington that the deal would compromise US security.

I think that the argument is misplaced. Americans are afraid that foreigners have started eying thier vital assets. But that had to take place one day when you staunchly preach free markets. The irresponsible fiscal policies of the US administration of unreasonable tax cuts have fuelled imports so much that the US trade deficit has touched record levels. Such indulgent administration does not spells good for the future of any nation.

Importing so much means that you can expect foreigners to own big assets in your country.

The US preaches the same religion all over the world. But when it has now come upon the Americans themselves, they are feeling the pinch and raising hypothetical questions of security. If they are really so much concerned about the foreign ownership of US assets, they should change their policies of converting the US into a big beast who sucks in any and everything it gets on to. But such a change requires readiness to delay current consumption for the future.

Further, the reason why I say that the security question that is being raised is imaginary is that the Americans must have known this to be coming. The post 9/11 harping about terrorism created a loyal dog out of most of Muslim countries’ administrations for the Americans, and UAE being no exception. UAE has supported the Americans wholeheartedly in their various pursuits under the guise of the so – called war against terror. Thus, the proposition against the control of major US ports by Dubai Ports World is, at best, illogical and comes under the realm of discrimination.

Thankfully, the Iran – Pakistan – India gas pipeline did not go to the cold storage as a result of American pressures. Earlier this year, US Secretary of State Condoleezza Rice criticized the project for Iran’s alleged pursuance of a nuclear weapons program under civilian disguise. She further told Pakistanis to pursue other pipeline routes from Turkmenistan and Qatar, despite higher costs.

Energy is an essential commodity. It is as much essential to the Pakistanis as is it essential for the Americans or Indians or anyone else. Without energy, life comes to a standstill. Therefore, it is necessary that future energy supplies be secured.

With increasing volatility in the international oil markets due to persistent increases in prices, it has become imperative for countries to look further than oil and explore other sources of energy. And one such source is natural gas.

Pakistan is richly bestowed with natural resources which include natural gas. However, the country is expected to start facing gas shortages by the year 2010. This expected shortfall of gas, coupled with increasing international oil prices, provide a reasonable argument to Pakistan for searching sources of gas supplies in the region. This is where Iran comes into the picture as a supplier of gas to Pakistan as well as India through a pipeline.

Work on the panned pipeline is to be started from April 2006 and will cost $4.16 billion. This pipeline would lead to a new era of peace and stability in the region as a result of closer ties between the countries involved. It’s all a win – win deal for the people.

This deal, in the backdrop of nuclear allegations against Iran, raised eyebrows in Washington. The Americans (supposedly) don’t want this deal to go through. Obviously, the Americans won’t want a constituent of the Axis of Evil to participate in trade and development.

However, the agreement has now been reached between Pakistan and Iran and it has also been agreed upon to include India in the talks, during a recent visit of the Iranian oil minister to Pakistan. But it is strange that the US did not take notice of it. Whatever be the case, the thing is that Pakistan, and India too, should not remain hostage to the whims of any other government for their strategic needs. If they get a reliable supply of gas from Iran and that too at a competitive price, they should go ahead for it. Looking after strategic interests should not only be the prerogative of the United States and the US should be bold enough to provide other countries some space to look after their interests too. Afterall, this world also belongs to other nations.

Outsourcing is the contracting out, by a firm, of certain business operations and processes to another firm, which specializes in the work that is being outsourced. In recent times, outsourcing has become an accepted business practice and has come to be realized as a tool for providing different services to businesses. Outsourcing is a decision which a business takes for reasons purely relating to costs. Infact, outsourcing has emerged as a result of business’ constant efforts for maximizing profits by minimizing costs.

Basically, outsourcing involves the transfer of major management control over the aspect of the business that is being outsourced to the service provider. It’s not like a one – time transaction relationship that exists between, for example, a client and a vendor; but it involves a continuous two – way relationship that is based upon mutual trust and constant exchange of information between the parties involved and a high degree of understanding is what makes the venture successful.

What really happens in outsourcing is that some non – mission critical operations of a business are contracted out to the Outsourcing Service Provider. Business operations that are typically outsourced include Information Systems, Human Resource Management, Customer Support and such other allied non – core functions.

There are many advantages which any business can derive from outsourcing its operations to other parties:

The primary benefit that outsourcing brings to a business is cost reduction. Generally, when a business function is outsourced, it would cost a fraction of what it would cost if the business was to perform that function itself. This is because, this way the business manages to free up management resources for the business’ core function. Thus, operating costs are reduced.

Another reason why a function would cost less by outsourcing is that Outsourcing Service Providers are able to provide their services cheaply mainly because of economies of scale. Another argument that is usually put forward for this case is that since the outsourced function is not mission critical and is an allied function, then there is no need for resources to be exclusively devoted for it. The Outsourcing Service Provider should take care of it (obviously, the outsourced function will be the core business of the Outsourcing Service Provider) and the business should only incur the cost of that part of the function which it actually utilizes.

Outsourcing brings in greater specialization within the business as allied functions are outsourced to more experienced and specialist suppliers thus, enabling the business to focus on the core business, whatever it may be. This means that the managers would become able to utilize their full potential regarding the main business activity. It helps in enhancing the efficiency of the business by providing the managers more control over time, which can be used to realize new revenue streams, instead of being wasted on details regarding the outsourced function.

Another advantage that outsourcing brings to a business is that the business can gain rapid access to new technology which can be cumbersome or frustrating to the main business activity, if developed in – house. Outsourcing Service Providers use latest technological tools to serve their clients; such technology, if provided in – house, may require a huge capital outlay and may even remain underutilized.

Outsourcing is typically carried out with respect to business activities that are project based e.g. development of Information Systems. In such activities, staffing requirements keep changing as the activity is carried out and as it evolves. Businesses that are organized along line management principles, find it difficult to vary and adapt to such changes. However, Outsourcing Service Providers provide a much more flexible job arrangement and can easily and effortlessly adapt to the changing staff requirements as they can easily deploy and re – deploy their personnel on different jobs and activities as and when required.

However, outsourcing a certain business activity is not without any negative aspects. Most businesses decide to outsource in order to lower the total costs. This is definitely a major advantage of outsourcing, but it should not be the sole reason for the decision. There is always the possibility that the decision may backfire. Therefore, businesses should not fail to realize the potential hidden costs of outsourcing.

Legal costs of putting together the outsourcing contract between the parties involved and the time and effort spent in coordinating the outsourcing contract is a cost that cannot be easily predicted and can cause cost estimates to go haywire. There is always the danger of costs getting underestimated. Although this is true in any scenario involving decisions regarding costs, particular care should be taken when estimating such unpredictable costs in outsourcing.

When making a decision to outsource, a business should be able to figure out exactly how much it is willing to loose control, as loss of control is a major factor in outsourcing. This is simply because it is harder to manage the Outsourcing Service Provider compared to managing one’s own employees.

One major disadvantage of outsourcing is that it can prove to be a threat to the security and confidentiality of the business. For example, if a business decides to outsource the payroll function, there is the threat that the service provider may gain access to confidential information and the business may well decide not to outsource the function specially if the service provider also serves the business’ rivals. Such confidentiality risk may be minimized by providing for them in the contract, but the risk never gets eliminated and remains very much there.

Loss of internally generated talent is another problem that can result from outsourcing. Outsourcing may hamper the growth of an employee by depriving him/her of the chance to acquire experience and skills that would have come by managing the business aspect by him/herself instead of contracting it out to another party.

Thus, before a decision regarding outsourcing some function is reached by the management, all the factors should be thoroughly considered so that the management may reach a decision that is fruitful to the business in every aspect and may not, in reality, hurt the interests of the business.

The G8 countries have pledged their commitment for development and poverty alleviation in Africa by committing to write off $40 billion of bilateral debt. The initiative is commendable, but far more needs to be done as the promised amount to be written off amounts to just about one – sixth of the amount of debt that Africa owes. Further, this relief is only targeted for 18 such nations which lack much economic potential and which cannot be called engines of economic growth in Africa. Another aspect that causes this action to become dubious is the lack of foresight and will on the part of the leadership of the developed world, which remains mired in more rhetoric than action.

Tony Blair and Gordon Brown may have worked real hard to get their concerns, regarding Africa, across to the rest of the leadership of the developed world, but chances are that the G8 summit next month at Gleneagles may well again prove to be a rhetoric and useless with respect to solid action. There are already signs that this might happen as the G8 leaders find themselves already preoccupied with issues which may distract them from the real issue of poverty alleviation and development.

US President George W. Bush has had a shaky start with his second term and his nation’s restlessness with the Iraq War is increasing day by day; the atrocious war in Chechnya and the imprisonment of Yukos boss have cast dark clouds over Russian President Vladimir Putin’s tailored suit of democracy; French President Jacques Chirac’s domestic standing is falling since the resounding ‘no’ to the EU constitution by his nation; political problems are being faced by the German Chancellor too; Japanese Prime Minister Junichiro Koizumi is seeing his claim of being the representative of Asia, thwarted by China whose rising power has bore a fruit in the shape of an invitation to President Hu Jintao for attending the Gleneagles summit. Moreover, the G8 summit is expected to remain bogged down in talks relating to the Iraq War and Iran’s nuclear ambitions thus, putting issues like reassessing the CAP to the backstage.

There is talk of increasing aid to the poor nations specially those, which belong to Africa. However, there are many negative externalities (borne by the recipient nations) that are related to aid. Therefore, instead of increasing the quantum of aid to the underdeveloped and poor countries, it would be more desirable if the developed world acted to provide greater market access to the underdeveloped and poor countries by reducing barriers to trade. This measure would certainly go a long way towards the goal of poverty alleviation and will be a much stronger manifestation of the seriousness of the leadership of the developed world towards realizing this goal. Further, if the rich countries do really want to help the poor countries, they should work upon projects that enhance the quality of governance in these countries and which seek to empower the local population. These would be the measures that would in reality, help poor countries to come out of the poverty trap.