Shuja Nawaz: Thank you very much Emily, and thank you to the organizers, particularly the Atlantic Council and SAIS, for having invited me to join this session. I am delighted to be with Ghias Khan, the President and CEO of Engro Corporation. I’m delighted because I hope to learn a lot from him along with the rest of you, and find solutions to many problems that this conference has already identified. Now it has been said about Pakistan that it is perhaps one of the most overdiagnosed countries in the world. Everyone knows what’s wrong and everyone wants to do something about it, but for some reason it doesn’t get done. I think Ghias Khan is in a position to change that. He’s in a position because of his location. So, I thought it would be interesting to hear from him first a little bit about where Engro is situated within the Pakistani context and how that then can relate to Pakistan’s relations with the United States as well as other parts of the world. So can you tell us about Engro which the original name doesn’t fully capture the width and the breadth of your activities.

Ghias Khan: Bismillah Hir Rahman Nir Rahim and greetings to everyone over here. It is an absolute pleasure to be in DC for this event. To be partnering with of course Johns Hopkins, the University of Lahore, and of course the Atlantic Council, so thank you very much for giving us the opportunity to be at this event. Thank you very much Shuja sahab for that kind introduction. I will do my best to make sure that whatever we share today, whatever I say today, is useful in context of the dialogue that we have been having and some fascinating conversations that we’ve had over the past two days. I think that keeping in view the topic, it is important for me to give a little bit of background of where Engro comes from, because it is very relevant to the discussions that we’ve been having for the past two days. 

I’ll take you back into the late sixties, that’s when Esso from the United States came to Pakistan, discovered natural gas, and put up a fertilizer plant. Esso later on became Exxon Chemicals. And it was in the late eighties when Exxon decided to exit from all of its fertilizer businesses and then ended up selling its stake in Exxon Pakistan to the employees who worked in Exxon at that time, and this was in 1991. And that’s how Engro was born. It was the first management buyout in the country where the management led by late Shaukat Raza Mirza, put together a consortium backed by financial institutions, I believe IFC was one of them, and bought the shares of the company from Exxon. And then over the next thirty years the company has gone from just being a very small size fertilizer company to a diversified conglomerate. We now have interests in better chemicals, and energy, and infrastructure in food, and in telecommunication infrastructure. So the point I want to mention over here, which is worth mentioning in this event, is that all the learnings that we got from Exxon being our partner, played a huge role in the growth of the company. And it is worth mentioning because that is a very common feature that Pakistanis have experienced with American partners as opposed to others, and this is deeply appreciated because everything that we learned as an organization from Exxon became the platform on which this company has then built itself to where it is today. 

Moreover in the late nineties, when the sponsor shareholders of Engro changed, so Mr. Hussain Dowd, who’s the current chairman of the company, who has been the chairman since 2006, he led the Dowd Group in a quiet majority or a sponsor shareholding in Engro, and what’s equally worth mentioning is that Dowd Hercules was the company which was used, or which acquired the shares in Engro. And again that is a joint venture between the Dowd Group and Hercules which is an American company. So that was the background, now in terms of where we are today, in our fertilizer business because that’s the original business, we have a capacity of around 2.2 million tons, and just by way of comparison, thirty years ago this was about 250 thousand tons. We’ve got a PVC Polyvinyl Chloride, a caustic facility in partnership with Mitsubishi that’s located in Pakistan, in Karachi, in port Qasim. We’ve got partnerships with the Royal Opac, a Dutch company in for an LPG and a Chemical terminal and an LNG terminal. We’re partnered with FrieslandCampina, as you may have heard in the previous discussion, in the dairy business. We’ve got a rice processing plant. Three years ago we established a tower-sharing business, to the likes of American towers. Just to make you familiar with that business. We’ve got, you know the company is really planning on doing a lot more. Our core focus really is towards solving some of the most pressing issues that Pakistan is facing right now which Moeed articulated really well. You know, solving for our external account, whether it’s through import substitution or whether through exports is really the core focus. We’ve had tremendous success in the businesses that we’ve done. And another thing that we are now looking to do is to expand our presence beyond Pakistan and working with some of the partners that we’ve been quite successful with within Pakistan and now looking to establish international presence.

Shuja Nawaz: Thank you. I’d like to go into some of the specifics that you’ve mentioned about Engro and its operations maybe a little later. But keeping to the higher level initially, can you give us your sense of the US-Pakistan commercial relationship over the last sixty odd years. You’ve already taken us back to the Clinton years when Engro came into being, but what has been the characteristic of this relationship in your view?

Ghias Khan: So we’ve got about eighty companies, which are US companies which are operating in Pakistan right now. You’ve got the likes of Coca Cola, PepsiCo, KFC, you know, Pizza Hut, and you know in terms of other consumer sector, Proctor and Gamble, oil companies, so there’s a host of companies that are represented in Pakistan, and they’re doing well. And I say this because I’m also the president of the overseas investment chamber of commerce. So there are about two hundred odd multinational companies that are part of that platform. And over the last few decades, these companies have done very well.

But you know, you raise an important point that how has this relationship evolved? And I believe the unfortunate part is that it has taken a backseat to the government to government, and the defense to defense relationship that has sort of overpowered everything else when it comes to US-Pakistan relationships. And I think that’s a point Moeed covered really well in his talk. There is a lot more that we can do, and I also want to talk about the people connection here. So we’ve got roughly about seven- to eight-thousand odd students who are always studying in universities in America. 5 percent of your doctors, foreign doctors, are of Pakistani origin. If you look at what we call “training grounds” in Pakistan, you know organizations like CitiBank, so there’s a lot of talent that has been produced through those companies, whether it’s CitiBank, whether it’s Proctor and Gamble, and those people have gone and done bigger things in other parts of the geography. So I think the relationship between US companies and Pakistani companies has been very productive, it has been positive, it has added value to both sides, but unfortunately we have not been able to take it to the next level. We have not been able to grow it further. And that is why we are here.

In some ways, a point that was made earlier in the panel discussion about the indifference of the United States towards Pakistan, I think that is an opportunity, I don’t think about that as a negative. Pakistani companies should be provided a level playing field, that’s all that we’re looking for. We’re not looking for any handouts as a country, we’re looking for a level playing field. A point that was made by the CEO of TRG yesterday, Mohammad, that it takes him five times more effort with customers if the outsourcing opportunity is to Pakistan versus Philippines, or versus China, and it’s all because of the image that unfortunately Pakistan carries with some of the business community here. So if we are to rewrite the policy framework between the US-Pakistan relationship, then this is an opportunity for us to keep business first. Because if Pakistani companies are given a fair opportunity to work, I believe there are opportunities in Pakistan which will make commercial sense for various companies in the United States.

Shuja Nawaz: But when you describe the US investors that have done well in Pakistan, most of them tend to be in the consumption area of the economy. Why not in export orientation? What’s holding that back?

Ghias Khan: So I think the first question that we’ll need to ask ourselves, and unfortunately that’s just the lay of the land and again as Moeed pointed out, we’re not exactly trading with our neighbors right? So when you expect, if you were to expect the US to come and establish export-oriented businesses, we have to give them markets where they can export to. So I think that’s a fundamental point, but having said that, I think there are still opportunities out there. So agriculture is one. We’ve got the entire Middle East, the Kingdom, as well as other countries who are looking to secure themselves as far as food is concerned. We’re in dialogue. I was at a summit recently held in Riyadh, and they’re extremely eager for Pakistan to be one of the solutions as far as their food security is concerned. You heard about the problems that the agriculture sector in Pakistan is facing in the previous discussion. But that is an opportunity for US companies to come to Pakistan and then serve a larger market, if not India or China or Afghanistan, but why not the Middle East?

And then of course, it’s up to us, the private sector in Pakistan, to work with US counterparts and then to take that forward to the government for the change of laws and regulations that may be required. So, I think if we look deeper, I’m not going to go into more opportunities or more details, but this relationship can move from just a consumption driven sort of investments within Pakistan to exports as well. But what we need to keep in mind is the fact that it’s the commercial interests of US companies which will remain supreme. If we do have to open up our borders for the consumption oriented businesses to come in, then so be it. There will be technology transfer, there will be development of human resources, something that we’ve seen, I think Engro is a very good example of that. So we should not shy away from consumption driven businesses, I think that’s the first step. We are a market of 220 million people, and I think that’s one of the things that we should bring forward to US investors. Once we do that I think more opportunities will follow.

Shuja Nawaz: It’s interesting that Engro is in some industries that are seen as detrimental to the environment, like coal. Is it possible for Engro to get into the same mold as Mr. Adani across the border in India where he is capitalizing on his access to coal and using the energy in order to produce solar panels? Is that a possibility where greater opportunities could exist, or partnerships, with the United States and perhaps with China?

Ghias Khan: Great question you’ve asked. Allow me to answer it because there are multiple dimensions to it. So number one, just keep in mind that we as a country have contributed only 0.4-0.45 percent in terms of carbon emission, even though the population is around 2-2.5 percent of the global population. The question is not whether Engro or Pakistan have started using local coal since 2019, the regret is why didn’t we do this earlier. And why do I say that? I say this because had we started in the mid-nineties, we would have ended up saving $5 billion a year in terms of imports, those precious dollars. And if I look at the current account deficit over the past ten years, it has been $5 billion. So, just like the US, we are also very clear. Our sovereignty comes first. I want to be very very clear about that because the impact that importing 70 percent of the energy has had on Pakistan’s economy has been catastrophic. And hence in the list of priority, I would say that economic sovereignty is number one, and for that using local resources is important.

Coming to the second point, because we need to play our part in terms of exports, and when I say we, I’m talking about Pakistan, not Engro. We also need to understand, what does it take to become globally competitive. And following the right standards in terms of ESG is not a “nice to have,” it’s become an imperative, and hence if we are to sell our products and services to the rest of the world, we have to be mindful of those standards. So what I’m trying to tell you is that we have to make a balance, that we have to strike a balance, between what we need to do to achieve that economic sovereignty and then what we need to do in order to compete at a global level.

Shuja Nawaz: So what are some of the future industries that you see where there is scope for collaboration, especially the US?

Ghias Khan: So I think the low-hanging fruit is definitely in agriculture. We’ve got history to prove that, right, and again I’ll take Engro as an example where a fertilizer plant was set up, and that brought about a green revolution in Pakistan. Now obviously the mode in which we can improve the yields and the interventions that will be required will be very different. Whether it’s on the seed, whether it’s in terms of giving access to financing to farmers through technology solutions. Whether it’s building those coal chains, whether it’s giving more market access, there are a number of interventions that are required. But so, agriculture is the low-hanging fruit where both countries can collaborate. I was very happy to hear Ambassador Bloom also make the same comment. Because he has also identified, last week at an event, agriculture as the industry where Pakistan and US businesses can potentially work together. The other is IT services, which Amer spoke about yesterday. We’ve got 150 million people below the age of thirty. Pakistan is the fourth largest English speaking country in the world. There is tremendous room for growth. Not just for Pakistani businesses in terms of setting up export-focused IT services outfits, but I think it’s also important to mention that it’s also very useful for US companies to diversify their base. And Pakistan can be a very credible geography for them to establish another supplier base when it comes to IT services. So these are the two which are absolute low-hanging fruits where the businesses in the US and in Pakistan can work together and bring about the necessary legislative changes to help these industries grow.

As we look forward a bit, there are a couple of other real opportunities. We’ve got a lot of lithium reserves in Afghanistan, we’ve got copper reserves in Pakistan, and those are the two minerals that are really required, inputs that are required, key inputs for making batteries. Do keep in mind that India and China will be consuming about 50 percent of the electric vehicles in the world. So here is a real business opportunity. And what I really want to emphasize over here is that we’re not talking about handouts. We are talking about commercially viable opportunities for US businesses to consider in Pakistan, as long as they can wipe the slate clean, whatever’s happened in the past, and we’re very eager to do that as well. And a message needs to go out to those US businesses that Pakistan is open for business. Because at least I’ve had a number of interactions with a lot of companies over here, where they’ve liked the project, they’ve liked the company that they’re working with, but Pakistan’s been an issue. And that is the only thing we need to address over here or request the US government to address. That it’s not about having a very elaborate policy, the indifference can continue, as long as you have a level playing field with that indifference

Shuja Nawaz: Let me go back to something that you said earlier when we were talking of US-Pakistan trade. You say Pakistan doesn’t trade with its neighbors. Well, economics 101 says trade with your neighbors. So what is the business community in Pakistan doing to change that situation?

Ghias Khan: Look, the business community, as much as I’ve experienced, is advocating for trade. But it’s a complex subject, right? When you’re neighbors with India, Afghanistan, China, and then with the US looking over, it’s not an easy subject, it’s not an easy problem to solve. And I’m not a foreign policy or a national security expert, but I can tell you that if trade opens up with India, net-net we will be the beneficiaries. Because there are lots of businesses in Pakistan who will have access to a billion people, some of our businesses will struggle, but that’s part in parcel of the game. It will help us sort of narrow down to our competitive advantages, comparative advantages also, and then focus on those. So the business community is advocating it, but then again, this is a larger national security and foreign policy question which I don’t have the expertise for.

Shuja Nawaz: Well, we do. And so let me refer you to some work that has been done by the Atlantic Council. Over the last decade plus we’ve had people share their research with us including Mossain Khan who used to be in charge of the Middle East and Central Asia Department at the IMF. And that research indicates that if Pakistan and India go back to trading at the same levels as they did at the time of partition in 1947, trade between India and Pakistan would be of the order of $40-100 billion. Then we had a study published by Ishrat Hussain, in which he did a sector by sector analysis, and it showed which sectors in Pakistan would benefit, and in almost all cases, Pakistan would benefit first. Because for international policy, for trade, for economics, it is as you said, enlightened self interest that guides and should guide decision making. So perhaps this is an area where I would like to hear more about interaction between you the businessman, and you representing the international investors of Pakistan, and the government of Pakistan. What have you done or are you planning to do to change their mindset on opening borders to travel as well as to trade?

Ghias Khan: So, we would like to go one step at a time. So there is a lot that we are propagating to change within Pakistan. Fundamentally, we are propagating for privatization, deregulation in the key sectors, energy being the biggest of them. Obviously for those people who are not aware, Pakistan is engulfed with a circular debt when it comes to the energy sector, which is a big drain on our already limited fiscal pool. Considering our tax to GDP is only 10 percent. 

Shuja Nawaz: Let me just interject for the audience. The circular debt of Pakistan will hit 4 trillion rupees in 2025, that’s just around the corner.

Ghias Khan: So, obviously in terms of priority, the business community also has its set of priorities that it gives to the Pakistani government, privatization, deregulation of key sectors particularly energy, is one of them. Representing the multinational companies in Pakistan through the OICCI, ease of doing business is the other. And then a taxation regime which is fair. So there’s a lot of work that needs to be done in that area also. But as a company, as a business body, whenever we’ve gotten the opportunity, we do push for trade, but like I said, this of course is a sensitive subject and lots of stakeholders involved. 

Shuja Nawaz: When investors look at Pakistan, they look at an economy in a state of disarray, an economy that is growing fat on subsidies. You’ve mentioned the public sector enterprises for instance, which include both civil and military enterprises. They require something like a trillion rupees of grants a year, and about 664 billion rupees in subsidies every year. So what is stopping the government from privatizing? Every government talks about it, but if you’re going to create the atmosphere for investors to come in, isn’t this an opportunity?

Ghias Khan: Yes, and we’ve had really good results of it as well. If you go back to the nineties and look at some of the examples in the banking sector, whether it was Habib Bank, United Bank, or MCB, they were all privatized and look where they are today. They progressed a lot further and now are fueling the growth of both the corporate and the consumer sector. There is an example of the telecommunication sector where PTCL (Pakistan Telecommunication Limited) used to be a monopoly, it got privatized, the market got deregulated, and today you’ve got four players, and at the end of the day it’s the customers who are benefitting from it, also the government in the shape of higher tax.

Clearly there are examples, even in the case of, I would say, K-Electric in Karachi. It got privatized and service delivery to consumers of Karachi has improved. So this is a formula which has worked time and again, not just in Pakistan, but all over the world, so we need to do it. Now why do politicians become a little shy of it? Because it leads to private investors coming to those businesses who want to bring about efficiency, and it leads to potential right-sizing of those organizations and some measures that will perhaps be perceived as unpopular in the short term as far as the World Bank is concerned. And unfortunately, these are the things that weigh-in on the minds of the politicians when they come into power as opposed to the longer-term benefit of the country. So, I would say that it’s a short-term gain for long-term loss. As a result of which, deregulation and privatization in particular, privatization in particular has been put on the back seat.

Shuja Nawaz: I think you’ve put your finger on it, because politicians think in terms of the next election and it’s the statesmen who’s thinking in terms of the next generation, and maybe Pakistan is looking for the statesmen and stateswomen to make these changes.

Ghias Khan: And it’s not just privatization and deregulation. I think there are other issues of documentation of the economy and expansion of the tax base, and increasing our tax to GDP to at least 15 percent. And again, those require a set of changes and regulations which may not be very popular in the short term. So I think the need of the hour is to, and you know, I’m going to use the same term which has been used multiple times, to have that consensus on some basic measures that we need to progress as far as our economy’s concerned. Now, whether you call it charter of economy, or any other word, that becomes really critical. When it comes to deregulation, privatization, increasing the tax base, increasing our tax to GDP, documentation of the economy, increasing exports, building off special economic zones. These aspects of the economy should be completely separated from politics. So that whoever comes into power follows through with the same plan because it’s essential for Pakistan to now make that shift and do whatever is right for us as a country, as an economy, in the longer term.

Shuja Nawaz: And from what you’re describing, they run up against a major obstacle which has been identified as elite capture in Pakistan and in other countries where both civil and military elites basically decide on what’s good for them and then proceed. So how can we change basic policies, say you talked about agriculture, how can improvements be made in irrigation for instance, and bring in foreign investments for that? How can improvements be made in agricultural production for export-oriented goods and materials? What is being done there, and what more needs to be done, particularly from the private sector? 

Ghias Khan: I have three roles to play. One is whichever business Engro runs, make sure it runs well. Represent the country at these forums, and then go vote. And I’ll stop there, right, what the government needs to do and how it needs to handle the civil-military relationship and all, is way beyond my scope, and I think it’s a good idea for us to do what we’re meant to do, and those are the three things that I’ll sign up for.

Shuja Nawaz: But if I heard you correctly, you said you vote.

Ghias Khan: Absolutely. Who, I won’t tell.

Shuja Nawaz: In this country we are a week away from voting, and I’ve already voted, so I’m slightly ahead of you on that. As voters, I think the business community owes it to itself to help change what is not being changed. Where successive governments have made promises that they’ve failed to keep. So as a result you have cartels, like the sugar cartel. Energy also, you have favored players. You talked of import substitution, that is the same that afflicts a lot of countries. Turkey, for instance, since I study the military, Turkey had enormous import substitution in the defense industry, and then they discovered it was costing them multiple times what they could import those things for and so they stopped it.

But Pakistan persists. I was given an example by former chairman of POF who said that in those days, the G-3 rifle, there was a washer that they were making themselves that costs 25 rupees, and they could have imported it from Malaysia for 5 rupees, but because they wanted autarky, they chose to. So there are different reasons for security and strategic reasons that import substitution takes place. So my question I keep coming back to this is, as partners in the Pakistan political and social scene, what can the business community do much more to become more organized and to turn back the clock on some of these activities?

Ghias Khan: So, what we need to understand, and it’s easy to use these terms like elite capture and cartelization and all, but we have to understand one thing very clearly. Which is that capital will flow to those opportunities which give the best risk adjusted return. Now if there is a government policy which allows you to set up an independent power project and make a 15, 17, 18 percent dollarized return, then expect capital to flow to that opportunity. Don’t blame the investor who is investing in that opportunity. If you have to blame, blame planning, long-term planning of energy, blame the people who have written the policy, don’t blame the investor. Because investors will put their money in an opportunity which gives the best return, similarly for fertilizer or automobile.

So what we’re trying to propagate as a business community, coming to your question, is to convince the government to come up with policy frameworks which allow investment to go in the productive sectors. And I think that’s where Pakistan is lacking. Because if you look at the taxation regime of the manufacturing sector in Pakistan, it is well over 50 percent. At the same time, if you look at real estate and if you hold it for four years, it’s zero on capital gains. So, clearly, where is the money going to flow? The money is going to slow the unorganized sector or the unproductive sector, and that should not come as a surprise. So, at the end of the day, the responsibility lies with the state to come up with policy frameworks which work for the economy and the country in the longer term and attracts capital to the productive sector enhancing export and what have you. While and once we have those policies in place you will see capital flow to those opportunities. Unfortunately, what we end up doing is we start blaming investors and elites and what have you, cartels. There is a competition commission in place, there are agencies in Pakistan to catch white collar crime, let’s not confuse these two things. But if there is a written down approved policy which allows companies to invest and make an “x” return, then that’s how it will be. It’s the job of the government to fix the policy framework in a way that investment goes into the productive sector. 

Shuja Nawaz: And I think a lot of people in Pakistan would agree with what you’re saying. The question still remains, and I think you’ve identified it yourself about unproductive expenditures.

Ghias Khan: If I may come back to what you’re saying, sorry, maybe I didn’t completely, we’re in the fertilizer business. Let me give you a few examples. We’re going to the government and saying take away our subsidy. Take away our subsidy and remove any sort of pseudo price controls on the price of fertilizer. We can compete with imported fertilizer and completely deregulate the sector. We’re developing a power project in Pakistan right now which is where we plan to sell power produced through a hybrid wind and solar project which we’ll sell directly to customers. So, in terms of the stance that at least Engro is taking and that a lot of other businesses are taking, we’re going to the government and propagating for deregulation. So that’s very much happening.

Shuja Nawaz: I think that answers my question because that is part of what voting means, that you’re using your influence within Pakistani society. When you talk to potential American investors or other foreign investors who are interested in looking at Pakistan, what are the two or three things they say matter most to them when they look at the country? 

Ghias Khan: So, ease of doing business, security, and currency stability. I would say, and the security situation has improved a lot in the last few years and that concern is probably the lowest amongst the three. But foreign investors who are obviously investing in the country in dollars get concerned with the pace of devaluation. Because obviously as someone who’s sitting in the US has multiple options of investing in different geographies. When you talk about Pakistan, and if the currency has lost about 40 percent of its value in the last twelve months, that’s obviously a very, very challenging aspect. And the third would be the ease of doing business in terms of our taxation policies, in terms of repatriation of dividends, in terms of provincial and federal laws and so on and so forth. So these are the three major concerns.

Shuja Nawaz: What about political stability?

Ghias Khan: I think that political stability does play a part, but when surprisingly, when a lot of investors are looking at Pakistan they’re looking at a developing market. And what we are defining as political instability, it’s happening in a lot of other countries. So I think the investors are smart enough to deal with an environment which has political instability in it. But political instability should not flow into economic instability all the time as it does in Pakistan’s case. So, if we have the basic economic principles and rights, then I think investors will be able to handle the political instability. It’s the economic stability that matters more. 

Shuja Nawaz: Thank you. I’m looking at the clock, and before Emily comes to the stage and pushes us off, I think this may be a good place to stop our conversation, although the conversation will probably continue in the corridor after this session ends. I’m very grateful to you for your frank and forthright answers, and I’m very grateful to the audience for having stayed with us beyond lunch, and not having fallen asleep on us which is what often happens in the first post-lunch session. But again, my thanks to the University of Lahore, SAIS, and to the Atlantic Council, for inviting us to have this conversation. 

This fireside chat took place on Tuesday, November 1st at the 2022 Conference on the Future of the US-Pakistan Relationship, hosted jointly in Washington, DC by the Atlantic Council’s South Asia Center, the Engro Corporation, the University of Lahore, and Johns Hopkins University School of Advanced International Studies.

View the fireside chat here

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