Finding Opportunities in Post-9/11 Pakistan
Growing Economy Sparks Return of Capital, Expertise
By John Lancaster
Washington Post Foreign Service
Monday, February 17, 2003; Page A27
LAHORE, Pakistan -- Terrorism, nuclear threats, a history of political turmoil and military rule -- when it comes to scaring off investors, Pakistan seems to have covered all the bases. Unless your name is Zia Chishti.
A U.S.-born Pakistani American entrepreneur who made a fortune in Silicon Valley while barely out of Stanford Business School, Chishti, 31, is now devoting his energies to building a new call-center company here that provides telephone services -- such as taking orders for merchandise -- for businesses in the United States.
So far, the bet is paying off. Operating from a seventh-floor office in this ragged, energetic city of 5 million people in Pakistan's Punjab region, the company uses satellite and fiber-optics technology to handle customer calls for about 50 U.S.-based clients, including a major newspaper and a toy company. (Chishti asked that the clients not be named, citing confidentiality agreements.) Chishti's call-center company, the first of its kind in Pakistan, employs about 150 people and is soon to be listed on the Karachi stock exchange.
"I've always had this glimmer in my eye about looking for opportunities back here," said Chishti, who wears his hair in a ponytail and divides his time between Lahore and Sunnyvale, Calif. "The business opportunity here, in my view, is unparalleled."
Or at least worth looking at. Despite Pakistan's reputation as a hotbed of Islamic radicalism, its economy is projected to grow this year at a respectable rate of 4.5 percent, according to a government estimate accepted by the World Bank. Tax revenue is up, interest rates are down and government debt is slowly shrinking. In perhaps the best indicator of the bullish sentiment that pervades financial circles in Pakistan, the Karachi stock market last year shot up by 112 percent.
Pakistan's economic potential has long been thwarted by factors common to many developing countries, such as over-regulation and losses by inefficient state-owned industries. Its problems have been compounded by pervasive corruption, feudal landholding patterns -- which have aggravated rural poverty -- and hostile relations with India, which have diverted resources from social development to defense.
The country's improving financial picture is in many respects a reflection of fiscal austerity measures, such as cuts in food subsidies, imposed by the military government of President Pervez Musharraf, according to economists with international lending agencies. "Pakistan has turned around a deteriorating macro[economic] situation of a few years ago to a rapidly improving one," the World Bank noted in a December report.
The turnaround also reflects financial assistance provided by the West in return for Pakistan's support in the war on terrorism, as well as several unanticipated benefits of that war. For example, because of a global crackdown on the informal hawala system of money transfers, which has been linked to money-laundering by suspected terrorists, Pakistanis working abroad are now sending their money home by conventional banking routes, financial experts say. That has helped boost foreign currency reserves to a record $9.5 billion.
"September 11 did a great service to Pakistan," said Ishrat Hussain, Pakistan's central bank governor.
A related development is the partial reversal of capital flight. According to financial experts, Pakistanis who once invested most of their money abroad increasingly are looking for new opportunities at home -- either because they no longer feel welcome in the West or in some cases because they fear their assets could be frozen in terrorism investigations. The downturn on Wall Street has only reinforced this trend by making investments in Pakistan look more attractive -- particularly to Pakistanis, who tend to be more tolerant than foreigners of risks associated with their country.
Hussain said that while the amount of Pakistani investment money being repatriated is "hard to pin down," he has no doubt that it is happening and estimates that Pakistan will recapture $500 million in overseas assets in 2003.
Money isn't all that's returning. Though the evidence is mostly anecdotal, there are signs that Pakistani professionals and businessmen living in the United States and other Western countries are also beginning to return home. They come because they sense opportunities and also because they fear discrimination as citizens of a country regarded as a spawning ground for terrorism, said Ali Ansari, chief executive of Aqeel Karim Dhedhi Securities (Pvt) Ltd., a major Karachi brokerage firm.
Ansari, whose firm recently introduced online trading, said that in the last several months he has received "a couple of dozen résumés" from Pakistani investment professionals in the United States. "The biggest benefit is not the dollars," he said over chips and salsa at Karachi's trendy Arizona Cafe. "The biggest benefit is we get 10,000 educated, influential people back."
He added: "If we had asked God to design a scenario for the salvation of Pakistan, we couldn't have asked for more."
Salvation is still a long way off. The vast majority of the 142 million people in this troubled, impoverished nation have yet to reap any real benefits from the turnaround. That is because most of the wealth returning to the country so far has been sunk into speculative investments, such as the stock market or real estate, rather than into factories or other large-scale projects that create jobs. Experts say most Pakistanis won't start to feel any significant improvement until growth reaches 6 percent -- something that is not expected until next year at the earliest, and then only if war in Iraq does not produce energy shortages or other unpleasant shocks.
Against that backdrop, Chishti, the call-center entrepreneur, is very much a pioneer.
Born in the United States to a Pakistani mother and an American father who converted to Islam, Chishti returned to Pakistan at the age of 2 when his father died. He attended the Lahore American School, then went on to Columbia University in New York, where he studied computer science and economics. After several years in investment banking, he attended business school at Stanford, where he developed an idea for a new product: clear-plastic teeth straightening devices.
Operating out of his dorm room, he founded a company, Invisalign, to manufacture the devices -- a process that relies heavily on three-dimensional computer modeling. To save labor costs, Chishti "outsourced" the modeling to Lahore, where he hired workers based partly on their ability to play the computer game Doom. The company went public and soon had annual revenue approaching $100 million.
Then came Sept. 11, 2001. Panicked at the idea of staying on in the country, the company's board insisted -- over Chishti's strenuous objections -- on moving the Lahore operation to Costa Rica. Chishti, who has since left Invisalign, described the pullout as "a horrible business decision" that left him with "a flaming ash-heap situation" in Lahore.
But out of the ashes has emerged a new company, the Resource Group, which Chishti and several Pakistanis -- two of them Harvard Business School graduates -- founded with $10 million in home-grown capital. (Chishti contributed $1.5 million.) To get things started, they acquired a controlling interest in a Los Angeles call-center company, Alert Communications, and began handling some of its clients through the same facilities previously used by Invisalign.
Such call centers are already a huge business in India, and Chishti's company follows the same approach. Its employees are coached to speak slowly and to identify themselves with names like "Bob" and "Elizabeth" to put American customers at ease.
Describing himself as a cultural straddler who is equally at home in Pakistan or California, where he likes to watch "The Simpsons" and ski at Lake Tahoe, Chishti insists that his investment in Pakistan's future is premised on sound business judgments. But he admits that personal factors also have come into play. "It's just kind of a salmon instinct," he said. "You're swimming upstream to where you started."