Doing business out of the Third World
Salman Rahman had to fight corruption, nationalisation and a cripplingly poor infrastructure as he established Beximco in his native Bangladesh.
What do you do if you want a fax machine for your office? You get 113 signatures from various government departments, and permission from the security service. Sound absurd? That’s how it was in Bangladesh 20 years ago, when Salman Rahman was in the process of building his business empire with his brother Sohail.
As he says, most things have improved significantly since then — although you still can’t rely on electricity, gas and water supplies. But that has not stopped him and Sohail from building one of the most successful enterprises in Bangladesh — the Beximco Group.
Just over a week ago, Rahman, vice-president of the group, took the step of floating one of its subsidiaries, Beximco Pharmaceuticals (BPL), on AIM for a total value of £12m. BPL made a £3.3m profit before tax last year on sales of £23.5m. The first Bangladeshi company to quote on the junior stock market, Rahman was excited, as was the whole gaggle of journalists he had flown over from his country. The stock exchange had never seen such a huge bunch of enthusiastic reporters.
A couple of hours after the traditional ringing of the bell, Rahman was happy to talk about the float, the beginnings of his business empire, and his dabbles in politics and scandal in the distant country of Bangladesh.
You have just floated on aim, how do you feel?
Very happy. It will give us a very high profile. Our big problem is that the country image of Bangladesh is such that you think of floods, cyclones and poverty. In that kind of situation, your credibility is affected. So if you are able to say you’re quoted on AIM, it’s a certificate that takes away the image and credibility problems.
What does Beximco do?
It is involved in pharmaceuticals. We specialise in the manufacture of generic medicine, which includes producing drugs already patented by multinational companies for a cheaper price. The WTO made it legal in January for nations with the least developed country (LDC) status to produce and sell generic patented pharmaceutical products to the other 53 LDCs. In Bangladesh, the entire market is generic, and we have about 8 per cent of the market. Whenever a patented product comes out, we very quickly reverse engineer that product and launch it into the Bangladesh market as well as exporting it to other LDCs. We also specialise in manufacturing drugs whose patent has expired. An off-patent product can be sold to developed countries as well as LDCs. We currently manufacture under contract with GlaxoSmithKline and Novartis.
How did you and your brother set up Beximco group?
My father was the first commerce minister of Pakistan, but he fell out of politics, and decided to set up a very small jute mill. This was when Bangladesh was still East Pakistan. He died in 1966 in a car accident when I was 15 and my brother was 21. I was in college, my brother was at university, so he took over the running of the jute mill and when I finished university I joined him. By then, East Pakistan had become Bangladesh, and the first government of Bangladesh nationalised everything, including our jute mill. So we were back to square one. We started barter trading. We would export shrimps, jute and so on, and import pharmaceuticals, pesticides. That’s how we got into this business. When the government changed, and the private sector was allowed to go into manufacturing, we got our jute mill back. We had a relationship with Bayer and Upjohn, so it was natural to set up a pharmaceutical plant.
Beximco Group is involved in a lot of different areas – What are they?
We are involved in textiles, which is the biggest part of our business — 50 per cent. We are the largest vendors to Zara and we also supply Gap, Levi’s and JC Penney. In fact, we expect to float that part of the business on AIM in nine to 12 months time. We are also in the ceramics business. If you have flown British Airways, the cup is made by us, although not in economy class.
We are now trying to consolidate and get into our core businesses. We have identified textiles and pharmaceuticals. In Bangladesh, we are strong in real estate and IT – in fact, we are now the largest internet provider domestically.
You’ve also been involved in politics?
In the 1996 election, I fought as an independent candidate to become an MP. In 2001, I joined a political party and ran again. But I lost both times. The political party I joined was in power prior to the election, so they are now in opposition. I got involved initially because I was very active in trade politics.
You were involved in a shares scandal in 1996?
Yes. In 1996, the stock market rose at a very quick pace, and as that happened, an illegal side-market developed. At that time, shares were still traded manually, and a lot of forged scripts came in, including Beximco shares. Of course, the market came down with a bang eventually. A lot of small guys were hurt, and they found out about the forged scripts.
The government set up an inquiry, and about 30 companies and more than 60 brokers were involved — about 80 per cent of the market. That included Beximco. The charge against us was that our share price went up and then came down. They assumed we had manipulated it, but there was no proof. It went to the Supreme Court, but it’s now 10 years and nobody has.
What is it like doing business in Bangladesh?
It’s very difficult, mainly because of the infrastructure. We never know when the electricity supply will shut off. Power generation and distribution has always been a government function. So every single unit of ours now has a captive power generation plant, because if we were to rely on the government-supplied electricity, we would go bankrupt.
The other infrastructure problem is the physical road communications. It’s very difficult to ship goods out, and get the imported goods in, because there are not enough roads. There is a lot of traffic there and the roads are not repaired in time.
To some lesser extent, you have the problem of corruption. But for large groups like us, it’s not so much of a problem. It’s easier to push the small guy around than the big guy. Of course, in the early days for us, it was very hard. But it’s improving. The reforms are taking place.
How hard was it before the reforms were put in place?
Let me give you an example. In the old days, to buy an airline ticket, we had to go through the Central Bank. For every single ticket we bought, they would give us foreign currency. So they would determine that if you were going for ten days, they would give you $15 a day. We would say that the minimum for a hotel is $30. They would calculate that into takas, and they would say that was impossible because it was their salary for the whole month. So they would give us $15. That’s how hard it was, but it’s changed now, luckily.