FORTUNE -- Social and political turmoil tops the headlines coming out of Pakistan. But for billionaire Mian Muhammad Mansha, the untold story lies in the country's rich, untapped business opportunities. He should know: Widely regarded as Pakistan's wealthiest man, Mansha, 64, has built a vast and diverse empire, beginning with a single textile mill. Today his Nishat Group, Pakistan's largest business conglomerate and private employer, with $2.1 billion in sales, encompasses banking, cement, textiles, and energy. The following are edited excerpts from a January interview with Fortune in his Lahore offices and, later, by phone.
Q. How did the Nishat Group get started?
A. After partition [my father] moved from Calcutta and established a textile mill in Faisalabad, the big cotton-producing area in Pakistan. Unfortunately, he died at the age of 50, when I was only 22 years old. I had to come back from London, where I was studying. I was given the textile mill. I worked there for 17 years and expanded my business. By the mid-1980s it was the biggest textile company on the entire subcontinent.
Does your success come from strategy or luck?
I realized early on, maybe better than some of my competitors did, that a textile business can run only if you have scale. I decided to horizontally and vertically integrate, adding everything from spinning, dyeing, weaving, and stitching to processing and packing. By the time I left, I even had a large school and our own railway station within the factory.
What challenges do you have to deal with doing business in Pakistan that, say, a Warren Buffett or a Bill Gates does not?
The impression of Pakistan is that people are corrupt. I don't think they are as corrupt as they are made out to be. I can look you in the eye and tell you I've never bribed anybody. The main challenge we have is a democratic government that's not functioning very well. But I hope that we do not get off the path of democracy.
Is Pakistan really ready for democracy?
I think that it is, but we need to be patient. People who had been out of power for at least 20 years have had to learn how to govern. The politicians are not ready in that sense, but we have to start somewhere. So we have to go through this experiment.
Some have remarked that the recent instability and uprisings that we have seen in the Middle East could happen next in Pakistan. What do you think?
Egypt and Tunisia will have an impact on the entire Middle East and Pakistan. But Pakistan is a little different. The other two countries had very long dictatorial regimes. And the leaders were grooming their children to take over. This is not the situation in Pakistan.
Our democratic setup is a little more advanced. And we have a ferociously independent judiciary and free press. A lot of the steam is let out through criticism in the press and all that. But there are a lot of unemployed people, and we need to create jobs. In a way, it is having a good effect because people think we need to accelerate our reforms.
What about the silencing of moderate voices, like Gov. Salman Taseer, who was assassinated in January, or the situation with Raymond Davis, the American accused of murdering Pakistani citizens?
The governor was a very courageous person. But we are in a situation where we have a war on our border that's been imposed on us. The only way to kill militancy, to reduce it, is to provide opportunities to people who have no opportunities. I've always told my American friends that. Before he died, I told [former U.S. envoy] Richard Holbrooke, "Come and do some big projects here. You are spending $10 billion to $12 billion in Afghanistan -- why don't you put that into jobs?" This peculiar situation [regarding Davis] is a cause of concern. It has been mishandled by both governments. It has been a huge embarrassment. This issue of diplomatic immunity has not been clarified. They say he is immune, but he has not shown any proof. By creating this delay, people take positions, and hype is created.
A big part of your empire is MCB Bank, which survived the global credit crunch and boasts high capital ratios. How did you manage that?
MCB is a leading bank in Pakistan, with 9% of total banking sector assets and deposits. Return on assets is 3.18%, and return on equity is 26%. We have been trying to decrease risk with products like debit cards, mobile banking, and insurance. In the West there are not many long-term shareholders who participate in management; most are passive investors. Banks need to have large shareholders on the board that have a direct interest in their performance. That's what we have.
You work with American companies like Gap (GPS, Fortune 500) and Levi Strauss. What do you tell other U.S. companies wanting to do business in Pakistan?
The American companies operating in Pakistan are successful. Nobody has lost money or had a problem repatriating his profits. If you go to India, many sectors are closed. The problem right now is that we must resolve this conflict [in Afghanistan]. It's giving us bad publicity and terrorism. But I am very optimistic that President Obama will have a policy of reconciliation [with the moderate elements of Afghanistan and Pakistan] after these military hostilities end. There is so much devastation. We need to start with rebuilding before we can get to security.
You have said you believe that the best way to extract Pakistan from terrorism is to create jobs by opening the borders.
I am a very big proponent of opening the borders with India. Most of our trade is done through unofficial channels. Why not open the trade? Also, our industrial policy has been partly misdirected. We should put money into simple industries, like the garment industry, where you can employ a lot of people, you don't consume too much energy, and you don't need too much capital.
What are the most promising growth sectors in Pakistan?
Energy. We have not been investing in energy in Pakistan, but for every 10 wells we dig, we get three with oil. Another is agriculture. We are the fifth-largest producer of milk, for example. But our yields are dismal. If we can just bring in modern farming, we can do it. Last year the commodity that had the largest increase in the futures was cotton, and we are the fourth- or fifth-largest producer. So if we increase our yields, we can make at least 50% more.
In Pakistan we have fewer obstacles than other countries. In Europe growth is very slow. There are so many old people and too many social taxes to pay. I feel that we are coming into a balanced society for the first time in my life. I predict that in 20 years, you'll find that a lot of our Pakistanis who are living abroad will have come back.
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