Karachi turmoil: the economic cost

By Amir Zia
Business Weekly: Money Matters
The News
Monday, July 18, 2011

The deep-rooted problem of politicisation of crime and criminalisation of politics has transformed Karachi into one of the world’s most dangerous mega-cities and resulted in the flight of capital

A number of key wholesale and retail markets in the commercial hub of Karachi remained shuttered for at least six days in the first two weeks of July as former political allies turned their guns on one another, fighting pitched battles and resorting to targeted killings in various neighbourhoods. Many big, medium and small industries -- already shaken by a crippling energy crisis and protracted law and order problem – witnessed a further decline in production during the period as labourers stayed away from work and the supply chain got disrupted.
Yes, doing businesses and operating industries is increasingly becoming riskier in this volatile port city, where militants belonging to political and religious parties frequently fight bloody turf wars and run crime mafias to mint money through extortion, kidnappings for ransom, robberies and vehicle snatching.
“The continued state of lawlessness in Karachi is wrecking businesses and industries,” said Muhammad Saeed Shafiq, President of the Karachi Chamber of Commerce and Industry (KCCI). “This is hurting the Pakistan economy and tarnishing our image. We are cutting our own feet with an axe.”
The pain and anguish of business leaders appear understandable as they count the economic cost of turmoil in the city where more than 125 people lost their lives in the latest spate of violence in the first 15 days of July.
The rivalry and tussle for supremacy among the armed supporters of the Muttahida Qaumi Movement (MQM), the Pakistan Peoples’ Party (PPP) and the Awami National Party (ANP) is seen responsible for most of the bloodletting in the city, which has a long history of ethnic, religious and political violence.
The Human Rights Commission of Pakistan says that 490 people have been killed in the first six months of 2011 in political, religious and ethnic violence in Karachi. Dozens of others were killed in robberies, kidnappings, gang wars and bomb explosions.
The rampant lawlessness and crime emerged as the biggest challenge for Karachi’s business and industrial communities, which blame leading political parties for the crisis.
In April, traders and shopkeepers staged an unprecedented strike against politically-connected extortionists and criminals, specially operating in the city’s old parts, where major wholesale and retail markets are located. The strike resulted in the disbanding of the controversial Peoples’ Amn Committee of Lyari, which pledged allegiance to the PPP. However, the extortion racket continues to flourish as shopkeepers, small and big businesses and industrialists remain easy targets of criminals operating under the garb of this or that political party.
The deep-rooted problem of politicisation of crime and criminalisation of politics has transformed Karachi into one of the world’s most dangerous mega-cities and resulted in the flight of capital.
A report prepared by KCCI’s research cell says that billions of rupees worth of investment has been shifted to Bangladesh, Egypt and Malaysia in the last couple of years due to the poor law and order situation. Investors prefer peaceful countries for investment, the report said.
Background interviews with business leaders' show that jittery local investors have been scaling down their investments. The negative sentiment and spectre of uncertainty hurt most major businesses and industries and the KCCI report claims that 15,000 industrial units have been performing below their capacity.
Shafiq said that not just major political parties, but even those which cannot win a single seat in elections, posses the muscle power to partially affect business life in Karachi.
Whenever a member of any political or religious group gets killed, armed bands of youngsters fan out in different localities, forcing shops and businesses to close. Such partial and area-specific shutter downs have become a norm in the city. In most cases, police and paramilitary rangers never interfere and allow political activists-cum-criminals to have their way.
Zubair Motiwala, an advisor to Sindh Chief Minister and a leading businessman, said that Karachi’s violence directly impacts the country’s economy. "Karachi contributes almost 68 percent to the federal revenues," he said. “Our calculations say that the government loses on an average 3.3 billion rupees a day in revenues if the city is shuttered due to a strike, protest or violence.”
But the drop in revenues is not the only tangible loss to the national exchequer.
Business leaders estimate that the economy takes a hit of an additional seven to eight billion rupees a day in lost production, wasted work hours and drop in sales. The purchasing power of working class and low income groups erodes further as daily wage earners and people engaged in small enterprises remain unable to earn when the wheel of business and industry halts.
This is a bad tiding for the Pakistan economy, which has been caught in the vortex of low growth and high inflation for the last three years against the backdrop of the war against terrorism and rising global food and oil prices. The frequent bouts of violence in Karachi have indeed become another dampening factor for the business and investment environment.
Motiwala said that the long-term impact of violence and terrorism on the economy remains incalculable. “It erodes Pakistan’s image. International buyers are reluctant to deal with Pakistani exporters as they remain unsure whether we will meet commitments. They prefer buying the same product, at higher rates, from countries where there is security and stability,” he said. “Violence often disrupts cargo supplies. If a shipping date is missed, you have to send goods by air which is 10 times costlier.”
Shafiq of the KCCI echoed the sentiment.
“We have to give extra concessions to foreign buyers, who for the last few years have stopped visiting Pakistan because of terrorism and violence. They doubt our ability to meet their orders.”
Khalid Tawab, Vice President of the Federation of Pakistan Chambers of Commerce and Industry, said Pakistan’s credibility and image remains the foremost casualties. “It is ironic that a senior minister of the ruling party is responsible for the latest bout of violence. The economy is already in doldrums. Politicians have to think twice before they speak.”
Senior PPP leader Zulfikar Mirza heaped scorn on the MQM, its leader Altaf Hussain as well as the Urdu-speaking people who migrated from India during Partition in 1947. The statement led to the killing of at least 15 people and paralysed normal life in Karachi on July 14.
However, violence can be ignited in Karachi under any pretext -- from raising party flags to the collection of hides of sacrificial animals to collecting extortion money. The ethnic, political and religious fault lines, the presence of heavily armed crime mafias and political parties in the city coupled with weak and corrupt state institutions provide a setting for a perfect storm.
Major political parties, including the ones in Sindh’s ruling coalition instead of working for the rule of law and peace, themselves have become part of the problem due to their illegal financial stakes in the city. No wonder, the city drifts from one bloody cycle of violence to another, weakening and haemorrhaging the country’s economic jugular vein as the government looks the other way.