KARACHI- A 'BUSINESS HUB' TURNING INTO A 'CRIME HUB'

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)
July 11 - 17, 20
11

Karachi, the country's financial and industrial hub, is in the grip of a fresh wave of violence that killed dozens of innocent citizens. The violence on ethnic and sectarian lines and targeted killings of political activists has so far claimed 639 people dead in the metropolitan city during first five months of the year 2011.

Last year, over 1300 people lost their lives in the incidents of target killings in the city. The analysts fear that the violence could adversely affect the economy, as instability in Karachi, the country's largest city and business hub, would severely affect trade and industrial activities. The foreign investors are reluctant to invest in the country due to political uncertainty and worst law and order situation.

Critics say that the government has been least concerned with the problems of traders and common businesspersons in the country's financial capital. Trade activities have shrunk and dragged the small businesspersons into a severe financial turmoil.

Karachi, the country's business and financial hub has virtually turned into a 'crime hub' where land, drug and extortionist mafia actually call the shots. The businesspersons do their businesses amid prevailing sense of insecurity due to growing incidents of extortion and kidnapping for ransom of businesspersons in the country's commercial capital. The powerful extortionist mafia backed by some political elements rule supreme in the city. The traders are facing immense problems due to poor law and order in the metropolitan. The criminal activities are increasing day by day including killings and kidnappings of traders and their harassment by 'extortionist mafia'. Traders lament that though they pay taxes to the government but it has failed to provide them security.

In March, thousands of traders and shopkeepers staged a protest on MA Jinnah Road, the business hub of the city, against the killing of a shopkeeper by extortionists. The rising cases of hurling threats to Karachi business community by extortionist mafia ultimately forced President Asif Ali Zardari in March to direct Interior Minister Rehman Malik to take measures against this menace and submit a detailed report on extortion in Karachi.

Karachi, a city of 18 million, is home to the country's main seaport, the central bank and the stock exchange. The city contributes 70 percent of revenue to the federal government and 95 percent to the Sindh government and around 80 percent of exports of various products are made through Karachi. The government suffers a loss of over Rs2 billion in terms of customs duty and taxes in a single day if Karachi is shutdown due to violence. Around Rs11 billion on account of the GDP and Rs4 billion to the national exchequer generated from Karachi in a single day. Around 80 percent of exports of various products are made through Karachi. The country's exports potential could not be fully tapped, as the trade delegations have been reluctant to visit the troubled country. The export orders are either diverted to other countries or foreign buyers hold meeting at other destinations, which increase the cost of production and leave the country uncompetitive in the international market.

Uncertainty in Karachi paralyses the supply chain from the industrial areas to wholesale markets and to retail markets from main wholesale bazaars. Even the country's exports come to a grinding halt because of the prevailing uncertainty and violence in Karachi. Nation suffers billions of rupees of loss from one-day strike call and most of the export orders could not be shipped to their desired destination besides rendering millions of daily wagers jobless. Destabilizing Karachi, Pakistan's spinal column of trade, commerce and business, means throwing the entire country into chaos and the economy into recession. The direct costs of economic disruptions due to law and order problem include rapid rise in security spending, while indirect costs include a slowdown in economic growth, surge in poverty, and unemployment and decline in foreign investment.

Pakistan is virtually in a state of war. Islamabad claims economic losses of $35 billion because of the war on terror, which has hit every part of the South Asian country from the mountainous northern parts to the port city of Karachi. Since the country's army launched a major military offensive against Taliban militants in the country's northwestern tribal belt in October 2009, the militants retaliated with a string of terrorist attacks in major cities and towns in which hundreds of people have lost their lives.

War on Al Qaeda and Taliban over-strained the country's budget, as allocation for law enforcement agencies had to be increased significantly. This resulted in erosion of resources for the development projects in addition to human sufferings and resettlement costs.

The country's economy, the south Asia's second biggest, has paid heavy costs in terms of flight of capital, closure of industries, loss of employment, economic slowdown, and loss of inflow of foreign direct investment (FDI). Analysts believe the security issue has hit the economy at every level, as the foreign businesspersons and investors remain afraid to visit the country where they cannot move freely and where heavily guarded hotels also remain the prime target of terrorists.

A lawless Karachi provides a safe heaven to the militant groups engaged in a war against the security forces in Pakistan's Pashtun tribal areas in the northwest. There is a nexus between urban terrorism on political and ethnic lines with militant groups, who have found safe havens in Karachi. According to a report released by Pak Institute for Peace Studies (PIPS), a think tank, in Karachi, 93 attacks killed 233 people last year, up from 24 attacks that killed 65 in 2009. A total of 2,913 people were killed in 2,113 militant, insurgent and sectarian attacks across the country in 2010. Overall violence in Karachi rose 288 per cent.

Muttahida Quami Movement (MQM) is the dominant political party in Karachi. Last month, MQM decided to quit governments both in the centre as well as in Sindh province and resigned from Sindh governorship over the postponement of Azad Jammu and Kashmir elections for three seats.

The decision of MQM to quit the coalition with ruling Pakistan People's Party (PPP) is likely to further deepen the economic crisis in Pakistan. The business community, which has already been in distress over the deteriorating law and order situation, rising cases of kidnappings for ransom, falling sales and production, forecast worse future environment if the ruling PPP fails to win back MQM support.

Some analysts believe the ensuing uncertainty and heightened fears of violent protests could drag Karachi- the home to the country's main seaport, the central bank and the stock exchange- back into the decade of 1980s. Awami National Party (ANP) should also find an effective and sustainable solution to Karachi problem saving it from converting into a crime hub.