From urban morass to global city: how Karachi can fuel Pakistan’s rise

Imagine the following scene: a young tech entrepreneur has been working for the past few years building up her company. She has been raising venture capital from the VC funds based in Lahore, where her company is also headquartered, but they have finally hit the growth phase where they need to start raising larger amounts of capital, including a possible initial public offering (IPO) on the Pakistan Stock Exchange. She walks over from her office to the nearest Metro stop, hops on a train, gets off at the airport, takes a flight to Karachi, takes a train from Karachi Airport to McLeod Road, meets the investment bankers who are leading the IPO offering for her company, and then makes the reverse journey that same night, all while never having gotten into a car at any point during the process.

Far from a vision of a Pakistani future, it sounds like the vision of a different country entirely. It is modeled after a similar journey many entrepreneurs in the United States take from San Francisco to New York. But if we are to progress as a country, this may be the vision of the country we need to be building towards.

The recent torrential downpour in Karachi – and the subsequent flooding and misery – has brought to the fore the subject of urban planning in Pakistan’s financial capital, or lack thereof. Yet the national conversation has focused largely on the idea that this is somehow a Karachi problem, and that the solution lies in better management for Karachi (true), and – on a more sophisticated level – it requires a solution to political stalemate in Sindh (also true).

But the reality is that Karachi’s dysfunction is not just a Karachi problem: it is a Pakistan problem. The inability to get the nation’s largest city functioning is a major drag on the national economy, and all of Pakistan suffers because of it.

We point this out because the conversation about cities in Pakistan – particularly their relative economic progress – has a tendency to get competitive in an unnervingly zero-sum way. A new automobile factory in Faisalabad is seen by Karachi residents as ‘Karachi’s loss’, a foreign company setting up headquarters in Karachi is seen as a snub of Lahore, etc.

The problem with this vision is that it implicitly assumes that progress in one city can only come at the expense of others, breeding jealous resentment rather than a constructive spirit of competition. It is also a highly unrealistic vision for how dynamic economies work: the reality is that no single metropolitan area can – or should – dominate an economy, and that well-functioning economies create specialised clusters of industries that all work to produce excellence within the cluster and then seek the support of related industries in clusters located elsewhere.

So, for instance, in the example above, we assumed that Lahore will become Pakistan’s technology and venture capital cluster (because it is already headed in that direction), but that Karachi will retain its dominance of traditional, institutional finance and capital markets.

Technology startups and venture capital belong in the same cluster, but the economy does not need traditional finance to be in the same location. It does, however, need both clusters to be well functioning: the Lahore tech cluster would need the Karachi finance cluster to be well-functioning in order to ensure that startups achieve enterprise scale and access to capital, while the Karachi cluster needs the efficiency gains and technological progress brought on by the Lahore cluster.

In this article, we will examine what Karachi brings to the Pakistani economy (and why much of it cannot be moved without unjustifiably high cost), the problems facing Karachi, how they might be solved and what a global city version of Karachi might look like, and how a vision forward for Pakistani cities can be collaborative and competitive simultaneously.

 Karachi’s place in the Pakistani economy

As the largest city in Pakistan by population, Karachi is the city of Pakistani superlatives. It is home to the largest number of people in Pakistan, the biggest financial institutions, the biggest seaport, (barely) the busiest airport, the biggest shopping mall, and the tallest building in Pakistan.

But it is able to offer all of these for one very simple reason: it is the best natural harbour in Pakistan close to the Indus River delta. Port cities become big usually for geographic reasons, and those geographic reasons generally tend to change on a timescale that often stretches millions of years. Just as the one thing the government of Pakistan cannot ruin is Pakistan’s location, so too the one thing Karachi and its politicians cannot ruin is its natural harbour.

That harbour is the reason why the British were determined to invest heavily in expanding Karachi beyond its smaller origins, and it is why the Railway ends in Karachi, very close to the Port itself. It is why Karachi attracted financial institutions such as banks and insurance companies: because you need access to lending, letters of credit, and shipping insurance, to engage in cross-border trade.

With bankers and insurance companies come lawyers and accountants, which is why some of Pakistan’s largest law firms, and its biggest accounting firms, are all headquartered in Karachi.

Bring all of these middle-class professionals all living in one city, and all of a sudden you have some serious consumer spending power available to you to sell to. What follows next are retail and consumer goods companies, seeking a piece of the action.

With all those consumer goods companies coming in and competing against each other, they will need advertising and marketing services, and hence professionals who offer those services set up shop. No sense in advertising with media to advertise in, and hence the small publications become bigger with more advertising revenue, and when television and radio open up, those print media folks move into the electronic media here too.

And all of that is before we get into the manufacturing. Since we have gone ahead and built a port here, why not take some of that raw and ginned cotton and start spinning it into thread, or better yet, weaving it into cloth, or better still, stitching it into clothes before you load it onto a ship and send it off to some other part of the world. So, you get textile companies headquartered here, with thousands of well-paying blue collar and white collar jobs added. Sell some at home, and some abroad.

That whole story started with one natural harbour. This particular story happens to be about Karachi, but we could just as easily have been talking about Mumbai, Shanghai, Hong Kong, Singapore, Istanbul, New York, or San Francisco. The natural harbour built the port, and the port built the city.

Today, Karachi remains the largest concentration of Pakistan’s middle class in a single city, and home to its financial services, news media, entertainment, and professional services (law, accounting, etc.) industries, as well as the single largest cluster of large scale manufacturing, retail and wholesale trade, and a host of other industries.

By some measures, it accounts for a quarter of the total size of the Pakistani economy. (We refuse to count how much of the tax revenue of the country is collected in Karachi: that number is highly disputed, and the number attributable to just Karachi, and not connected to global trade from the rest of the country, has not yet been accurately measured by anyone, including the Federal Board of Revenue.)

In other words, Karachi is as important as it gets to the Pakistani economy. But one question still begs to be answered: can Karachi be replaced? The answer: it has been tried before, with mixed results at best.

 Karachi’s dysfunction: causes and consequences

Before delving into how much of Karachi’s place in Pakistan’s economy can be replaced, it is worth answer the question: why would Karachi even need to be replaced?

The answer is obvious to anyone who has ever lived in or visited the city: it is, quite possibly, the ugliest city in the country (and I say this as someone born and raised in Karachi, and someone whose entire family still lives there). Other cities in Pakistan are poor and dirty, but Karachi is alone in being described as rickety rich: it is clearly a wealthy city with real estate prices among the highest in Pakistan, but one look at the thousands of $1 million homes in the city – and the neighbourhoods they come with – and most people not from the city (and many even from the city) ask: what am I paying for?

Even the wealthiest Karachi neighbourhoods are filthy relative to comparable neighbourhoods in Islamabad and Lahore, and many do not have running water: households have to pay private water tanker operators to supply water to their homes. Electricity supply has gotten marginally more reliable than most places in the country, but once it rains, all bets are off. And by bets, we mean the electricity. There is no such thing as a rainy day in Karachi where one can rely on electricity from the grid.

And all of this, by the way, before we get into the fact that the drainage system in the city is nonexistent, and has never existed for almost the entirety of its existence. One of the most depressing aspects of the recent outpouring of anger over the flooding that took place in Karachi was people sharing clippings from Dawn in the 1950s, talking about the exact same thing.

And then there is the violence: Karachi has, on average, significantly more violent crime than any major city in Pakistan, and until recently, was among the higher rates in the world. A military-backed operation against the city’s criminal gangs has yielded some results, but older Karachi residents know they cannot breathe easy still. The gangs have a way of making their way back to the streets right when the establishment decides to let go of matters for a bit.

All of this, of course, is known to anyone who lives in the city, or anyone who has read even a fraction of Pakistani Twitter over the past few weeks.

What is less well understood is why the problem has persisted for decades with virtually no change in sight. All of those protesting against the provincial government, the Defence Housing Authority (DHA), the Clifton Cantonment Board (CCB): all of them know deep down inside that absolutely nothing will change. The next time there is rain in the city, all of this filth and stagnant water in the streets will come right back.

The biggest problem is the big stalemate at the heart of Sindh’s politics: Karachi is dominated by ethnic Muhajirs and the rest of Sindh is dominated by ethnic Sindhis, and the two groups share a long history of mistrust. Ethnic Sindhis tend to vote en bloc for the Pakistan Peoples Party (PPP), and the Muhajirs tend to vote for literally anyone else.

In the past five decades, Muhajirs have voted for the religious right-wing Jamaat-e-Islami (JI) in the 1970s, the secular left-leaning Muttahida Qaumi Movement (MQM) from the 1980s through the 2010s, and now the center-right Pakistan Tehrik-e-Insaf (PTI). The only thing these parties have in common is that they are not the PPP. That is it. And the PPP, which has a dominant majority in the Sindh Assembly, has noticed.

Unfortunately for Karachi’s residents of all ethnic groups, the provincial assembly has all the power when it comes to municipal matters: they get to decide exactly how much power will be devolved to the local governments, and the Sindh government has decided that it has absolutely no interest in letting Karachi govern itself, which is made more curious by the fact that the entire Sindh government lives in Karachi.

The problem is not one of incentives: the Sindh government has to personally live with the consequences of Karachi looking like a pile of muck, which it often literally is. The problem is that of a refusal to share power between both ethnic groups.

We speak in crude ethnic terms, because the problem is crude and ethnic in nature. There is no sense in beating about the bush.

A natural solution might be to for Karachiites to give up the demand for separate province, in addition to demands for absurdly high shares of Sindh’s provincial revenues, in exchange for more local autonomy from the provincial government. But such a solution requires trust among the two parties, which they have not been able to achieve, even after more than seven decades of living with each other.

That kind of hopeless impasse is what makes people in the rest of the country ask: why stay in Karachi? Why do more businesses in the city not simply move upcountry, particularly to the larger cities in northern and central Punjab where they can access high quality infrastructure and human capital with none of the headaches or filth that Karachi brings with it?

It is not as though this has not been tried: several businesses did in fact move from Karachi to Punjab (mostly Lahore, and some to Faisalabad) both in 1992 during a period of extreme political violence in Karachi, and again in the late 2000s and early to mid-2010s.

But most of Karachi’s economy has stayed put. Moving massive swathes of Karachi’s population and economy away does not really solve any problems and is – in the long run – significantly more expensive than fixing what ails Karachi.

What has changed, however, is people’s willingness to move to Karachi: between 1998 and 2017, the two most recent censuses conducted by the government, Karachi’s population grew by an average of 2.5% per year. By comparison, Lahore grew by an average of 4.1% per year during that same period. Karachi’s growth rate is barely above the 2.4% average annual growth in population for all of Pakistan. Net migration to Karachi, in other words, has slowed to a crawl, and ramped up dramatically in Lahore.

 How Karachi could drive Pakistani growth

We will get to what might be done to break the impasse on Karachi’s management, but before we delve into that, it is important to lay out what is at stake here, and address the question we posed at the beginning of this article: why should somebody not from Karachi care about what happens to the city? Short answer: because without Karachi developing into a global city in the same league as Mumbai or Toronto, Pakistan’s economic future is bleak.

A big portion of what needs to happen for Pakistan’s economic growth to take off, and for Pakistan to go from a lower middle income country towards being a high-income country involves Karachi and Lahore becoming the kind of global cities that gain such stature worldwide that one does not need to say which country they are in. And here is the kicker: either both cities will make it, or neither will.

The fates of these two cities are completely tied together: take away Lahore’s place as the core of Pakistan’s agricultural and industrial heartland in northern and central Punjab, and Karachi’s port, financial services, professional services, and media industries are worthless. Take away Karachi, and Lahore’s place as Punjab’s core is diminished without access to the global markets, and managerial and financial resources that Karachi provides.

The two cities will either soar together, or they will sink together. It is not a competition between the two, more of a ‘coopetition’, a healthy combination of competition and cooperation. Neither city has what the other has, nor can they acquire it, and so they are stuck with each other. If they can learn to play nice together, the whole economy will thrive.

For Karachi to become a first-tier global financial center – in the same league as New York, London, Tokyo, and Hong Kong – is probably impossible. But for it to become a second-tier global financial center – roughly in the same league as Toronto, Milan, and Dubai – is an achievable goal. If that were to happen, all of Pakistani industry would gain access to financing tools that would power their growth in ways that have not been possible for much of the country’s history.

If Lahore becomes a tech and knowledge hub – probably not at the same level as Silicon Valley, but perhaps similar to Tel Aviv or Gurgaon – productivity gains and employment opportunities in most of Pakistan would start to rise sharply.

If these two cities start their rise to the level of global cities, their neighbours would benefit by serving as suppliers of raw materials and human capital into these cities. For Karachi, a ring that encompasses Hub and Ormara in Balochistan, and Thatta, Badin, Nawabshah, and Hyderabad in Sindh would serve as the source of raw materials for industry, labour for employment opportunities, and aspiring young students and graduates to serve as managers and entrepreneurs. For Lahore, it would be the entire GT Road belt, as well as the area between the city and Faisalabad offering the same.

The two clusters, in other words, would not rise alone: they would be the engine that drives the entire economy upward.

These are multidecade projects, but strategic economic goals of anything less should not be acceptable for Pakistan as a country. And this goal, in turn, is why the rest of the country should care about what happens in Karachi.

 A temporary fix to Karachi’s management problem

There can be no technocratic fix to a political problem, but a technocratic workaround might make the situation somewhat more tenable while the longer-term political solution is worked out between the major parties in Karachi.

One temporary fix that might help the situation is a liaison committee for the entire city, similar to the one that Karachiites created for their police system. The difference: this liaison committee has to be backed by a think tank, and its members have to be fulltime employees.

Why a think tank? Because there is considerable technical expertise that needs to go into the kind of infrastructure problems the city faces. It needs to have people who are experts in water and sewage, energy, waste management, and municipal finance to help craft not just solutions to the more acute problems, but draft long-term plans – drawing on the work that has been done before on the Karachi Master Plan – to prevent future problems from arising in the first place.

The liaison committee should then utilise the work of the think tank and work with the lower and mid-level civil servants in the Sindh government, the Karachi government, the DHA, and the Karachi Port Trust to draft the paperwork needed to implement those plans into actionable policies and government decisions. Once that government paperwork is in place, it then needs to beg and plead with absolutely any politicians or civil servant who needs pleading with in order to make the decisions and approve what needs to get done.

Take, for instance, the problem of drainage. Part of the problem is that the city is divided into many different jurisdictions, including the city government-controlled Karachi Municipal Corporation (KMC), the province-controlled District Municipal Corporations (DMCs), and the federal government’s entities like the KPT, as well as military controlled cantonments like the CCB and DHA.

A city-wide plan needs to get all of these parties on board. The plan needs to be drafted, based on information and input that will have to be dug up from the government’s archives (you can bet nobody will actually know where the data is, and even if they do, they will not just give it to you.) Once the relevant data is compiled, a plan will then need to be drafted.

The plan will inevitably cover the jurisdiction of all of the city, provincial, federal and military entities, and will need the help of their junior staff in drafting. Once drafted, the liaison committee needs to ensure that each plan aligns with each other plan, meaning literally that the drainage tunnels you will be asking DHA to lay down along Khayaban-e-Ittehad need to connect with the KMC and DMC-laid tunnels on Korangi Road. (You would think such details would be obvious, but you would be horribly, terribly wrong.)

The liaison committee not only needs to supervise the process of creating these plans (a massively labour-intensive process in its own right), it then needs to go around every single component of every single government entity with jurisdiction in the city, beg for approvals from every single level of civil servant before finally presenting the plan to the top level of the city, provincial, federal, and military leadership and then beg some more, hoping and praying that all your work up until this point will not be wasted at the last minute by one capricious decisionmaker (remember: they all have to agree, or none of the plan will work.)

Does that not sound like the most intense, time-consuming, frustrating, blood-boiling job in the world? Yes. Yes, it does. And it is not the job of one person, either. No, it will have to be several people. And those several people will have to work fulltime, with 70-80 hour workweeks to maybe achieve something tangible. And for all their trouble, they will need to be paid a fulltime salary.

And who would finance it? Every major Karachi businessperson: the finance billionaires, the industrial billionaires, and the industry associations (the Karachi Chamber of Commerce, etc.).

Pakistan’s biggest, most enterprising city has everything it needs to fix itself. And if it pulls this off, it could go a long way towards fixing much of the Pakistani economy.