The recent scale and intensity of devastation caused by heavy monsoon rains in Karachi have triggered a risk to the country’s economic growth while policymakers are still grappling with the Covid-19-sparked crisis.

And the reason for this concern is simple. Karachi is the country’s financial hub and the bulk of the sea-borne foreign trade cargo in routed through its two ports, using heavily the city’s infrastructure. It is host to the country’s largest stock exchange with close links with foreign portfolio investors. Multinationals operating here report their performance to their parent companies or regional reporting offices all round the year.

Once labelled as Dubai in its heydays, Karachi still provides substantial job opportunities for the rural unemployed from the least developed regions of other provinces, whether it be blue-collared factory labour, building/construction workers, domestic servants or street vendors.

It a big market for cash crops like cotton consumed by the city’s textile mills and foodstuff from various parts of the country. It provides the bulk of provincial revenues, a big chunk of which goes for improving health and education facilities in rural areas. Karachi’s radiates economic growth in the rural hinterland and benefits by it by supplying manufactured goods there. In fact, the country’s erratic economic growth can also be linked to the decline of the fortunes of Karachi and vice-versa.

The country’s erratic economic growth can be linked to the decline of the fortunes of Karachi and vice versa

So how the national economy has performed in August assumes crucial importance owing to the devastation caused by close to two weeks of rain in Karachi.

To quote the State Bank data for the month, the amount of profit and dividends repatriated abroad by foreign firms at $345.5 million was higher than foreign direct investment inflows of $114m. The repatriated amount by the food sector was the highest as it had benefitted from curbs on the imports of foreign products. The next highest payment sent abroad was made by the financial sector whose profits swelled because of the high interest rates and enormous investments in risk-free government papers.

As exports plummeted by 20.89 per cent at nearly twice the pace of import recorded at 11.07pc, the foreign trade deficit rose by 0.59pc to Rs1.696 billion in August, marginally up from $1.686bn in July. It was a reversal of the trend witnessed over the last several months when trade deficits were reducing.

The exports declined to $1.586bn as compared to $2bn in the same month of last year, according to the Pakistan Bureau of Statistics. Simultaneously imports fell to $3.279bn from $3.687bn.

The sharp fall in exports is attributed by industrialists to suspension of post-rain production activities and dysfunctional logistics in the port city.“While we are still in the midst of the pandemic, the record rainfall and floods have added fuel to the fire that ravaged industrial units,” says prominent businessman Majyd Aziz. Trade association put the losses at Rs50bn.

Eminent economists in the past have often stressed that various sectors must grow in right relationship to each other or they cannot grow at all.

And that economic development, which is too narrowly focused on a small number of sectors, ultimately tends to constrain growth. In Pakistan, the market-determined exchange rate and the resultant sharp fall in the rupee value, coupled with various kinds of incentives, have not helped improve export earnings before the outbreak of Covid-19.

In the businessmen’s meeting with the Chief of the Army General Staff on September 3, President of Businessmen and Intellectual Forum Mian Zahid Hussain had argued that national development is impossible unless infrastructure and logistics of Karachi are improved.

The developed urban centres have always been at the heart of a country’s economic development and prosperity, say urban economics researchers, whether as market places or centres of enterprises, knowledge, culture, learning and innovation. But lately, urban renewal has become a major problem in many countries.

The latest empirical studies demonstrate that even in the case of trade liberalisation, exporters cannot take the advantage of new trade opportunities owing to low productivity, a deficient policy environment, poor infrastructure, poor access to technology and imperfect markets especially the financial segment.

And when trade liberalisation leads to increased efficiency, it has a one-off effect. It does not lead to the sustained increase in the rate of growth of productivity as also somewhat experienced by Pakistan.

Both PTI and PPI are trying to take most of the credit for their claimed proportion of the financing of Karachi’s Transformation Package (KTP) for which the funds have yet to be mobilised, and before the project is implemented. They tend to ignore the advice by social scientists to policymakers to take a fresh approach – it is not ‘1’ but ‘we’ who would do things together — to resolve multiple global and domestic crises.

Earlier, in an unusual conciliatory approach, the prime minister had recalled how the nation had emerged successful in subduing coronavirus ‘because of the coordinated efforts of everyone.’ He hoped to come out of this (Karachi) challenge too through the same coordinated efforts.

The size of the uplift package estimated at Rs1.1 trillion is in doubt. An official is reported to have said that some storm- and nullah-related projects were double-counted.

The World Bank (WB) estimates that Karachi requires around $9-10bn over a 10-year period to meet the infrastructure and service delivery needs in urban transport/drainage, water supply, sanitation and municipal solid waste. The establishment supported KTP envisages resolving the city’s chronic problems in three years. WB Country Director Najy Benhassine says the bank is working with the Sindh government to finalise the Sold Waste Emergency and Efficiency Project (Sweep). After WB’s approval of Sweep, it is speculated that Sindh may ask the bank to reimburse the expenditure on nullah cleaning activities.

On the other hand, the private sector is proposing the setting up of garbage-based energy plants. Chairman of Zharbiz International Azhar Khan thinks that installation of ten waste-to-energy plants with a capacity of 1,500 metric tonnes each are the real solution for the disposal of around 16,000 metric tonnes of solid waste Karachi produces every day. One such plant requires an investment of $100m. Khan says the landfills are already full and the trash is being dumped into the sea.

To sum up, the domestic economy has to be put on a sound footing to extend its reach to international markets. And for that to happen, urban renewal should be a high priority.

Published in Dawn, The Business and Finance Weekly, September 14th, 2020