Summary

• Informality is widely prevalent in almost all of Karachi’s economic sectors and has both contributed to and been impacted by instability.
• Since the 1970s, informal employment and service delivery have been rising, mainly due to rapid population growth, a policy shift toward deregulation and privatization, and the state’s diminishing capacity to regulate the economy.
• Instability has also increased, largely due to the erosion of the state’s writ and ethnicization of Karachi’s politics. Various ethnic groups compete for resources and local political power, often through violent means.
• Karachi’s land, manufacturing, and transport sectors each experience a different level of informality and therefore affect stability differently. They also offer various entry points to formalize services and improve economic growth and stability.
• Since the Partition of India in 1947, five master plans for urban development have failed to provide formal, low-cost housing. Informal squatter settlements (katchi abadis) have taken root, often causing land conflict and instability.
• The katchi abadis could be a huge potential resource should they be formalized through the provision of legal title deeds. Economic development could be spurred by enabling the use of housing stock as a marketable asset.
• Informal manufacturing is more prevalent than formal manufacturing in terms of the number of people employed, land area covered by informal enterprises, and number of enterprises. Output data are unavailable, but proxy data suggest that informal manufacturing is far smaller in terms of capital employed and value added.
• Informal manufacturing does not directly foster instability, but some activities inadvertently provide the ingredients for instability, such as dangerous goods and pathways to move illicit funds.
• Karachi’s transport sector is a victim rather than a perpetrator of instability, contrary to the perception that a Pakhtun mafia controls it. Informality in this sector rose dramatically after the state stopped providing public transport.
• Efforts to reintroduce formal, public mass transit are being made, but progress is being held back by financial and land issues, as well as the lack of a Karachi-wide authority to plan and regulate the sector.
• For any formalization to occur in Karachi’s land and transport sectors, the local government—with its own “funds, functions, and functionaries”—must be empowered to develop and oversee the implementation of an inclusive master plan.

About the Report

This study examined the evolution of informality in Karachi’s land, manufacturing, and transport sectors and whether informality has contributed to or been impacted by instability. It also explored the underlying roles of ethnicization and state policy. The report draws on field research conducted by the United States Institute of Peace between December 2014 and April 2015.

About the Authors

Asad Sayeed is a senior researcher and director at the Collective for Social Science Research in Karachi. Prior to 2003, Sayeed was the director of research and a senior economist at the Pakistan Institute of Labour Education and Research and the Social Policy and Development Centre, respectively. From 2008 to 2010, Sayeed served on the Panel of Economists established by the Planning Commission, Government of Pakistan. He holds a PhD in Economics from the University of Cambridge. Khurram Husain is a business and economy journalist with Dawn, based in Karachi. Previously, he worked in television for six years, providing pieces for BBC and CNN, among others. From 2013 to 2014, he served as the Pakistan scholar at the Woodrow Wilson Center in Washington, DC, where he researched the history of Pakistan’s relationship with the International Monetary Fund. Syed Salim Raza served as the governor of the State Bank of Pakistan from 2009 to 2010. Previously, he set up and served as chief executive officer (2006–08) of the Pakistan Business Council, a research and advocacy body that represents forty-seven of Pakistan’s largest business enterprises.