"Extortion is the biggest deterrent to business in Karachi, even more than the energy crisis" asserted former president Karachi Chamber of Commerce and Industry Anjum Nisar. "Even in Lahore, where businesses are significantly worse off due to energy crisis, extortion and violence targeted against businesses is fast becoming an existential threat for firms" he told BR Research.
Business owners, particularly those operating manufacturing facilities in the citys industrial zones are among the worst afflicted. In recent months, media reports have asserted that some local textile players have relocated manufacturing to Bangladesh. In a recent trip to Dhaka, BR Research held interactions which have led us to believe that although some firms may have moved there, the phenomenon is by no means a mass move to the East.
However, the fact remains that many businesses have curtailed operations in the country and are actively pursuing interests abroad. In a recent conversation with BR Research, the owners of a prominent apparel export company revealed the groups plans to divest in the country.
"Although our textile unit is still functioning, we have decided to curtail business activities until the elections. If things don improve, we will shut shop and aggressively pursue some alternatives that we are already exploring in Dubai" said the group head, requesting anonymity.
Poor governance and the dismal state of law and order have consistently ranked among the top threats to business in successive OICCI Business Confidence Surveys. The rate of repatriation of profits and dividends by multinational companies also shows pessimism in the industry, despite promising demographics with potential for booming demand.
The Citizens Police Liaison Committee monitors crime in the city and assists victims in accessing the justice system. CPLC Chief Ahmed Chinoy has stated that there is a rising trend of extortion in the city, being carried out by organised gangs of criminals, often with political backing as well as by opportunists capitalizing on the growing hysteria among citizens.
Investments from abroad into new and existing businesses are already flirting with all time lows. The countrys investment to GDP ratio which stood at 22 percent in FY08 has since dropped continuously, shrinking to just 12.5 percent in FY12.
But the real extent of the damage done to the economic vibrancy of the countrys biggest city is much larger. The visits of foreigners for business and investment purposes are rare and virtually no new mentionable investments have materialised in recent times.
Also note that the violence against businesses that had hitherto been considered a Karachi-specific dilemma has now spread to other parts of the country. Businesses in Lahore are waking up to the harsh reality of extortion, while businessmen from other parts of the country are being chased out of Peshawar and Quetta by a multitude of outlaws on the pretext of sectarian or racial differences.
That the country needs to concentrate on legislation to help boost investment and business is an obvious fact. But even before legislators can engage the private sector in deliberations over what policies can encourage business, it has to urgently tackle the growing threat of violence targeting those driving the economic engines of the country.
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