Emirati developers want to build another Dubai on thousands of acres of land across Pakistan’s sprawling business capital, but some question whether their billion-dollar investments makes any sense.
Chundrigar Road, named after a former prime minister of Pakistan, is the heart of Karachi’s central business district. On it stand relics of British colonial architecture like the State Bank, the Karachi Port Trust and the Cotton Exchange, buildings from another age which sit uncomfortably alongside new corporate HQs.
But this is not your average CBD. Aging guards with bright henna in their hair and ammunition clips flung over their shoulders sit on plastic chairs inside dilapidated tower blocks. Darting through the traffic are flocks of multicolored rickshaws, driven by hunched men with skullcaps and beards down to their chests. There are wooden carts with donkeys, homeless beggars, open drains and even the occasional camel lying around.
Appearances notwithstanding, this is the financial hub of a metropolis of 15 million people, one of the developing world’s megacities and amongst the most dangerous places on the planet to be a US diplomat. The city is so run-down, disorganized and underdeveloped that many wonder how it actually manages to produce over a quarter of the Pakistani economy. But if some newly-arrived Gulf investors have their way, Karachi is about to get a Dubai-style facelift.
The developers enter the picture
On the back of some impressive economic growth and a gradual process of privatization, a wave of foreign investment has swept into Pakistan during the last two years. Most of it has been channeled into growing sectors like energy, pharmaceuticals, telecoms and IT.
Now, flush with capital and ambition, Emirati property giants looking eastwards towards the subcontinent have signed up for a string of high-profile and controversial projects in Karachi.
In spring 2006, Limitless, part of the state-owned Dubai World group which also controls the emirate’s port and free zone interests, signed a joint venture with the Pakistani authorities to develop the Karachi Waterfront project. When finished, this will be a 14-kilometer high-rise strip of commercial and residential towers, costing $1.5 billion in an initial stage and roughly $20 billion in total.
At around the same time, Emaar, the largest real estate developer in the Arab world by market share, announced it would lead a $2.5 billion project in Karachi called Crescent Bay. Covering 75 acres, the residential and commercial development is planned to occupy the beachfront of an upmarket housing district in the city.
This was followed in September 2006 by the announcement of a second, more controversial project in which Emaar would develop a brand-new city on two empty and half-submerged islands off the Karachi coast. Dubbed the “Diamond Bar Island”, the development is estimated to cost some $43 billion and will doubtless include many familiar Dubai-esque features such as a marina, shopping malls and luxury housing.
Then in February this year, Nakheel, the developer behind the perennially delayed ‘Palm’ projects in Dubai, joined the fray by signing up to construct a completely new district to the west of Karachi. With the provisional name of “Sugar Land City”, the project will reportedly cover no less than 60,000 acres and cost a staggering $63 billion.
If all goes to plan, the total cost of development in Karachi over the next 10-15 years, from these UAE firms alone, adds up to more than $100 billion. For many, this is an extraordinary sum to spend in an underdeveloped third-world city with a history of mismanagement, poverty and regular political unrest.
These Emirati developers are not averse to risk, having invested heavily in relatively unstable and untested markets like Algeria or Syria. But Karachi represents arguably the most hazardous venture that they have embarked upon so far, not just because these projects are amongst their largest, but because the political, social and economic environment in the country can at best be described as fragile.
At your own risk
Pakistan’s economy has performed well in the past few years, with GDP rising at 6-8% per annum since 2004 and the authorities earning plaudits from the IMF and the World Bank for implementing some much-needed reforms. An ongoing process of privatization has seen the government sell off stakes in assets such as the Pakistan Telecommunications Company, with foreign direct investment reaching all-time highs in 2006.
Middle-class incomes are on the rise, thanks to the wider economic growth and greater private-sector involvement, whilst the property market has rewarded investors with double-digit returns in recent years.
There are also growing ties between the UAE and Pakistan, largely in terms of labor force. Hoards of unskilled laborers are shipped in to work on construction sites in Dubai or Abu Dhabi, but many Pakistanis also find employment in better-paid jobs. Most send their earnings back home, contributing to record remittances of $4.5 billion in 2006, whilst wealthier expatriates, particularly in the UK and the US, are a large potential source of buyers for the property developers.
Yet the country still faces crippling economic problems, not least of which being outside perception. Transparency International rates Pakistan 144th out of 158 countries in the world in terms of corruption and bribery, which is generally believed to be endemic at most levels of decision-making.
Poverty still affects almost half of the population, crime is rife and according to some analysts, the gap between the rich and poor is only widening. Many analysts seriously question whether the Karachi market, or indeed any city, is capable of absorbing $100 billion of new developments aimed at a small elite, especially since foreign tourists are virtually non-existent and are likely to remain so in the foreseeable future.
Underlying all this are persistently high levels of social and political instability. In March 2006 a suicide bomber detonated himself outside the US Embassy in Karachi, killing several people. Another bomb went off outside the Islamabad Marriott hotel in February this year, just a few weeks before an attempt to blow up Islamabad airport was thwarted by police. Similar attempts are commonplace in other parts of the country, although most are fairly unsophisticated affairs.
This type of regular unrest is unlikely to abate, at least while the Afghanistan conflict continues to spill further across into the quasi-lawless mountain zones of northern Pakistan and then spreads onwards to the major centers of population.
For the past six years, President Musharraf’s secular regime has been forced to tread an increasingly narrow path between appeasing Washington, which has put intense pressure on Pakistan to support the US-led invasion of Afghanistan in the wake of 9/11, and subduing the powerful, anti-American and increasingly radicalized Islamic currents within Pakistani society.
Musharraf is due for re-election later this year, and is expected to remain in power, but no-one is quite sure in what manner he will decide to do so. Most observers believe that the current president will lead the country for some time yet, although the forthcoming series of elections will turn the spotlight on the nature of his regime.
Cities for the rich?
On top of these various uncertainties is a sense that these Gulf mega-projects are not necessarily welcomed by local residents, especially given the chronic shortage of budget housing for the hundreds of thousands of poor rural immigrants. The Pakistani media, for one, has not been afraid to perceive these multi-billion dollar deals as a case of the authorities generously lining their own pockets by inviting in the Gulf investors.
Others fear that a massive new stock of luxury housing, aimed purely at high-earners, will push Pakistan’s already dangerous levels of inflation through the roof. Critics say that these new cities will widen the gap between rich and poor, worsen overall standards of living and simply provoke more anger and antagonism towards a regime which is already walking on thin ice.
Advocates of the new-look Karachi, on the other hand, claim that construction alone will create thousands of jobs for the local population, as well as later attract companies or investors who were previously put off by the lack of decent infrastructure.
The critical question is one of stability: if the uneasy status quo in Pakistan can be maintained or improved, then the economy will have the chance to grow even more rapidly and release some of its massive potential. There might even be enough people to afford all the houses and apartments that the Emaar, Nakheel and Limitless want to build. But if things deteriorate, then the grand plans for these new cities might turn into some very expensive white elephants.
