Karachi’s Contribution to Pakistan’s GDP Becomes Stagnant: World Bank Group

Karachi is the country’s financial and economic hub, adding 12–15 percent of Pakistan’s gross domestic product (GDP), though it is not generating its potential economic productivity gains for the country, claims a World Bank Group report “Transforming Karachi into a Livable and Competitive Megacity

The city is the powerhouse of manufacturing employment in the country but its surrounding economic agglomeration are creating hurdles for its contribution to the business activities due to various factors including unstructured business environment, rising poverty, poor infrastructure, dilapidated condition of water and sanitation, weak governance and etc.

Evidence from nighttime lights—a strong proxy for economic activity—shows declining economic activity in the core areas of the city and high growth on its periphery, indicating that high-value economic activity is moving away from the city core.

This stagnation of economic activity in the central areas is problematic for long-term economic and social potential.


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Karachi GDP Growth Rate

While Karachi’s real GDP grew 5.7 percent per annum from 2000 to 2012 (compared to 4.5 percent national growth), and employment likewise expanded at an impressive rate of 5.1 percent per annum, real per capita GDP grew at only 2.7 percent per annum.

Slow productivity growth may also be associated with the city’s struggle to adequately deal with the congestion associated with the rapidly increasing population and growing densities throughout much of the city, especially in its central commercial areas and other large job centers. There is also evidence to suggest that Karachi’s economic growth may have stalled.

Because of the country’s declining international competitiveness, the dynamics of manufacturing locations within Pakistan have come to be increasingly determined by the domestic market. Karachi has suffered a loss of manufacturing activity to Punjab province, where the domestic business cluster largely exists. Informality is also a constraint on Karachi’s overall economic performance.

Low Productivity of Workforce

Labor productivity, as measured by Gross Value Added (GVA) per worker, grew at an even more anemic rate of 0.47 percent per annum, which was less than half the rate of labor productivity growth nationally.

Despite its manufacturing strengths, Karachi’s competitiveness is declining compared to other cities in Pakistan. This suggests that the city has been able to absorb increased labor only through the expansion of relatively low-productivity jobs.


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While the intensity of nighttime lights within 40 kilometers of the city’s center grew rapidly between 2000 and 2004, it declined between 2004 and 2010. This is consistent with Karachi’s speculative property and land boom between 2000 and 2007. This boom fueled the growth of the construction sector and stimulated demand for low-skilled labor.

Although formal sector employment accounts for a larger share of the workforce in Karachi than in other Pakistani cities, the informal sector nevertheless accounted for 67 percent of overall employment in the city in 2011, according to one estimate.

Karachi’s Low Livability and Level of Basic Services

Karachi is ranked among the bottom 10 cities in the Global Livability Index. The city is very dense, with more than 20,000 persons per square kilometer. Urban planning, management, and service delivery have not kept pace with population growth, and the city seems to be headed toward a spatially unsustainable, inefficient, and unlivable form. Public open spaces and cultural heritage sites are under threat from commercial development. Urban green space is shrinking, and is now only 4 percent of the city’s built-up area. All these are accompanied by insufficient basic services.

Basic service delivery is very poor, with very low indicators for water supply, sanitation, public transport and public spaces. Pollution levels are high, and the city is vulnerable to disasters and climate change. A highly complex political economy, institutional fragmentation, land contestation, crime and security issues and social exclusion exacerbate these issues and make city management challenging.

Karachi Witnesses Weak Governance, Complex Political Environment

Karachi is the largest and densely populated megacity in Pakistan. It accounts for one-third of Sindh’s population, and one-fifth of the country’s urban population. However, a highly complex political economy, highly centralized but fragmented governance, land contestation among many government entities, and weak institutional capacity has made it difficult to manage the city’s development.

Karachi has also been beset with a worsening security situation for the past few decades, although recent improvements in the security environment have led to a reduction in violent crime. Social exclusion of marginalized parts of the population is a challenge that requires immediate attention. These factors have resulted in the rapid decline of the city’s quality of life and economic competitiveness from its thriving status after the country’s independence.

Public Transport

No cohesive transportation policy exists for Karachi, even as a thousand new vehicles are added to the roads each day. Traffic congestion and road safety are both serious concerns. There is no official public transit system per se. An estimate says that 45 citizens compete for every bus seat, compared to 12 in Mumbai. Limited access to transit options impacts women in particular. Karachi’s transport problems cannot be resolved by simply investing in more infrastructure and facilities; the solution lies in a comprehensive strategy and efficient institutions.

Water Supply and Sanitation

Karachi is experiencing a water and sanitation crisis that stems largely from poor governance. Financing for this sector is typically ad-hoc and aimed at addressing immediate needs, rather than longterm goals. Only 55 percent of water requirements are met daily. Rationing is widespread, and leakages and large scale theft is common. Non-revenue water can be as high as 60%, compared to 30% in Ho Chi Minh City and 17% in Manila. Many households rely on private vendors who sell water from tankers at high prices. Less than 60 percent of the population has access to public sewerage, and almost all raw sewage is discharged untreated into the sea, including hazardous and industrial effluent. Less than half of estimated solid waste is collected and transported to open dump sites, resulting in a major public health hazard.

Karachi’s High Vulnerability to Disasters and Environmental Pollution

Karachi is at a high risk of natural and man-made disasters and is one of the most disaster-vulnerable districts in Pakistan. Various authorities responsible for disaster response suffer from weak coordination, information gaps, low capacity, and limited planning. Emergency response is hindered by poor land use planning and building control. Regular flooding occurs during the annual monsoon season due to the poorly maintained and clogged drainage system. Air pollution is one of the most severe environmental problems. Environmental pollution has a high cost to public health, up to 7 percent of Sindh province’s GDP.

Poverty Reduces In Karachi Noticeably

On the positive side, Karachi saw substantial poverty reduction in the 10 years up to 2015, with 9 percent of the city’s population living in poverty in 2014–15 compared to 23 percent in 2004–05. This makes Karachi the least poor district in Sindh province and third least poor in Pakistan.

Despite this, there are pockets of high poverty and great variations in wealth within Karachi, due to its large physical and population size.

Being a populous mega city that is home to many of different cities and countries, it has seen a substantial decline in quality of life and economic competitiveness in recent decades.