Friday, March 14, 2008

Karachi Booming in Spite of Power Outages

A Tale of Two Pakistans:

A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.

They should have. Their clients could have made a fortune.

Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.

As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold.

And it is not just that Karachi is a thinly traded market, able to be dragged skyward at time by speculators. Profits have taken off as well.

Even last month's assassination of opposition leader Benazir Bhutto, and the brief but terrifying tornado of violence it unleashed, failed to make much more than a dent in the market.

Businessmen are more worried than brokers, but all agree it will take more than Bhutto's death to destroy this boom, which has been based on open-door investment policies and privatization.

"It's sad, and it does affect the business, but I guess it's been happening for so long that people just get used to it," shrugged Omer Sabir, who sells luxury sports cars from upwards of $100,000 each at Karachi's only Porsche dealer.

Home to 14 million people, Pakistan's biggest city is booming.

The port city, notorious as the place where U.S. journalist Daniel Pearl was kidnapped and beheaded by Islamist extremists in 2002, has seen property prices soar and shopping malls sprout up.

Foreign banks such as Standard Chartered and ABN AMRO have bought up local banks. Just this month Bank Muscat and Japan's Nomura Holdings agreed to a $200 million takeover of Pakistan's Saudi Pak Bank.

Barclays is also looking to build a local business.

Even during frequent power blackouts, Pakistan's bankers can see by the light of their generators that profits are good, among the strongest bank returns in the world, says Invisor Securities.

At Karachi's underground night-club scene, which is literally, underground, sons and daughters of the upper middle-class drink vodka, whisky or just soft-drinks in glittering semi-darkness and listen to DJs play the latest beats.

But right now, the party might be coming to an end.

The stock market is still trading just 3 percent below its life-time closing high of 14,814.85 points, but the outlook is far less certain than six years ago, when President Pervez Musharraf began his reforms, spurring local and foreign investment.

The economy, which averaged around 7 percent annual growth in the five years to June 2007, is slowing and inflation is rising. Foreign investment and the farm sector, two important drivers of Pakistan's economic success story, have also moved down a gear.

The street is also getting angry.

For many Pakistanis, the boom has been mainly a spectator sport. They can see the new shopping malls but cannot afford to buy anything there. About a quarter of them still live in poverty, earning around 1,000 rupees, or $16, a month, though the proportion has been falling, according to 2006 government data.

A few blocks away from the Porsche dealership, men and women line up in vain for hours to buy a bag of flour at a government store. Power blackouts make the winter bleaker still.

"I have been coming here for a month and, look, my hands are empty," said Taj Fareed, showing his palms as he stood near a crowd jostling at the door of a government store to buy flour.

So if these Pakistanis find their voice in elections scheduled for Feb. 18, will there be changes in store for broad economic policy and the rich crust of Pakistan society?

The answer from businessmen, political analysts and economists seems to be a unanimous but rather hopeful "no."

"Whoever comes in next, I can assure you that they will follow the same policies," said Javed Faruqi, leaning back in his chair in the high-rise executive suite of Samaa, one of several new TV channels born out of a surge in advertising spending.

Samaa occupies the same tower as business channel CNBC Pakistan, a Middle East-backed franchise launched in late 2005.

"I don't see it going into reverse but there may be a struggle with the forces who do want it to go into reverse," admits Tahir Ikram, programming director for CNBC Pakistan.

Islamist parties, and their campaigns against Western decadence and corruption, appeal strongly to the poor, but recent polling suggests the mainstream parties will dominate the next government, assuming the Feb. 18 elections are free and fair.

Bhutto's party, Pakistan's biggest, has been campaigning under the slogan "Food, Shelter, Clothing" and still plans to contest the elections, but political analysts do not expect it to usher in a state-driven economy if it wins power.

"The overall direction of the Pakistan economy would be the same," said political analyst Hasan Askari Rizvi.

Riaz Haq's Note: This Reuters story was published in January 2008, prior to the elections of Feb 2008 in Pakistan. The investor enthusiasm has not dampened in spite of the defeat of pro-Musharraf PML(Q) and increasing violence in major cities. On the contrary, the KSE-100 has made new highs above 15000 level in March 2008. Please see my blog post: Pakistan's Stocks Continue to Defy Gravity.


Riaz Haq said...

Here are some excerpts from a BBC report on violence in Karachi:

According to human rights organisations, 775 people died in political and sectarian shootings and bomb attacks in Karachi in 2010. ...
And although thousands are killed every year in the north-west, the impact of the violence in Karachi is arguably no less important. The city is Pakistan's commercial hub.
Business losses
Karachi provides 70% of the total annual tax revenue collected by the government.
The violence has been largely fuelled by antagonism between the local chapters of three political parties: the Pakistan People's Party (PPP), the mostly Pashtun Awami National Party (ANP) and the Muttahida Quami Movement (MQM).
The MQM remains Karachi's dominant political party and represents the city's majority Urdu-speaking community - the descendants of Muslim migrants to India at the time of partition in 1947.

In December 2010, Sindh Home Minister Zulfiqar Mirza accused the MQM of being mainly responsible for the extortion and targeted killings prevalent across the city.

Within 48 hours, an enraged MQM withdrew its support for the PPP-led coalition in Islamabad.

The only reason the government could hold onto power was because opposition parties did not bring a no-confidence motion against the government.

The MQM has since been coaxed back into the coalition and now holds the political balance.

However, tensions remain with the ANP and the PPP.
In Karachi, all three parties have been involved in stoking ethnic passions.
Thousands were arrested; many were were later killed in what human rights organisations and the Pakistan media said were staged killings by security forces.

The MQM fought back - and was held responsible for a number of murders of police and security officials

The party said it was targeted by a conservative security establishment for its liberal politics and for fighting for the rights of the Urdu-speaking community.

Things changed under the government of President Pervez Musharraf and the party now enjoys excellent relations with the establishment.

"The MQM's 'new deal' with the establishment is that its control of Karachi will remain unchallenged by the security establishment," a political analyst, who wished to remain unnamed, told the BBC.

"In return, the MQM will support the establishment's policies in the centre."

MQM insiders acknowledge this deal, although they insist the party will never vote for "anything against the spirit of its ideology".

Obviously, this deal stands as long as the MQM controls Karachi.

But since 2006, the party has been increasingly feeling the pressure exerted by the growth of the Pashtun community in the city.
Activists of the Labour Party Pakistan in Karachi in march 2011 Karachi is home to a bewildering number of political parties and campaigning groups

Arriving here in their thousands, the Pashtun newcomers are in competition for land and jobs with the Urdu-speaking community.

MQM leaders say these new arrivals must not be treated as long-term inhabitants of the city - a call at odds with its identity as a party of migrants.

They say that there is a link between the growth of the Pashtun community and the "Talibanisation" of parts of the city - the Taliban is predominantly made up of Pashtun people.

The MQM say they will resist this at all costs, and this bellicosity has led to violence which has claimed dozens of lives.

Some of it has also involved separate turf battles between Karachi's Baloch community - the original inhabitants of the city - and the MQM.

"It's a complex political and ethnic problem which needs to be handled with extreme care," says a local human rights activist.

Riaz Haq said...

Here's a Reuters' story on underground parties in Pakistan:

Women in short skirts and men with gelled hair bump and grind on a dance floor as a disc jockey pumps up the volume. The air is thick with illicit smoke and shots of hard liquor are being passed around. Couples cuddle and kiss in a lounge.

This is not Saturday night at a club in New York, London or Paris. It is the secret side of Pakistan, a Muslim nation often described in the West as a land of bearded, Islamic hardmen and repressed, veiled women.

Pakistan was created out of Muslim-majority areas in colonial India 65 years ago, and for decades portrayed itself as a progressive Islamic nation. Starting in the 1980s, however, it has been drifting towards a more conservative interpretation of Islam that has reshaped the political landscape, fuelled militancy and cowed champions of tolerance into silence.

But the country remains home to a large wealthy and Westernized elite that, in private, lives very differently.

Every weekend, fashion designers, photographers, medical students and businessmen gather at dozens of parties in Islamabad, Karachi and Lahore to push social boundaries in discreet surroundings that would horrify, and enrage, advocates of the stricter brand of Islam.

"This is just epic," said Numair Shahzada, bobbing his head to the beat at a party in a farmhouse outside Islamabad as fitness instructors moonlighting as bouncers looked on. "The light and smoke show is phenomenal."

Young men and women mix freely, dancing, talking or drinking. Some curl up together in quiet areas.

Although alcohol is prohibited in the country, many have brought their own liquor. Whisky is carried in paper bags and vodka is disguised in water bottles arranged along the dance floor.

The party-goers form only a tiny minority of the country's 180 million people, but overall, Pakistan is not repressive. Women can drive, are enrolled in universities and have played prominent roles in politics. Unmarried men and women can interact without risking the wrath of religious police.

People from its most populous province, Punjab, are renowned for their exuberance.

But a conservative form of Islam is chipping away at the tolerance.

A few hours drive from Islamabad's party circuit, parts of remote tribal regions have fallen under the sway of hardline Taliban militants, who dream of toppling the U.S.-backed government and creating a society where revelers would face flogging, or worse....