PEACEW RKS

INFORMALITY IN KARACHI’S 

LAND, MANUFACTURING, AND 

TRANSPORT SECTORS

Asad Sayeed, Khurram Husain, Syed Salim Raza

[ [

implications for stability
Cover photo: iStock. Karachi, Pakistan—June 17, 2010: 

A Pakistani shopkeeper stands among his power 

tools, table saw, and drills, imported as scrap from 

other countries. The shop is located in Shershah 

Kabari Market (scrapyard), in Karachi, Pakistan. Photo 

by Danish Khan.

The views expressed in this report are those of the 

author(s) alone. They do not necessarily reflect the 

views of the United States Institute of Peace.

United States Institute of Peace

2301 Constitution Ave., NW

Washington, DC 20037

Phone: 202.457.1700

Fax: 202.429.6063

E-mail: usip_requests@usip.org

Web: www.usip.org

Peaceworks No. 114. First published 2016.

ISBN: 978-1-60127-575-2

© 2016 by the United States Institute of Peace

About the Repor

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 Author

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.
PEACEWORKS • MAY 2016 • NO. 114

CONTENTS

Introduction ... 5

Evolution of Informality and Instability in Karachi ... 5

Informality, Violence, and Instability: The Conceptual Framework ... 9

 Land ... 9

Manufacturing ... 20

Transport ... 23

The Way Forward ... 28

[Informality is widely prevalent in almost all of Karachi’s 

economic sectors and has both contributed to and been 

impacted by instability.]

USIP.ORG 3

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

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.

USIP.ORG 5

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Introduction

Karachi, with an estimated population of sixteen million, is Pakistan’s largest city and the fifth 

fastest growing mega city in the world.1 It is the country’s only port and serves as the main 

commercial and industrial hub. Due in large part to its rapid population growth and shifts 

toward deregulation and privatization, the city has a sizable informal sector that appears to 

drive most job creation in the area. However, little research has been done on the sector, and 

despite the nationwide prevalence of informality, there is no consensus on the size of Pakistan’s 

informal sector as a whole or its impact on economic growth. Previous studies, using various 

methodologies, have estimated the size to be between 20 and 91 percent of the formal economy.2

Research is also lacking on the linkages between informality and stability. While it is clear 

that instability in Pakistan has had a negative impact on the economy, it is less clear how 

informality may have contributed to instability and vice versa. And given Karachi’s history 

of violence and the past several years of ethnic, political, sectarian, and militant conflict—

resulting in thousands of deaths and at times the city’s dysfunction—it is important to identify 

and understand these linkages. 

Between December 2014 and April 2015, the United States Institute of Peace examined 

the evolution of informality and instability in Karachi (1947–present) to lay out a conceptual 

framework. The Institute then conducted extensive field research to explore the city’s land, 

manufacturing, and transport sectors. These sectors were chosen because each one offers a 

different perspective of the relationships between informal economic activity and social and 

political stability. Each sector also engages large numbers of people, which makes understanding 

the structure of informality even more crucial. With this increased understanding, it will be 

easier to determine whether and how much to formalize the sectors for improved economic 

growth, stability, and quality of life.

Evolution of Informality and Instability in Karachi

In addition to being, by far, the largest city in Pakistan, Karachi is the most ethnically and 

regionally diverse, mainly because of several mass migrations that occurred after the Partition 

of India in 1947. Between 1941 and 1951, the population almost tripled (a 161 percent 

increase), and over the next decade, it rose another 80 percent.3 As a result, the local state had 

to build anew, virtually from scratch. These factors, among others, largely contributed to the 

gradual movement toward sociopolitical instability and the state’s inability to effectively deliver 

services to its citizens.

Formality-Informality Continuum

For the first three decades after the partition, Karachi was relatively stable and served as the 

economic nerve center of Pakistan. Sociopolitical problems existed, but the developing state 

was able to handle them as well as could be expected. Karachi’s immediate and most acute 

crisis was housing the large mass of refugees who migrated from India. The first priority was 

to house those bureaucrats responsible for essential functions of the state.4 While this task was 

fulfilled, and subsequently, the upper and middle classes were also settled, there was a halfhearted attempt to settle working-class refugees. While some of them were settled in central 

parts of the city, the military regime of Ayub Khan (1958–69) planned to settle many more in 

the city outskirts (Korangi), adjacent to a newly developed industrial zone. This plan was only 

half implemented though, and people began to settle in areas without any legal titles. Informal 

Between 1941 and 1951, 

the population almost 

tripled (a 161 percent 

increase), and over the next 

decade, it rose another 

80 percent. As a result, 

the local state had to 

build anew, virtually from 

scratch. These factors . . . 

largely contributed to the 

gradual movement toward 

sociopolitical instability 

and the state’s inability to 

effectively deliver services 

to its citizens. 
6 USIP.ORG

PEACEWORKS 114

developers then gradually started to establish and provide these areas with basic amenities (e.g., 

water, electricity, roads, and transport). However, because of the lack of legal titles, threat of 

eviction always hung over the residents.5

The nascent, postindependence state was able to provide the necessary amenities in its 

central, urban areas—and at a pace that, while not commensurate with population growth, was 

swift enough to enable a smooth functioning city. 

Industrialization in Karachi also proceeded at a rapid pace. Five new industrial zones were 

created,6 and the state’s industrial policy elicited substantial investment in large-scale, formal 

industry. This initiative not only created large swathes of employment that absorbed many 

existing migrants but also prompted further migration from other parts of the then western 

wing of Pakistan. 

The transport sector seemed to develop at an equal rate: Karachi inherited a tram network 

from the colonial state; a public sector bus service was added soon after; and the circular railway 

was introduced in 1964. 

However, starting in the 1970s, this process of steady formalization of employment and 

services witnessed a reversal. After the center-left Pakistan Peoples Party (PPP) government 

came into power, significant nationalization of industries and pro-labor legislation ensued. This 

prompted the disintegration of the textile industry and, more generally, inhibited investment 

in large-scale manufacturing. The reversal also led to more technology-related work being 

outsourced to smaller establishments and a significant increase in temporary employment by 

formal enterprises in order to evade labor welfare legislation. 

In the 1980s and 1990s, informal service delivery began to rise. Underinvestment and 

mismanagement resulted in a steady decline in the public provision of water, electricity, 

transport, policing, roads, and social services. This informalization coincided with the first 

Afghan war in the 1980s, which made Karachi an important conduit for the importation of 

arms and exportation of drugs. As such, the (in)famous “kalashnikov” and “heroin” culture 

took root in the city and generated illicit income streams that found their way back into 

various speculative activities, particularly land and transport.7 Also in the 1990s, an important 

economic policy shift began in Pakistan. The process of privatization and deregulation further 

expanded informality in service delivery and the labor market. On the one hand, this reduced 

the bargaining power of labor (as several strong public and private sector unions weakened) 

and slowly created more jobs in the informal sector. But, on the other hand, this led to 

gradual erosion of the state’s regulatory capacity and a decline in fiscal revenues as a result of 

privatization, which, in turn, led to further underinvestment in services. These consequences 

created a vicious cycle where services that were not ready for privatization were also being 

starved of resources. Underinvestment in transport, water, and urban infrastructure, in 

particular, led to their increasing informalization.

Impact of Ethnicity on Political and Social Instability

Following the partition in 1947, Sindhi speakers went from constituting 60 percent of the 

total population in Karachi to just 8.6 percent of the population, with Urdu-speaking migrants 

or Mohajirs making up 50 percent by 1951.8 However, two waves of migration in the 1970s 

and 1980s led to further diversification, decreasing the Mohajir population to 44 percent as of 

2011. Together, Sindhi, Pushto, Punjabi, Kachhi, Gujarati, Bengali, and Burmese speakers now 

have a significant presence in the city, but Mohajirs are projected to remain the single largest 

ethnic group through 2025 (more than double the size of the next group).9

In the 1980s and 

1990s, informal service 

delivery began to rise. 

Underinvestment and 

mismanagement resulted 

in a steady decline in the 

public provision of water, 

electricity, transport, 

policing, roads, and 

social services. 
USIP.ORG 7

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

For several decades after the partition, Karachi’s politics reflected the pattern found elsewhere 

in the country or anywhere in the postcolonial developing world. The main sources of political 

mobilization were student and labor unions. These unions, in turn, were organized along ideological 

lines; the National Students Federation and the Islami Jamiat Talaba (IJT) represented the leftists 

and Islamic conservatives, respectively. While conflict existed between the two ideological groups, 

the state managed the situation well enough that political activity remained largely nonviolent. 

However, during 1969–72, labor union activity against factory owners in the city became intense. 

The state squarely backed the owners of capital and not only arrested trade unionists frequently 

but, on several occasions, fired on them and killed some workers.10

An upswing in ethnic mobilization began in 1964, when the son of former president Ayub 

Khan used a show of force against Pakhtuns at the time of Ayub Khan’s election. Later, in 

1972, the Urdu-speaking population of Karachi revolted against the introduction of the Sindhi 

language in school curricula. While these were episodic events and the state quickly contained 

them, they sowed the seeds for ethnic polarization. 

Political and social instability took a new turn with the emergence of the Mohajir 

Qaumi Movement (MQM), which sought to mobilize the Urdu-speaking ethnic segment 

of Karachi’s population under an ethnic/nationalist banner. Explanations for the emergence 

of ethnonationalism among Mohajirs have varied. The more conspiratorial explanation links 

it with the state’s support of the military dictatorship of General Zia ul Haq to help dilute 

opposition against his regime by the PPP, which had a strong base in rural Sindh.11 The timing 

of the MQM’s formation in 1984—soon after the resistance to Zia in the Sindh hinterland 

through the Movement for the Restoration of Democracy—has provided popular credence 

to this explanation. The more dominant explanation, though, attributes the rise of Mohajir 

ethnonationalism to the perception of relative deprivation for the Urdu-speaking minority, 

compared with the economic, social, and cultural development occurring in other regions of the 

country.12 The pre-1973 constitutional arrangement not only bestowed economic advantages 

on the Mohajirs but also suppressed the linguistic and cultural markers of other ethnicities, 

thereby enabling the Mohajirs to dominate other ethnic groups, except the Punjabis. The 

federal character of the 1973 Constitution, based on provincial autonomy, empowered the 

Sindhis, the majority ethnic group in the province. The MQM’s emergence is thus seen as a 

reaction to its diminution in status in the new federal architecture of Pakistan.13

Regardless of which explanation is valid, for the purpose of tracing the ethnicization 

of politics in Karachi, the emergence of the MQM’s student wing—All Pakistan Mohajir 

Student Organisation (APMSO)—in 1978 is an appropriate marker. The APMSO was at the 

receiving end of violence at the hands of Jamaat-e-Islami’s student wing, the IJT. As such, it 

used the same methods of violence to stamp its authority on Karachi’s political landscape and 

organize itself internally. It was in 1984 that MQM emerged as a fully-fledged political entity. 

The MQM’s political strength was first put to the test in the 1987 local body elections. MQM 

virtually swept these elections and signaled its presence as the most potent political force in 

Karachi. Instead of voting for religious parties, as often done historically, partition migrants 

opted for the MQM.14

However, the PPP retained its traditional vote bank among the Baloch and Sindhis.15 PPP 

has had the reputation of being a pro-poor, center-left party with support from the urban 

poor and liberal/left intelligentsia. While it still retains that character, it is increasingly seen 

as representing the Baloch and Sindhis. Similarly, following the trend of ethnicization, the 

Pakhtuns in Karachi have also sometimes coalesced around a particular political party. 
8 USIP.ORG

PEACEWORKS 114

Lower-level collective action also became fragmented along ethnic lines, because most 

associations tended to link up with higher-level political organizations, including business, 

trade, and residential associations. The process of informalization and privatization has 

rendered trade unions virtually ineffectual in Pakistan. Those unions that exist—mostly in the 

public sector—are linked to political parties and do not have a stake in Karachi’s politics. 

Over the years, Karachi’s instability and violence has taken the form of (1) interethnic 

violence, (2) state crackdowns on one ethnic group to the exclusion of others, (3) domination 

by one ethnic group, and (4) sectarian violence. 

The first instance of ethnic violence in Karachi was in late 1986, when the MQM engaged 

in a pitched battle with the Pakhtuns over control of territory in the city’s Orangi/Qasba area. 

The MQM and the Sindhi population remained in conflict during the next five years, which 

kept the city destabilized. After dismissal of the PPP-led federal and provincial governments 

in 1990, MQM gained provincial-level state power over Karachi—to add to the local 

government powers it had acquired earlier in 1987. With this domination came an increase 

in petty crimes, extortion, and kidnappings.16 The MQM was both blamed for the increase in 

crime and accused of staffing the police and other government departments with its personnel. 

As a result, the state launched a military operation against the party in 1992. The operation 

was largely unsuccessful up until the 1993–96 period, when the police and Rangers managed 

to eliminate numerous, alleged MQM militants. 

From 1997 to 2002, the state response continued at varying levels of intensity as MQM’s 

political influence receded. However, after the 2002 general elections, Pervez Musharraf ’s 

government provided the MQM de facto power through the provincial government in 

Karachi, which was further reinforced by its success in the subsequent local body elections 

held in 2005. Thus began MQM’s domination through to 2008. A precipitous increase in 

petty crime ensued (mainly mobile phone snatching at gunpoint and extortion rackets), along 

with the targeted killing of policemen who had participated in the state’s operation against 

the MQM and against some political opponents. This domination over Karachi by the MQM 

also allowed them to corner rents, mainly through land and by inducting its supporters in 

government jobs. This, in turn, created significant tension with other ethnic groups, many of 

whom were at the receiving end of land acquisitions and were deprived of government jobs. 

The 2008 elections served to break MQM’s exclusive control on state power. The PPP won 

a large share of the votes, and its majority in the provincial assembly enabled it to form the 

provincial government. In addition, for the first time, representatives of Pakhtuns were elected 

under the Awami National Party (ANP). Thus, power was disbursed in the city across three 

major ethnicities. Arguably, though, because of this dispersion of power, this period turned out 

to be cumulatively the most violent and unstable in the history of Karachi.17 

Apart from ethnic-based instability, Karachi has also experienced episodes of religious 

and sectarian violence over the last two decades. From the mid-1990s to the early 2000s, 

Karachi witnessed a spate of targeted killings, primarily directed against the Shia community. 

However, in 2009, Islamist militants established a presence in the city and have been involved 

in several bombings and killings of minority sects. Violence perpetrated by the Taliban and 

other militant Islamist groups reached its zenith in the run up to the 2013 national elections.18 

The Taliban publicly announced that parties in opposition to them would not be allowed to 

campaign. As such, the MQM, PPP, and ANP were all victims of extremist violence at that 

point. It is important to note, though, that in these elections, the people of Karachi again voted 

in favor of the MQM, giving it thirty-three of the forty-two provincial assembly seats.

Over the years, Karachi’s 

instability and violence 

has taken the form of 

(1) interethnic violence, 

(2) state crackdowns on 

one ethnic group to the 

exclusion of others, 

(3) domination by one 

ethnic group, and (4) 

sectarian violence. 
USIP.ORG 9

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Informality, Violence, and Instability: The Conceptual Framework

Typically, in countries where states have a monopoly over (legitimate) violence, organized 

groups bargain with the state for resources, generally under a formal framework. However, 

where states cannot enforce their writ, informal developers and organized groups often compete 

for resources; and as informality increases, the state’s ability to mediate the contests tends to 

decrease, leading to the high potential for violence. Informality in Karachi was borne out of 

three dimensions. The first, and most common for developing countries, was rapid population 

growth and reduced capacity to deliver goods and services.19 The second was state policy that 

deregulated and privatized large swathes of the economy. The third was the state’s direct or 

indirect support of certain groups and/or turning a blind eye to their violence, thus gradually 

decreasing the state’s monopoly over violence. Over time, this policy made the state vulnerable 

to capture by groups through formal and informal means. Political parties and their coalitions 

competed for control of the local state through elections and also informally vied to capture the 

nonelected bureaucratic and law enforcement arms of the state by inducting their personnel. 

The intensity of violence brought on by sociopolitical factors was elevated by the influx of 

arms in the country, which, in turn, was intimately linked to Pakistan’s geostrategic forays in 

covert warfare. Karachi has been particularly vulnerable to arms imports because of its port. 

In the last decade or so, due to geopolitical policies of the state, religious groups that have a 

violent agenda have gained prominence in Pakistan, particularly in Karachi. These groups have 

been able to infiltrate the city because of the state’s weakness and its multiethnic composition. 

Over time, ethnic and religious groups have become somewhat fractured, and violent groups 

have broken away from their parent organizations. This delinking has created “mafias” that 

operate across a range of activities and areas in the city. Without the discipline of a larger 

political entity, reigning in these mafias has become all the more difficult and has added a more 

vicious dimension to instability in the city. 

With the above history and framework as context, this study explored three important 

sectors—land, manufacturing, and transport. They each present varying degrees of informality 

and, thus, offer different causal linkages with instability. They are also of significant economic 

and social importance to the citizens of Karachi. An in-depth understanding of the linkages 

between informality and instability will reveal whether and how much reform is needed at the 

sectoral level.

Land

The influx of six hundred thousand refugees’ as a result of partition, as well as several subsequent 

mass migrations, left Karachi in severe need of a master plan to meet the population’s demand 

for housing. While several plans have been instituted over the years, none have had much 

success due to frequent changes in government, the shifting of capital to Islamabad, and poor 

governance in general. As a result, a large gap between the demand and supply of housing 

has emerged. 

An estimated 96,500 housing units per year were needed between 1987 and 1991, and only 

26,700 units were supplied.20 In response to the shortage, the market built squatter settlements 

or katchi abadis (KAs). In 1987, 37 percent of Karachi’s population lived in these settlements, 

and in 1999, this number rose to an estimated 50 percent.21 Further, in 2012, an estimated 55 

percent of the population were living in unplanned or only partially planned areas, highlighting 

the persistence of this issue.22

In 2012, an estimated 55 

percent of the population 

were living in unplanned 

or only partially planned 

areas, highlighting the 

persistence of this issue. 
10 USIP.ORG

PEACEWORKS 114

The shortage of informal housing has disproportionally affected low-income residents. 

Housing schemes have largely catered to high-income residents—and some of these schemes 

continue to expand. Further, while constituting a smaller percentage of the population, highincome residents occupy a greater portion of land. To put this into perspective, 27 percent of 

land in Karachi is used for formal residential areas; conversely, 8.1 percent of the land is used 

for informal residential areas, catering to more than 50 percent of the population.23

Karachi’s land development has emerged via illegal, informal, and formal means, where the 

“formal” often stems from the government’s discretionary powers in making exceptions to rules 

and regulations. Given the city’s ethnic diversity, continued population growth, and increasing 

housing needs, contestation over land has often been the cause of instability in the city.

Given the government’s lack of capacity to provide low-cost housing, land for settlement 

is a recurring source of conflict among communities. And given that various political parties 

represent these communities, are supported by their militant wings, and work in partnership 

with builders, corrupt bureaucracy, and often criminal operators, Karachi’s urban growth 

has been riddled with the illegitimate capture of public land through organized squatting, 

outright land grabbing, and “China Cutting” (the encroachment into public space established 

for amenities). Land is the largest source of income generation in Karachi’s shadow economy, 

which can foster more informal and illicit activity. 

Contributing to this overall situation is that Karachi’s complex mélange of ethnic, economic, 

and social communities are not linked, through voice and representation, to the city’s political 

and administrative management structure. An empowered local government—which does not 

exist—is indispensable to creating this link. Further, there has been no orderly integration of 

informal, low-cost housing into the mainstream infrastructure of the city. 

Formally recognizing Karachi’s low-income KAs would likely generate numerous 

salutary outcomes. It would offer a replicable way to absorb the rising poor population, create 

a powerful incentive for Karachi’s communities to cooperate, and support the expansion of 

microbusinesses that have developed on the settlements. Moreover, it would release “locked” 

equity value for house owners through allowing them to borrow against proper title deeds; 

this, in turn, would enable them to build additional floors and further expand their businesses, 

potentially leading to increased income and employment at the grassroots level.

However, key impediments to sustainable land planning and management in Karachi 

include the fragmentation of landholdings across seventeen land-owning agencies and the 

provincial government’s overriding discretionary power. These impediments undermine 

binding constraints imposed by building rules and regulations and distort the integrative 

framework of the city’s master plan. 

The lack of an empowered local government is also an obstacle to sustainable urban 

development. Karachi needs to have strong local representation and accountability and its 

own “funds, functions, and functionaries” to build the accessible system of governance the city 

requires for its stability and prosperity.

Master Planning in Karachi

Karachi’s seventeen land-owning agencies each have their own bylaws, standards, and planning 

powers. Coordination and consultation with the Master Plan Authority for Karachi would 

be required, but the provincial government has never approved an entire master plan, so this 

requirement has remained largely inoperative. The Karachi Division is about 3,400 square 

kilometers—of which 1,300 is urban. Within the urban precincts, the Karachi Development 

Twenty-seven percent of 

land in Karachi is used for 

formal residential areas; 

conversely, 8.1 percent 

of the land is used for 

informal residential areas, 

catering to more than 50 

percent of the population. 
USIP.ORG 11

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Authority owns 31 percent of the land, the Sindh government owns another 18 percent, and 

government and military agencies own the remainder. Only 9 percent of Karachi’s land is 

owned by private bodies.24

Many of the land-owning agencies operate with inadequate budgets. Property rates and 

charges levied are low to begin with and are frequently paid late or not at all. To generate 

extra revenue, agencies have allowed densification (high rises) and commercialization to take 

place in many parts of Karachi, without public referral or coordination with the city’s traffic 

and utility/power services. As a consequence, significant construction has occurred without 

approvals and has created traffic congestion and strain on utilities.

Furthermore, wealthy private financiers and powerful developers often gain land allocation 

and project rights through collusion with bureaucracy or political connections. Coordination of 

new mega-developments with the city’s private town planners, architects, and environmentalists 

is infrequent and largely immaterial to the outcome when it does happen. 

The provincial government’s discretionary power and land-owning agencies’ operational 

latitude could have been contained by a duly-constituted Master Plan Authority and a fully 

approved master plan. Although master planning for Karachi has been a recurrent exercise 

since the partition in 1947, the resulting plans have never been wholly adopted (i.e., published 

by the provincial government, with binding force thereafter). 

Draft Plan—1948

A draft master plan for Karachi was commissioned in 1945, but by the time the plan was 

drawn up in 1948, events in the country changed the parameters and the plan was shelved. The 

population explosion that occurred after the partition led to squatting in the city’s open areas 

and encroachment into its playgrounds, parks, schools, and colleges. The city’s administrative 

authorities prioritized the development of housing societies for government employees and 

middle-class segments (e.g., Nazimabad and Liaqatabad) and largely ignored the needs of the 

low-income population, which comprised an overwhelming majority of the refugees.

Merz Rendall Vatten Plan—1952

The first, complete master plan was developed by a Swedish firm, Merz Rendall Vatten. The 

plan envisaged the transfer of all government offices to a new city to be built in Gadap, north 

of Karachi, while refugees would be settled in ten-floor blocks to be built alongside several 

miles of the Lyari riverbed, between the old city and the new center for government. The main 

industrial zone for the city was planned to run alongside the high-rise blocks to the west. 

Reluctance, or simply inertia regarding the en masse relocation of government offices, put an 

end to this plan.

Greater Karachi Resettlement Plan—195625

The Greater Karachi Resettlement Plan (GKRP) was developed by the Greek architect and 

town planner, Doxiadis. Encouraged by the president of Pakistan to clear the city center and its 

environs of all shanties and squatters, Doxiadis planned a city where low-income groups would 

be settled in two large satellite towns to be built 25 kilometers to the northeast (Korangi) 

and northwest (New Karachi), with their own industrial and commercial centers. The plan’s 

implementation started with major construction of refugee housing at Korangi. The transfer 

of squatters from the city center began, but the project failed to gain momentum mainly 

because jobs for this population were scattered around Karachi and transport was expensive 

Many of the land-owning 

agencies operate with 

inadequate budgets....To 

generate extra revenue, 

agencies have allowed 

densification (high rises) 

and commercialization to 

take place in many parts 

of Karachi, without public 

referral or coordination 

with the city’s traffic and 

utility/power services. 
12 USIP.ORG

PEACEWORKS 114

and inadequate. Jobs were in and around a radius of 10 kilometers from the city itself, while the 

allocated settlements were planned 30 kilometers away. Thus, travel to their workplaces would 

take up a substantial part of the residents’ income and time. In addition, the industrial zones 

in those satellite towns, which would have provided employment, were slow to develop; the 

necessary roads, water and sewage utilities, and power infrastructure were long delayed.

Much of the transferred population left Korangi and joined the freshly evicted population 

moving out from Karachi to establish informal KAs. Today, these settlements, located in 

between the proposed satellite towns and the main city, are now much larger in size and 

density, constituting a major portion of low-income settlements in the city. In 1959, the 

decision to transfer the federal capital to Islamabad broke the momentum of the GKRP, 

which was then shelved.

There have since been sporadic attempts to create housing colonies on the land 

allocated for low-income settlement. For the most part, though, the land has been bought 

or “earmarked” for purchase by the city’s land developers (for the construction of middleincome colonies, as infrastructure falls into place)—essentially making the areas unaffordable 

for low-income populations.26

Planning Lapse—Early 1960s to Mid-1970s

For the next twelve years, urban planning largely lapsed. Orangi, Baldia, and Qasba were 

identified for the establishment of large-scale, low-cost housing, but transport links and 

utility infrastructure remained undeveloped for a long time. As the city’s population grew, 

government land located near the city was illegally subdivided (enabled through collusion 

between land-owning agency officials and developers and politicians), adding steadily to the 

number of informal KAs. In their quest to live near the city, communities settled alongside 

road and rail corridors and alongside the major natural drainage systems of the city. 

Karachi Master Plan—1975

Prepared with assistance from the United Nations Development Programme (UNDP), the 

next master plan covered a ten-year period (1975–85). At the time of its development, squatter 

settlements were mushrooming, and the city lacked a clear vision for meeting its urban zoning, 

utility, and transport needs. 

The planning process yielded the first comprehensive collation of data for urban settlements in 

Karachi since 1947. Through well-considered directional mapping, the plan identified Karachi’s 

future expansion corridors, with the aim of addressing the low-income population’s need for 

adequate utility and transport infrastructure and close proximity to employment opportunities.27

However, little implementation ensued. The plan had made two basic assumptions that 

failed to recognize Karachi’s functional realities: It assumed that an empowered executive 

agency to oversee implementation existed and that city authorities had the financial capacity 

and singular power to develop Karachi. It had envisaged that a Master Plan Office (MPO) 

would oversee all the land-owning agencies, requiring them to consult and coordinate with the 

MPO. But, the office was not given any formal authority to compel land-owning agencies to 

follow its directions, so even if it had been instituted, it would likely have been ineffective. The 

Master Plan Authority—even when it was accredited (e.g., by the City District Government 

Karachi or CDGK during 2004–10)—was unable to prevent each land-owning agency 

from developing its plans independently, even when these plans had implications for the 

city’s infrastructure.
USIP.ORG 13

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Karachi Development Plan—1986

Also developed by the UNDP, the fourteen-year Karachi Development Plan (KDP) 2000 

dictated, again, that a central authority for the master plan be created—the Karachi Division 

Physical Planning Agency. However, the provincial government authorities never formally 

approved the plan. KDP required a computerized mapping of Karachi’s land and building 

profile to be constantly updated, so that planning could be based on real-time versions of the 

city’s profile; and this would have bound the provincial government and land-owning agencies 

to prior consultation, so it was unlikely to have been acceptable to them.

Karachi Strategic Development Plan—2007

The current thirteen-year master plan, Karachi Strategic Development Plan (KSDP) 2020, 

is the first-ever approved plan (under a resolution of the City District Council Karachi) and 

was initially given legal status under Section 40 of the Sindh Local Government Ordinance 

(SLGO) 2001. It was prepared by the Master Plan Group of Offices of the CDGK under a 

2001 presidential ordinance that greatly strengthened local government institutions. KSDP 

2020 envisages a denser, commercial city, with land allocated specifically for business parks and 

educational centers. Implementation of some plan initiatives had begun when a lapse of the 

local government ordinance in 2010 stopped any further operation (the master plan has now 

been subordinated to a Sindh government body no longer “owned” by the city).

As a result of the collective failure of the formal system to provide low-cost housing, 

communities have developed their own, quite comprehensive, responses. It is important to 

look at KAs as they are now constituted. They are already functional ecologies of settlement 

and enterprise. Formally recognizing the KAs and allocating moderate resources to upgrading 

infrastructure could foster significant progress toward addressing the land issue for low-income 

groups and resolving a major source of conflict between Karachi’s communities.

Evolution and Functioning of Informally Established Low-Cost Housing

At least half of Karachi’s population lives on 8 percent of its land in KAs.28 As described earlier, 

land allocated for low-income housing was set far from the city, and transport and utility 

infrastructure were long delayed. In the absence of viable planning by the state, the burgeoning 

low-income population responded by squatting on vacant land in or close to the city’s center, 

usually assisted by “entrepreneurs” from their communities. In collusion with law enforcement 

and land and building authorities, the entrepreneurs subdivided the land into 80–100 square 

meter lots in a grid layout and provided basic utility infrastructure; their intention was to make 

the settlements suitable for anticipated formal regularization. This anticipation was based on 

the announcement of Prime Minister Zulfiqar Ali Bhutto in the mid-1970s that KAs would 

be regularized (i.e., be given ex-post official approval for their construction) and was reinforced 

later in 1987, when the government set up the Sindh Katchi Abaadi Authority (SKAA). The 

SKAA was empowered to formally transfer the land to individual KAs and subsequently 

upgrade the KA and provide formal utility supplies to the settlement. To date, though, the 

SKAA has been unable to formally transfer all the land, as KAs have continued to expand.

Viability of KAs as Sustainable Housing

KAs can serve as a building block for sustainable housing because they were developed through 

grassroots private enterprise, without any assistance from the government beyond allowing the 
14 USIP.ORG

PEACEWORKS 114

encroachment of land. Unlike Rio de Janeiro’s favelas (slums) and Turkey’s gecekondus (squatter 

settlements), KAs were largely built on grid patterns, with identified areas for residences, retail 

shops, and amenities (e.g., schools, clinics, prayer centers). If slums are defined as squalid 

habitations that are built from nondurable building material and lack water and power, 

sanitation, and official acknowledgement of their existence, then most KAs in Karachi, which 

house eight or nine million people in all, are not slums. However, all KAs would need some 

level of infrastructure upgrading (e.g., for creating more water supply/sewage connections to 

main trunks).29

In addition to Orangi and Baldia, many large KAs are located close to the city’s business 

district and high-income residential and shopping areas, with limited, but operative, bus services 

providing access. Furthermore, KAs have their own business operations, joint community 

enterprises, amenities, and entertainment. Property ownership, albeit mainly informal, has 

generally allowed collegial relationships among the typically diverse communities living in 

KAs. Management of a KA is seamlessly shared among members of different communities, 

and the intermingling that occurs through schools, mosques, leisure activities, and business 

relationships brings further cohesion.

In addition to supporting inhabitants’ needs, KA businesses also supply large businesses in 

the city with garments, coarse cloth, utensils, and electronic repair services. The residents also 

work as domestic help, plumbers, carpenters, electricians, and so on for the nearby elite and 

upper-middle class residential areas.

As a “reserve” land asset, KAs have vertical space to accommodate population growth, with 

the potential to add floors to all the single or double story units. A rough estimate suggests that 

an average increase of all KAs to ground plus three floors would provide accommodation to at 

least another 1.5 million people. Any large-scale expansion would require access to significant 

financing though.

While KAs’ property values have been rising steadily, owners cannot unlock any monetary 

value from the capital accrued in their homes. Borrowing against home mortgages would enable 

them to upgrade and expand their properties or leverage their businesses. Such financing could 

thus play a strong role in raising incomes and wealth at the grassroots level and contribute to 

overall stabilization of the city.

Formal Finance as a Route to Consolidating Regularization of KAs

KA properties are not financed by banks because most lack title deeds and planning permission. 

Before title deeds can be issued for a KA property, the entire settlement will need to gain official 

sanction (i.e., regularization from the land-owning authority concerned). According to the 

SKAA, almost 90 percent of the KAs built prior to 1985 were notified (approved in principle) 

for regularization (i.e., 489 out of 564). Records show that 452 have been regularized—

through demarcation, the transfer of land, and the establishment of individual titles—but the 

SKAA’s records are out of date. Since 1985, KAs have expanded greatly, new ones have been 

established, and population density has grown exponentially. The SKAA’s record covers 2.5 

million people living in KAs in 1985, but the population today is nearly four times bigger. The 

authority’s work has slowed, and with the creation of the Sindh Special Development Board, 

its original mandate stands compromised.

Demand and Price Pressure on Existing KAs

Demand for housing continues to grow due to natural population growth, migration, and 

newly married couples wanting their own abodes. The KAs have responded by building 
USIP.ORG 15

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

upward, and the number of ground plus two- and three-floor buildings is increasing; a floor or 

two in a four-story block will often be rented out for additional income. As a result, there are 

now 2,800 people per hectare versus 200 people per hectare in Karachi’s elite residential areas.30

The price of a standard 80–100 square meter KA property has been increasing along with 

demand and currently equates to seven years of income for the average low-income wage 

earner.31 The accepted industry ratio for affordability is considered to be four years of income,32

which was the case in Karachi a decade ago. Consequently, more people are renting; depending 

on the area, 33–50 percent of the housing units may be rented.

The SKAA could oversee the implementation of incremental KA schemes on vacant 

government land (e.g., similar to the Khuda-ki-Basti scheme), as well as the upgrading of 

existing KA infrastructure. However, the associated costs (e.g., for connecting sewage lines to 

the main trunks) would need to be heavily subsided by the residents via labor and resources. 

Ideas, guidance, and advice could be garnered from the Khuda-ki-Basti Project and Orangi 

Pilot Project and from some nongovernmental organizations that have worked in KAs. 

Regrettably, the provincial government’s current plan has taken a different shape. The newly 

created Sindh Special Development Board is mandated to densify Karachi through high-rise 

buildings in elite and upper-middle class areas of the city. The proposed construction would 

involve relocating residents in major, well-situated KAs to high-rise, 600 square feet apartments 

on 25 percent less land area and releasing the adjoining land to develop commercial and 

residential projects for the elite. The KA inhabitants would be given apartments in exchange 

for vacating their KA houses.33 Whether those houses approved for regularization, but still 

without proper title deeds, could be left out of the arrangement is still to be discussed. 

Various town planning experts have criticized the plan due to multiple factors: (1) financial 

(building new versus upgrading the existing); (2) social and commercial (building vertically 

versus horizontally—the present horizontal spread offers conveniences for conducting 

business activities, and the streets/open ground offer spaces for social interaction and common 

amenities); and (3) environmental (constructing new high-end commercial/residential 

buildings will add to traffic congestion, strain power and water supply capacity, etc.). The plan 

will likely be reconsidered.34 (Several examples of official misuse of authority for land use are 

being examined by the country’s criminal investigation agencies as a by-product of the Rangers’ 

actions against criminal elements associated with political parties. Numerous plans such as this 

one will likely be suspended until further evaluation.)

KA Formalization and Access to Finance

Currently, the equity released through mortgages on existing homes in KAs is negligible (less 

than Rs. 5 billion nationally for low-cost housing, according to the State Bank of Pakistan), 

while finance for land purchase and construction is unknown. The commercial bank lending 

rate for all types of residential mortgages in Pakistan is one of the lowest in the world at 0.2 

percent of the gross domestic product.35 India (9 percent), Thailand (17 percent), China (22 

percent), and Malaysia (33 percent) all had much higher rates in 2012.36 For KA inhabitants, 

their locked property value is significant and growing; if they cannot access it, they may—for 

business or personal reasons—be forced to sell in the informal market to crystallize capital 

and then use some of it to relocate to less costly land elsewhere in the city. This would simply 

perpetuate the current housing problem.

The precise number of existing KA units is unknown, and so the monetary value of the 

KAs’ land and property can only be approximated through tenable assumptions. According 

to Arif Hasan and others’ estimates, Karachi has about one thousand KAs, housing about ten 

The price of a standard 

80–100 square meter 

katchi abadis property 

has been increasing along 

with demand and currently 

equates to seven years of 

income for the average 

low-income wage earner. 

The accepted industry 

ratio for affordability is 

considered to be four 

years of income. 
16 USIP.ORG

PEACEWORKS 114

million people. Assuming the average unit is two floors, with a density of six people per floor, 

this would mean approximately 830,000 housing units exist. Prices of these units vary. KA units 

close to upmarket residential areas and the city center (e.g., Qayyumabad) can have a market 

value of Rs. 2.5 million and up for two-story units. The price can go down to Rs. 300,000 for an 

empty plot in distant or less developed KAs. Whether the KA has been regularized also affects 

the price. Assuming an average price of Rs. 600,000 (probably conservative), total KA property 

would have a minimum value of around Rs. 500 billion.37

For communities with an average household income of under Rs. 25,000 per month, this 

is a substantial sum. Even if half of this property were to be used as collateral for debt (at a 50 

percent loan-to-value), Rs. 125 billion could be unlocked for home or business expansion. This 

could lead to increased community interdependence, a greater sense of security, strengthened 

grassroots relationships, and higher incomes—all of which would decrease communities’ 

reliance on political parties and the government for patronage.

Hurdles to Formal Financing for KAs

For bank lending to commence, individual KA units will need title deeds. Lending can start 

with microfinance banks, later expanding to larger banks. Pooling of borrowers, in some type 

of cooperative arrangement, will expand coverage in situations where the individual loans are 

small (e.g., under Rs. 200,000 each) and where individuals—who may otherwise not meet the 

bank’s income criteria—would benefit from the surplus servicing capacity of the group.

To generate valid title deeds for each KA unit, the settlement will need to be regularized, 

the individual KA home will need to be demarcated on the floor-grid of the KA, and the name 

of the home’s owner must be registered in the records of the land-owning agency. Even where 

regularization has been completed, only about a third of those eligible have actually obtained 

title deeds. The current process for issuing title deeds in KAs is protracted and cumbersome. 

The registration process involves a significant fee, can take up to eighteen months, and involves 

several bureaucratic processes (up to twenty-two steps). Hence, because the residents believe 

that a notified KA has official approval and their properties are hence safe from demolishment, 

many prefer not to pay the fees or undertake the copious registration process.

When sold or purchased, property in regularized KAs is transferred on the register of the 

land-owning agency, and property in unregularized KAs is only recorded locally. In the latter 

case, property is transferred on a confirmatory document on official stamped paper, between 

the buyer and seller, with the signatures of two community notables. Unregistered property sells 

for a discount of up to 25 percent, but in well-established KAs, the discount can be nominal. 

To encourage registration, the associated costs (money and time) must be reduced. The 

central office of each land-owning agency could delegate registration to duly empowered subregistrars in each KA. This would greatly shorten the registration process, as the local office 

would deal exclusively with a single, demarcated KA. The Khuda-ki-Basti Project in Hyderabad has successfully taken this approach, reducing the bureaucratic steps and total registration 

time to a few weeks.

To obtain bank financing for a unit exceeding one floor, KA units need the land-owning 

agency’s consent. Permission for two floors is routinely granted on application. However, 

the construction of additional floors is a grey area, as definitive planning guidelines for 

KAs do not exist. Permission can be negotiated upon “special” payments, though this is not 

commonly done for two-story plus units. Through collusion with officials, the construction 

is tacitly acknowledged. 

The current process 

for issuing title deeds 

in KAs is protracted 

and cumbersome. The 

registration process 

involves a significant fee, 

can take up to eighteen 

months, and involves 

several bureaucratic 

processes (up to twentytwo steps). 
USIP.ORG 17

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

For titling and planning to move ahead systematically, the Sindh government must outline 

a time bound agenda for the SKAA to achieve set goals and objectives. The authority needs to 

strengthen its operational capacity and consider whether Karachi is best served by devolving 

KA operations to a Sindh government body under a provincial minister. As suggested earlier, 

empowering the local government to implement the agenda, with direct representation of and 

interaction with the population, would be much more effective.

Effective Local Government 

or Formal Authority for City Planning and Development

Karachi’s lack of authority for even limited self-governance and negligible access to financial 

resources are vastly incongruous with its nationally dominant economic power. Ministries and 

agencies of the provincial government manage the city, while the local government has an 

indiscriminate role, limited to a handful of municipal functions.

Karachi’s population constitutes approximately 38 percent of Sindh’s total population.38

The PPP dominates Sindh, routinely having a simple majority in the 168 member Sindh 

Assembly. Karachi is represented by 42 of the 168 (25 percent) of the provincial assembly 

seats, and the MQM (even with some seats from other urban Sindh) are consequently junior 

coalition partners or sit in opposition. Empowering the local government for Karachi would 

normally have been the MQM’s natural objective, as the predominant party. 

However, since the lapse of the SLGO in 2011—which had set up a city government 

for Karachi with certain devolved powers—the MQM’s commitment to local government 

has been indiscernible. Rather than pursuing devolution, the party appears to be maintaining 

patronage powers through running select provincial ministries and otherwise maintaining 

its influence and control over a large part of the city through informal methods (although 

the current Rangers crackdown might be changing the situation). Whether the MQM is a 

champion for local government or sees it as a parallel power structure that would run counter 

to its desired dominance over the city is unclear. 

The issue is simple. To function effectively, an elected third tier of government will need to 

have substantial powers and revenues devolved to it (i.e., more “funds, functions, functionaries”). 

But, it is unclear whether both Sindh’s major political parties support a continuation downward 

of the eighteenth amendment to Pakistan’s constitution, which devolves substantial authority 

and finance from the federal government to the provinces. Further, public consultation on an 

appropriate form of local government for Karachi has failed to develop. 

In fact, matters have regressed. Besides amalgamating the former CDGK, created under 

the defunct SLGO, into a body of the provincial government, the Sindh executive has, 

progressively since 2008, effectively stripped the city government of even the powers it enjoyed 

under colonial rule. The Master Plan Authority has been placed under the Sindh Building 

Control Authority (SBCA), which means the master plan could be altered by the SBCA 

without due public consultation. The Sindh Special Development Board has been given 

powers to restructure the KAs through building high-rises across the city and replacing some 

of the KAs; the Solid Waste Management Board of the Karachi Municipal Authority has been 

taken over by a Sindh body; and the SKAA, charged with regularizing and upgrading KAs, is 

effectively moribund.

If the Karachi/Sindh political parties do not support empowering the local government, 

Karachi’s coherent development should then be addressed another way. The provincial 

government would need to accept the integration of detailed urban planning (i.e., the 
18 USIP.ORG

PEACEWORKS 114

disposition of land use and plans for the city’s infrastructure expansion) into an overarching 

master plan, under an independent Master Plan Authority. The provincial government’s 

discretionary power (embodied in an 1884 law) would have to be tempered by clear definitions 

of what is truly in the “public interest.”

Local Government in Karachi: 

Absence of an Overarching Planning Framework since the Demise of SLGO 

Karachi’s local government under the SLGO 2001 consisted of a three-tier system. At the 

base were 178 union (neighborhood) councils (UCs), comprising 2,314 elected representatives 

with defined administrative authority but no fiscal powers. This was the only directly elected 

cohort in the local government system. The next tier included eighteen town councils. The 

city’s mayor, at the top tier, was elected by all the UC members. 

Certain areas, such as urban land use and regulation and education and health, were devolved to the local government. The police and civil services were also devolved to the third tier 

of the government, giving the mayor additional enforcement authority.

The local government officially had its own revenue sources. The provincial government 

was to divert some of its tax receipts to the city government, and new revenue levying powers 

were granted to the local government. However, the provincial transfers were never clearly 

delineated, and, in any case, would not have been sufficient for Karachi’s huge infrastructural 

needs. Hence, the federal government directly funded the local government.

While the local government had its critics, two aspects of its functional framework held 

promise for Karachi’s long-term stability: (1) elected councilors largely represented the 

interests and needs of mixed ethnic communities (mainly housing and basic infrastructure)—

which would have, in time, diluted communities’ dependence on rival political parties; and 

(2) urban planning would have had to proceed consensually and transparently, with elected 

officials being held accountable. 

After the SLGO’s demise in 2011, local bodies went back to having a purely municipal 

function. The police and civil services were placed back under the Sindh provincial 

government. Karachi has one central and five district municipal corporations, each comprising 

a commissioner and five deputy commissioners. Because these civil servants now chair the 

municipalities, devolved grassroots authorities no longer exist. The provincial government 

has assumed control of city planning. With Karachi’s management bodies being headed by 

politicians and bureaucrats and government nominees being on the relevant boards, there is no 

transparent, consultative role for town planning professionals and civil society at large. While 

the latter group may sometimes be consulted, it has no recurring role in ongoing planning or 

implementation. 

As a result, the PPP-led provincial government now has direct relationships with the 

city’s financiers and developers. This partnership will likely increase the focus on planning 

elite and upper-middle class areas, where a heavy bias for developing commercial centers, 

shopping malls, and expensive residential schemes is already evident. As noted earlier, if not 

more rigidly defined, the discretionary powers of the provincial government could prevent the 

implementation of any long-term framework for city planning.

At the time of this study, elections had begun for local government (LG) bodies across 

Sindh. Karachi LG elections were also due imminently. The LG framework for Karachi will 

consist of UCs (elected by wards), which will then elect municipal committees and together 

elect the municipal corporations and its head, the mayor. However, because of the lapse of 

If not more rigidly 

defined, the discretionary 

powers of the provincial 

government could prevent 

the implementation of any 

long-term framework 

for city planning. 
USIP.ORG 19

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

the SLGO, the police and civil services will remain under the authority of the provincial 

government. In addition, local government will still depend on the provincial government for 

funding—for example, the mayor will continue to lack formal access to the center for special 

allocation for development projects (e.g., the Lyari expressway).

Thus, the local government’s role will remain limited to municipal supervision, and city land 

planning and development will remain under the control of provincial authorities. While the 

MQM, representing Karachi, may strive to recapture authority for the local government, the 

PPP will likely resist this effort. Note that since the local government and mayor’s success will 

depend on nonpartisan development initiatives (in the interest of all its mixed communities), 

devolution to the local government may not be fully supported by Karachi’s ethnically aligned 

parties, including the MQM. 

The action taken in recent months by civil and military authorities—against corruption, 

poor governance, and terrorism allegedly associated with political parties—will likely influence 

how powerholders manage Karachi moving forward. Cooperation and consensus among 

political parties will be essential to suppress Karachi’s recurring instability. An empowered 

local government is a prerequisite for this to happen, because Karachi is too large and its issues 

are too pressing for it to be managed without an accountable local body.

If consensus on the empowerment of local government cannot be reached, a compromise 

would be to make the Master Plan Authority the custodian of urban planning. The authority 

would jointly implement the plan with Karachi’s land-owning agencies and hold frequent 

public consultations.

Structure for a Corresponding Master Plan Authority 

Besides an operating executive, the authority must have a board that includes government 

nominees and land-owning agency representatives, private urban planning professionals, 

environmental experts, builders, and architects. The objective would be to maximize the 

expertise, practical knowledge, executive authority, and manpower of the official land-owning 

agencies to address planning, ecological, environmental, and operational issues. 

Land-owning agencies have an adequate framework of rules, regulations, codes, and 

standards. What is needed is more transparency about present and planned land use and 

corresponding development plans. The board should have complete access to information 

on land use, change approvals, and ongoing projects. Moreover, the board should have the 

authority to approve the increase of fee schedules for land-owning agencies and to enforce 

penalties for invalid disapprovals or misuse of approvals. 

A Master Plan Authority like this has been proposed before (e.g., in the KDP 2000), 

other structures could be considered. It is only vital that a formal, credible structure 

be institutionalized. 

Conclusion 

The state has consistently failed in achieving coordinated and inclusive urban development 

for a rapidly growing city. This has allowed the various special interests of community leaders, 

property developers, and politicians to influence land and settlement issues. There are two ways 

to achieve coordinated development in Karachi: (1) through an empowered local government 

or (2) a central master plan, developed with the participation of civil society, which acts as an 

overarching framework.

Cooperation and 

consensus among 

political parties will be 

essential to suppress 

Karachi’s recurring 

instability. An empowered 

local government is a 

prerequisite for this 

to happen. 
20 USIP.ORG

PEACEWORKS 114

Manufacturing

Nature of Informal Manufacturing

Since deregulation began in the early 1990s, informality in manufacturing in Karachi has 

grown. While it is still far less prevalent than in Punjab—where large industrial clusters in 

small towns have mushroomed into major production centers—the growth presents some 

challenges to maintaining stability in the country. As informality increases, it becomes more 

difficult for the state to collect revenue, enforce policy directives, and guide the economy. As 

a result, productivity and economic growth are inhibited. As is the case nationwide, Karachi’s 

growing informal economy has contributed to a stagnant or declining tax to gross domestic 

product ratio and the failure to graduate basic industries like textiles to a high-tech or heavy 

manufacturing base such as chemicals. The potential rate of economic growth has been steadily 

declining over the last several decades. 

An informal manufacturing enterprise is an activity that operates without any formal 

permissions from the state. For example, informal enterprises are set up on land that is not 

permitted to be used for industrial purposes. Workers are hired without being registered with 

the labor department and without any of the protections that registered workers receive, such 

as mandatory deductions for pension or insurance for accidental death or injury. Some firms 

are registered as sole proprietorships, but the bulk of them have no registered credentials of any 

sort. They do not possess a national tax number and are not registered for sales tax. In many 

cases, transactions are carried out through the proprietor’s personal bank accounts rather than 

company accounts. Many firms are able to access electricity as industrial enterprises, where the 

tariff is lower, despite being informal, but often use stolen electricity (via loose wires thrown 

onto an overhead transmission line) or, in the case of home-based workers, electricity from 

residential connections, which are also commonly stolen. 

Lack of adequate land and infrastructure for large-scale manufacturing have been key 

drivers of the growth in informal manufacturing in Karachi. The deterioration of law and order 

over the last several decades has also been a factor, preventing further formal investment.

The slow growth in large-scale manufacturing, combined with continued migration and 

active incentives for home-based production or “cottage industry” (e.g., exemptions from excise 

duties), led to the proliferation of small-scale enterprises in the 1980s. According to some 

leaders of the SITE Association of Industry, the total number of people employed there has 

almost halved since 2000. However, this figure refers to full-time workers and there has been a 

movement toward contract labor, which is not reported to the association.

The cottage industry has largely been established by industrial plant workers, who could not 

advance their careers due to declining industrial investment. Many of these workers, having 

acquired the skills to organize and operate a production line, went into their own business. 

The cottage industry continues to grow, with frequent outsourcing from localities within and 

around industrial zones.

Size of Informal Manufacturing

The size of the cottage industry is difficult to estimate, although some data on power 

consumption suggest it is much smaller than the formal manufacturing sector. For example, 

with far fewer active consumers, SITE still consumes more than seven times the electricity of 

Gadap, Orangi-1, and Baldia combined.39

The potential rate of 

economic growth has been 

steadily declining over the 

last several decades. 
USIP.ORG 21

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

However, the data are approximate and might not paint a full picture. Many residential 

connections are also used for running manufacturing processes, and some amount of 

informality likely exists in SITE. In addition, many of the informal enterprises in the 

surrounding localities might be labor intensive (e.g., garments) and therefore do not heavily 

rely on power consumption. 

Nevertheless, the total amount of power consumption (residential, commercial, and 

industrial) in the three adjacent localities is low, leading to the conclusion that whatever 

manufacturing activity there is in the city’s largest informal cluster remains quite small.40 This 

runs contrary to what the naked eye reveals, because a simple walk through many unplanned 

neighborhoods shows small-scale manufacturing underway in most dwellings. But in its 

aggregate, this activity does not add up to much.

The cottage industry has taken root primarily in unplanned localities and, in addition to 

outsourcing, has been driven by the supply of informally sourced raw materials from the trade 

sector. The industry thus forms an important link between formal and informal activity.

However, the industry faces constraints in maintaining and achieving further growth. One 

is the Free Trade Agreement with China, signed in 2007 and up for renewal now, which 

has flooded the country with cheaper goods and raw materials, making it difficult for the 

smaller players in the city to compete. The other is a growing reluctance among large-scale 

manufacturers to outsource production to local, informal operations, given the logistical hassles 

created in dealing with them and the growing concern among foreign clients about being 

involved in disastrous situations, such as the collapse of a factory building in Bangladesh and 

the fire in Ali Enterprises in Baldia Town that killed more than 250 people. All large textile 

business owners consulted for this study reported reducing their outsourcing after 2012, 

especially since their clients, including major international brands, have imposed strict controls 

over the practice. Hence, further growth in informal manufacturing in Karachi is likely to be 

slow, restricted to those goods, routed through exporters, that have little foreign competition 

and do not depend on demand from international markets.

Stability Challenges Posed by Informal Manufacturing

Karachi’s informal manufacturing sector poses several unique challenges. Local regulatory 

bodies, such as the labor department, find it hard to reach the informal enterprises—for 

example, to serve bills and disconnection notices; and the big utilities (e.g., K Electric and the 

Sui Southern Gas Company) find that theft is common in areas with a large number of smallscale enterprises. In areas that enjoy piped gas, the use of residential connections to run small 

generators is common. 

Power losses—the gap between units of electricity sent into an area and the amount 

recovered through bills from the same area—are close to 9.5pc (power consumed) in the Sindh 

Industrial Trading Estate (SITE), which is one of the largest industrial zones in Pakistan. In 

the three adjacent localities, power loss rates are between 45 and 50 percent.41 This does not 

necessarily relate to informal manufacturing, but it does illustrate the difficulties in collecting 

bill payments and undertaking disconnections in these areas.

Additionally, many illegal items—from water and gas suction pumps to unregulated 

medicines—are produced by the informal sector and are difficult for local regulatory authorities 

to track and remove. This means there is always a ready supply of these items, and traders can 

offer them to anyone without any oversight. 

Many illegal items—from 

water and gas suction 

pumps to unregulated 

medicines—are produced 

by the informal sector 

and are difficult for local 

regulatory authorities to 

track and remove. 
22 USIP.ORG

PEACEWORKS 114

For example, readily available phosphorous was stolen and used to help set Bolton Market 

on fire during the riots after a bombing of an Ashura procession in 2009. Phosphorous has 

also been used in numerous arson attacks, but city and provincial government authorities find 

it difficult to regulate its supply due to the informal nature of the city’s wholesale distribution 

channels. Many traders who had suffered losses in the Bolton Market fire demanded the 

regulation of dangerous chemicals like phosphorous, but their demands were fruitless. There is 

no constituency for such regulation among the trader community, which is deeply suspicious of 

the state and resists all attempts to subject its activity to state oversight. The only form of state 

intervention they ask for is protection, particularly from extortionists. 

The importation of dangerous chemicals is heavily regulated by the state. A no-objection 

certificate is required from the Ministry of Interior for each consignment, and products once 

imported are tracked by the Anti-Narcotics Force (ANF), which in turn, is empowered to 

ask for the records of all recipients. There is little coordination between the ANF and tax 

authorities, thus the records provided to the ANF cannot be used for tax assessment purposes. 

Nevertheless, in less formal settings, traders admit that circumventing these oversight 

mechanisms is not difficult. Traders also report facing growing competition from smuggled 

consignments, particularly from Iran, which are driven across the border crossing at Taftan or 

arrive in boats along the Makran coast. Such practices would not be possible without some 

collusion with the authorities entrusted with control of these areas.

A brief focus on trade is necessary when discussing informality in manufacturing because 

informality creeps into the production process through mechanisms designed to conceal the 

value and volume of international trade. False declaration of the value of imports, whether raw 

materials or machinery, as well as informal sourcing of raw material, have become fundamental 

elements of formal sector manufacturing. Additionally, the demand for raw material and 

machinery from informal enterprises creates a pathway for industrial goods that have multiple 

purposes to leak out of the supply chain for manufacturing.

The payment stream for transactions in the informal sector creates another pathway for 

illicit activity and makes that activity difficult to identify.42 For example, the only suspicious 

transaction reported in Karachi by the banking system in 2014 (suspected to have links with 

violent elements) was about a party using a personal bank account in the city to transfer funds 

to a small town “equidistant from three different conflict zones in the country.” Funds were 

deposited in large quantities into the account in Karachi and then withdrawn in the small 

town. The amounts were far larger than the expected turnover declared by the beneficial owner 

at the time of opening the account, which is what raised the suspicions of bank staff. 

But law enforcement agents tasked with investigating the case admitted that while the 

transactions could have been payments to support violent elements in the town, they could 

just as easily have been payments to a contractor building a house, for example. The widespread 

use of personal bank accounts to conduct business transactions creates a signature that can 

resemble the illicit movement of funds and therefore inadvertently provides a camouflage for 

illicit activity.

Most of the informal manufacturers interviewed declined to talk about protection payments 

or stated that they do not pay anyone anything.43 They indicated there is limited collective 

action by owners and low levels of labor activism or organization. Owners’ associations are 

largely inactive and little horizontal mobilization occurs. They also reported limited contact 

with state authorities and want to keep it that way. The primary problem for them is energy, 

but with the establishment of large utilities, theft has provided an easy way out. 
USIP.ORG 23

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Per those interviewed and anecdotal evidence, labor recruitment in Karachi’s informal 

manufacturing sector does not appear to follow ethnic lines. However, there is some evidence 

of ethnic preference playing a role in labor recruitment surrounding the Hub industrial estate, 

which is technically in Balochistan Province. Workers of non-Baloch origin have been attacked 

while traveling in contractor-provided trucks to their work site.

The role of labor contractors is small in informal enterprises, with owners and workers 

developing direct relationships. In other more formal, large-scale industry, owners often look 

to contractors to hire labor for them, where the contractor negotiates the wage and in some 

cases provides the transport and the housing for the workers. This is especially the case in the 

industrial zones of Punjab, where labor moves back and forth between the urban industry and 

agrarian hinterland. Unlike in other industrial cities, in Karachi, the industrial sector does not 

compete with the agricultural sector for its labor.

Contractors help arrange the supply of labor for limited segments of the economy in 

Karachi (e.g., for construction projects), and in the past, they played a large role in supplying 

industrial areas as well. But informal manufacturers require small quantities of labor and 

usually recruit their own labor from their immediate surroundings. This is one reason why 

informal manufacturing has grown within areas like Orangi, Landhi, and Korangi, which 

house laborers working in nearby industrial zones. The poor state of public transport has also 

been a factor. Contractor gangs become mediators in labor recruitment and can heighten the 

role of ethnicity in the process or succumb to criminal impulses. Their absence in the informal 

sector means that the process of labor recruitment does not create the ingredients that can 

potentially fuel instability.

Conclusion

Informal manufacturing does not appear to directly contribute to instability. It absorbs a 

significant amount of labor, but ethnicity does not play a role. Nor has it become a viable 

competitor for formal sector enterprise in the city’s designated industrial zones. Owners of 

informal enterprises prefer to keep political parties or other organized interests at arm’s length 

to the extent possible. Their reasons for wanting to do so are simple: They could utilize the 

services of a political party to obtain a service today, but the cost of creating this relationship 

would play out for years to come. 

While informal manufacturing does provide ingredients for instability, such as dangerous 

goods and pathways for the movement of illicit funds, it does so inadvertently; and the issues 

are found nationwide, not just in Karachi. Thus, there is no clear pathway for reducing the 

indirect risks to stability that informal manufacturing gives rise to.

Transport

Steady Receding of the State

The public sector dominated transport in Karachi up until the late 1960s. The tramway was 

established toward the end of the nineteenth century and had spread across most of the city 

by 1947. After the partition, public buses were introduced to serve new settlements created as 

a result of mass migration. At the time, privately owned buses were operating in the city as 

well (see table 1). These buses were informally run, but their routes were regulated by the state. 

Despite their availability though, most residents of the city relied on the tram to commute. 
24 USIP.ORG

PEACEWORKS 114

Karachi’s size, in terms of both population and area, grew significantly over the next decade, 

and demand for transport rose accordingly. To meet this demand, the number of cars for the 

tramway was increased to almost four times its initial number and more public buses were 

put into operation. Private entrepreneurs also increased their number of buses, but the total 

remained under the number of public sector buses. 

During the 1950s and early 1960s, the ownership of public sector bus initiatives changed 

several times as a result of economic policy, government turnover, and the introduction of new 

master plans. In addition, some public bus companies were taken over by private ventures. 

Thus, by 1964, there were more private buses in operation than public buses. 

The public sector continued to dominate though, with the introduction of the Karachi 

Circular Railway (KCR) in 1964. It provided another essential public mode of transport in the 

city, as the buses and tramway were struggling to meet the transportation needs of Karachi’s 

growing migrant labor force. 

The 1970s proved to be a turning point for Karachi’s transport sector, however. In 1971, 

the Free Transport Policy was introduced, which liberalized the procurement of route 

permits. This policy stated that anyone who could afford to purchase a bus could also procure 

a route permit.44 This led to the proliferation of privately owned buses, and by 1974, their 

number had roughly doubled. It also allowed the minibus, a smaller and more affordable 

vehicle, to enter the market for the first time; in just three years, the number of minibuses 

reached eighteen hundred. 

In 1974, the tramway was closed down for two main reasons: (1) it was blocking traffic 

on the roads and causing accidents, and (2) an alternative form of mass transit was to be 

proposed in the 1975 master plan.45 As a result, the number of private buses and minibuses rose 

significantly over the next fourteen years. Although the absolute number of public buses also 

rose, their proportion in the city decreased considerably. The number of daily trips the KCR 

made also decreased by 1988. 

By 1999, the private sector dominated transport in Karachi. The KCR was shut down that 

year, while the Karachi Transport Corporation buses had stopped operating a few years earlier 

because the corporation was functioning at a loss. Private buses and minibuses increased to 

their highest number ever and became the primary form of transport available in Karachi. 

Due to various reasons, however, private buses and minibuses remain unable to meet the 

high demand for transport. Their running costs continue to be high, and ownership frequently 

changes hands because they often operate at a loss. Due to this situation, there has been a 

decrease in the number of buses, which are relatively large and require more investment. While 

the number of minibuses has increased marginally, these buses are also not very profitable. 

For both types of transport, the number of owners has been decreasing as well—fewer and 

fewer people want to invest in an unprofitable business. According to Irshad Bukhari, head of 

Karachi’s transport association, for the one thousand or so buses operating in 2013, there were 

only 650–700 owners. 

The market’s response to this gap between supply and demand has been the introduction of 

chingchis, which are small motor-rickshaws that can seat 6–9 people. They first appeared in the 

mid-2000s, but by 2013, their number had jumped to fifty thousand. Chingchis are completely 

unregulated and operate on a system similar to buses, but on much smaller routes.
USIP.ORG 25

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Table 1: Mass Transit in Karachi Over the Yearsa

Year Tramway 

(No. of cars)

Karachi Circular 

Railway 

(No. of trips 

daily)

Buses

Minibuses Chingchis

Public Private

1948 37 - 20 35 - -

1957 157 - 344 259 - -

1964 157 Initiated 317 583 - -

1974 Shut Down 104 891 1,000 1,800 -

1988 - 93 1,050 1,450 5,500 -

1999 - Shut Down 200 4,000 6,500 -

2013 - 2 160 1,000 9,000 50,000

a. Compiled from Hasan, Understanding Karachi; Hasan and Raza, Karachi: The Transport Crisis; Ismail, 

Transport; M. Sohail (ed.), Urban Public Transport and Sustainable Livelihoods for the Poor, A Case Study: 

Karachi, Pakistan (Leicestershire, UK: Water Engineering and Development Centre, Loughborough University, 2000); and author interviews. Numbers may be averages or estimates.

Impact of Informality on Bus Operations

Informality in the transport sector influences both efficiency and the welfare of vehicle owners, 

operators, and consumers.

Route Determination

An early sign of the state ceding its space to informality came in 1971, when private operators were 

given permission to apply for new bus routes. This policy change reflected the state’s recognition 

that it had failed to keep up with growth in Karachi’s residential and commercial areas.

While the process of route permits still exist, study interviewees stated that some buses 

and minibuses that operate on routes that are neither registered with the authorities (in this 

case, the commissioner’s office) nor the ones for which permits were issued. Interestingly, the 

number of officially sanctioned bus and minibus routes has been declining. According to one 

source, the number of routes in Karachi has declined from 165 in 2007 to 144 in 2014. 

Overall, there is a lack of data on the density of urban transit and demand in different areas 

of the city. Without this information, it will be difficult to develop an effective, urban mass 

transit plan.

Residual Payment System 

There are several ways in which informality negatively affects transport workers and, indirectly, 

consumers and the commuting traffic at large. One way involves how bus and minibus drivers 

and conductors are employed through an implicit contract. Owners use a residual payment 

system that requires drivers to pay them a specified amount every day, and after deducting for 
26 USIP.ORG

PEACEWORKS 114

fuel costs (and any payments to the police), the remainder of the day’s revenues are divided 

between the driver and conductor as their wages. This method of wage determination creates 

a perverse incentive structure for the drivers and conductors. They feel compelled to work long 

hours (a form of self-exploitation) and allow more people than possible on the buses in order to 

maximize their returns for the day. Consumers are then faced with overcrowded vehicles that 

are uncomfortable and also more susceptible to accidents. 

Time Keeping as Self-Regulation46

Over the years, bus and minibus operators have managed to create an elaborate system to 

streamline business for all operators working on a particular route. They monitor the time buses 

take to get from one point to another along the route. Given that there is no regulation for 

buses to stop at designated stops, this informal mechanism ensures that buses are not stopping 

at different points to pick up passengers and thus taking away business from other operators 

on the route. This also ensures that drivers do not speed to increase the number of rounds 

they do on a particular route. Unlike the payment system, the time keeping system shows 

how informality can produce a cooperative outcome that mitigates the negative impact of an 

unregulated environment. 

Informal Insurance Mechanism

Because the transport sector largely operates in the grey area of informality and there are high 

risks associated with it, the formal insurance market does not cater to the sector. After suffering 

successive losses, the umbrella owners’ association in the city—Karachi Transport Ittehad 

(KTI)—devised their own insurance mechanism, offering two packages. For a premium of 

Rs. 500 per month, the maximum benefit is Rs. 300,000; and for a premium of Rs. 1,000 per 

month, the maximum benefit is Rs. 600,000. Considering that neither package covers the 

entire replacement cost of vehicles, the insurance premium appears to be high. However, due 

to the risk associated with operating buses in a volatile environment (e.g., where buses are easy 

targets during riots), it is unclear whether the formal insurance market’s premiums would be 

any lower. 

Bus owners feel that KTI is fleecing them with high premiums, but there are no other 

available options. In addition to cost, bus owners also complain about a particular provision: If 

the bus is on the road on the day of a strike endorsed by the KTI and is damaged, KTI is not 

liable for the damages. There is some suspicion that KTI endorses strikes called by political 

groups (that paralyze the entire city) in order to limit its insurance liabilities. Given KTI’s lack 

of transparency regarding its finances, this suspicion may have some substance. 

Investment in Vehicles 

Informality affects investment in vehicles significantly, especially buses and minibuses. A new 

(or reconditioned) minibus costs between Rs. 1.2 and 1.6 million, and a bus costs between Rs. 

3 and 4 million. Based on daily returns to owners, it will take 3–4 years to recover the cost of 

the vehicle. And this is in a situation where no formal sector credit is available to them. 

Bank credit is not available for the transport sector because transport has not been declared 

an industry. The head of KTI states that, over the last three decades, they have applied with the 

local Chambers of Commerce to grant them membership but have been refused. 

As a result, the sector suffers from severe underinvestment. The average model of buses is 

currently from 1980, and most minibuses were manufactured in the mid-1990s. The newest 
USIP.ORG 27

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

minibuses were built in 2003. In addition, the number of vehicles over the years has declined 

considerably. Between 1999 and 2014, the number of buses declined from 4,000 to 1,000. And 

while the number of minibuses increased from 6,500 to 9,000 during this time, the population 

was estimated to have increased 63 percent, depending on the data examined.47 This reveals an 

acute decline in mass transport in Karachi.

Ethnicity and Vehicle Ownership

Since the 1960s, the majority of owners in the private transport sector have been Pakhtuns. The 

Pakhtuns migrated to Karachi mostly as laborers after industrialization began. They became 

drivers as well as vehicle owners. However, the role of ethnicity in the sector did not become 

salient until the mid-1980s. 

In 1985, a college student was killed by a speeding bus. The student was from the Urduspeaking community and the bus driver was a Pakhtun.48 This sparked ethnic riots in the city, 

and since then, the general perception that a Pakhtun mafia runs the transport sector has 

gained traction.49 In the late 1980s, this perception deepened when it was alleged that money 

made through the drugs and arms trade in the 1980s was being channeled back into the 

transport sector.50

Whether a mafia or similar organization existed two decades ago is debatable, but, clearly, 

no such mafia exists in the transport sector now. This is best exemplified by the fact that 

ownership of vehicles in the sector is highly dispersed. The 1,000 buses in Karachi today are 

owned by 650–700 individuals. There is also no indication of collective action among the 

owners, beyond the informal insurance scheme outlined earlier, despite that the majority 

of owners are of the same ethnicity. Moreover, there is no evidence of any linkage between 

Pakhtun political mobilization and the transport sector. 

However, given the ethnically volatile environment of Karachi, the domination of 

Pakhtuns in the sector inherently increases the risks for Pakhtun owners and drivers; in an 

intra-ethnic conflict, where Pakhtuns may be involved, the sector’s vulnerabilities increase 

even more because it is Pakhtun dominated. On an economic level, their domination could 

be inhibiting the sector’s growth, as other ethnic groups may find it difficult to invest and 

participate in the sector.

Rise of Chingchis and Motorcycles

Since 2000, the number of motorcycles and chingchis has significantly increased. According to 

some, these smaller vehicles have become the de facto mass transit system of Karachi.51 They 

are trying to meet the demand created by fewer buses and the closure of the circular railway. 

Technological advances and trade openness made their proliferation possible. Chingchis are 

imported from China, and the cost of motorcycles has reduced by about 50 percent in nominal 

terms over the last decade, mainly because of local cooperation with Chinese companies. The 

emergence of chingchis was also aided by the state’s laxity regarding regulations. Chingchis 

still do not have legal status, and when they are registered, they are registered as motorcycles. 

There are an estimated 65,000 chingchis on the streets of Karachi.52 

The shift to smaller vehicles has several downsides. The per unit cost of mass transport 

on motorcycles is higher than it is on buses, trams, or trains. This is true both in terms of 

capital and operational costs. Second, motorcycles and chingchis are hazardous for riders 

and passengers because of direct exposure to other vehicles and because the chingchis, in 

Between 1999 and 2014, 

the number of buses 

declined from 4,000 to 

1,000. And while the 

number of minibuses 

increased from 6,500 to 

9,000 during this time, 

the population was 

estimated to have 

increased 63 percent. 
28 USIP.ORG

PEACEWORKS 114

particular, are highly unstable. These vehicles are also a nuisance and safety concern for regular 

motorized traffic. 

State Investment and Regulation

Karachi is perhaps the only city of its size worldwide that is so severely deficient in urban 

mass transport. The state’s neglect of the sector has become a source of immense hardship for 

millions of commuters. Returns to investment are low for vehicle owners, and the sector is 

fraught with risks arising from violence in the city for both owners and operators. Also, since 

the demise of public transport, no union (or other form of occupational collective action) exists 

for workers. With no occupational forum to vent their grievances, joining religious entities and 

political groups—some of whom are linked with violence—becomes more attractive. 

Consumers of public transport are the ultimate victims of the state’s neglect. With the size 

of the sector shrinking—in terms of mass transport vehicles—time lags and overcrowding 

have become a source of constant discomfort for commuters. Chingchis and motorcycles may 

be the solution for some, but the per unit cost for the consumer is much higher. 

The deficient transport system is negatively affecting urban development as well. Lack 

of transport has forced households to live close to their places of employment, leading to the 

establishment of densely populated clusters around the city center. In turn, this situation has 

been contributing to land-related conflict and instability in the city. This constraint on mobility 

has also resulted in low labor productivity in manufacturing and services.53

Conclusion

The transport sector in Karachi is a victim of state neglect, as well as violence and instability. 

Formalization of the sector is necessary to reverse its decay and improve mobility and safety. 

Fiscal constraints led to its informalization and decline, but international and national experiences suggest that efficient intra-city mass transport is always subsidized.54 Regardless of 

whether the state owns public transport or merely leads and regulates the sector, the state must 

introduce some level of formality. While some effort has been made to revive a public mass 

transit system (e.g., the circular railways or a bus system), little progress has been achieved over 

the last two decades. 

A circular railway extension plan was included in the 1985 master plan. The Japan 

International Cooperation Agency (JICA) provided a loan to Pakistan to execute the extension, 

but because of a lack of government coordination (especially between the federal and Sindh 

governments) and the state’s inability to acquire land for the railways, the project stalled. JICA 

is reportedly on the verge of withdrawing its US$2 billion loan. 

A rapid bus transit system (known as BRT) has also been in the works for a decade, and 

extensive planning has been undertaken with technical assistance from the Asian Development 

Bank. However, the plan has reportedly become a victim of intra-government turf wars.55 

Like the housing sector, the transport sector is lacking a Karachi-wide authority to plan and 

regulate it.

The Way Forward

There are several policy directions the state could take to reassert its writ, formally meet the 

high demand for low-cost housing and urban transport, and reduce instability. 

Lack of transport has 

forced households to 

live close to their places 

of employment, leading 

to the establishment of 

densely populated clusters 

around the city center. 

In turn, this situation has 

been contributing to 

land-related conflict and 

instability in the city. 
USIP.ORG 29

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Land. Providing appropriate land titles could counteract and prevent the spread of dense, 

unplanned informal settlements, as well as spur economic development through the use of 

housing stock as a marketable asset. However, this step toward formalization cannot be done 

without an effective local government and a well-supported, inclusive master plan. 

Urban development in Karachi has failed for two main reasons: (1) frequent changes in local 

government law at the provincial level and (2) long periods without elected local governments. 

The latter issue appears to be resolved: The Supreme Court has ensured that constitutional 

provisions for the third tier of government will be permanently enforced. However, regarding 

the LG law, there will be an ongoing struggle to convince (or force as the case may be) the 

upper tiers of government to devolve more fiscal, administrative, and jurisdictional powers 

to local governments. In Pakistan’s nascent democracy, jurisdictional issues pertaining to all 

three tiers of government is an arena of contestation. Resolution of this contest depends on 

continued democratic governance in Pakistan as well as incentives for political parties to 

devolve powers to lower tiers. With local body elections being held for the first time on a party 

basis,56 greater acceptance of the third tier by political parties seems more possible than it was 

at any other time. 

Historically, master plans have fallen victim to political expediency and opposition 

from various groups and interests. To ensure the effective implementation of a master plan, 

the drafting and amendment processes must be as inclusive as possible. Given Karachi’s 

highly politicized environment, where collective action along ethnic or religious lines is 

the norm, the plan cannot be seen as excluding certain groups or giving rise to vertical and 

horizontal inequalities. 

Transport. Despite current perception, the transport sector is not being controlled by a 

“mafia”; in reality, the sector can be considered a victim, not a creator, of instability in Karachi. 

While there is consensus at the policy level that the state needs to reintroduce public mass 

transit, progress has stalled because of lack of financing and, more importantly, significant 

issues related to land acquisition. JICA has provided a loan, but given the long delays, it is 

considering withdrawing the loan. Unless resettlement plans and compensation are viewed 

as equitable and implemented in a transparent manner, without capture by larger ethnic or 

religious political groups, the effort will remain stalled. 

Manufacturing. Informal manufacturing activity does not directly contribute to instability 

in Karachi. One main factor is that ethnicity does not dictate employment. However, better 

regulatory capacity and coordination across national and provincial governments is required to 

mitigate the inadvertent effects of informal manufacturing, such as the misuse of dangerous 

goods for violent activity. 

In 2013, the state launched an operation to improve law and order by clamping down 

on militant groups. This has nominally restored order in the city, and levels of violence have 

steadily declined. According to reports, the number of cases of extortion, kidnapping, and 

targeted killing has declined significantly, but the number of cases of muggings and street 

crime remain about the same.57

However, the operation, primarily conducted by the Rangers under federal government 

supervision, could be falling into the same trap as previous operations did. Allegations of 

targeting political parties—with strong ethnic support bases—have once again created the 

perception of ethnic bias by the state. Similarly, reports of the state sanctioning extra-judicial 

abductions and killings58 have reinforced the perception about arbitrary action. Given Karachi’s 
30 USIP.ORG

PEACEWORKS 114

tumultuous recent history, such perceptions will only serve to further polarize positions and 

jeopardize the city’s medium- and long-term stability. 

Strengthening the state’s regulatory and service delivery capacity will be essential to 

improve services and create enduring conditions for increased stability and reduced violence. 

This does not mean that the law and order effort currently underway is superfluous, but that 

both efforts are equally important and have to be carried out in tandem. For either of them 

to succeed, though, the state cannot exclude groups or appear biased against one or the other; 

otherwise, the state will be caught in the same vicious cycle that has been witnessed over the 

last three decades.

Acknowledgments

The authors would like to thank Kabeer Dawani for his diligent research and coordination 

assistance during the course of this study.

Notes

1. The population size of 16 million is based on systematic methodology undertaken by the United Nations; 

see United Nations, World Urbanization Prospects, 2014 Revision (New York: Population Division, 

Department of Economic and Social Affairs, United Nations, 2014). However, due to the lack of recent data 

(the last census was conducted in 1998), there is no agreement on population size, with the range being 

14–25 million. The most recent global Demographia study estimates it at 22 million; see Demographia,

Demographia World Urban Areas, 11th Annual Edition (Belleville, IL: Wendell Cox Consultancy, 2015), 

www.demographia.com/db-worldua.pdf; and Aamna Saiyid, “The Population of Karachi Has Doubled in 

15 years,” The Express Tribune, January 13, 2014, http://tribune.com.pk/story/658394/

the-population-of-karachi-has-doubled-in-15-years/.

2. Ali Kamal and Ahmed Waqar Qasim, “Precise Estimates of the Informal Economy” (Islamabad: Pakistan 

Institute of Development Economics, 2012).

3. Arif Hasan, Understanding Karachi: Planning and Reform for the Future (Karachi: City Press, 1999), 23–25, 39.

4. Haris Gazdar and Hussain Bux Mallah, “Informality and Political Violence in Karachi,” Urban Studies 50, 

no. 15 (2013): 1–17. 

5. Hasan, Understanding Karachi.

6. These were SITE, Korangi, Landhi, Hub, and Federal B Area estates. 

7. Laurent Gayer, Karachi: Ordered Disorder and the Struggle for the City (New York: Oxford University Press, 

2014), 44. 

8. See Hasan, Understanding Karachi, 24. The local term used to refer to the migrants is Mohajir. 

Predominantly, Mohajir and Urdu-speaking are used interchangeably to refer to these migrants. The current 

generation continues to identify themselves by these terms, even though they were born in Pakistan.

9. Haris Gazdar, “Karachi’s Violence: Duality and Negotiation,” SPO Discussion Paper Series, no. 10 (2011).

10. Zafar Shaheed, The Labour Movement in Pakistan: Organization and Leadership in Karachi in the 1970s 

(Karachi: Oxford University Press, 2007). 

11. Arif Azad, “MQM and Growth of Ethnic Movements in Pakistan,” Economic and Political Weekly 31, no. 

18 (1996). 

12. Farhat Haq, “Rise of the MQM in Pakistan: Politics of Ethnic Mobilization,” Asian Survey 35, no. 11 (1995): 

990–1004; Feroz Ahmed, “Pakistan: Ethnic Fragmentation or National Integration?” Pakistan Development 

Review 35, no. 4 (1996); and Maryam S. Khan, “Ethnic Federalism in Pakistan: Federal Design, 

Construction of Ethno-Linguistic Identity and Group Conflict,” Harvard Journal on Racial and Ethnic 

Conflict 30 (2014). 

13. Khan, “Ethnic Federalism in Pakistan.”

14. Gazdar, “Karachi’s Violence.”

15. Ibid.

16. Azmat Ali Budhani, Haris Gazdar, Sobia Ahmad Kaker, and Hussain Bux Mallah, “The Open City: Social 

Networks and Violence in Karachi,” Crisis States Research Centre Working Paper no. 70 (2010). 

17. Gayer, Karachi, 10.

18. See “Upward Trend in Violence Reported in 2013,” Daily Times, January 6, 2014, www.dailytimes.com.pk/

national/06-Jan-2014/upward-trend-in-violence-reported-in-2013; and Pak Institute for Peace Studies, 

Strengthening the state’s 

regulatory and service 

delivery capacity will 

be essential to improve 

services and create 

enduring conditions for 

increased stability and 

reduced violence. 
USIP.ORG 31

INFORMALITY IN KARACHI’S LAND, MANUFACTURING, AND TRANSPORT SECTORS

Elections 2013: Violence Against Political Parties, Candidates and Voters (Islamabad: Pak Institute for Peace 

Studies, 2013). 

19. Jo Beall, Haris Gazdar, and Sean Fox, “Cities and Fragile States,” Policy Directions (London: Department 

for International Development, Crisis States Research Centre, 2010). 

20. Hasan, Understanding Karachi, 59–62.

21. Ibid.

22. Gazdar and Mallah, “Informality and Political Violence in Karachi.”

23. Arif Hasan, Asiya Sadiq, Mansoor Raza, Noman Ahmed, and Saeed Uddin Ahmed, “Karachi: The Land 

Issue” (Unpublished Draft, 2012). 

24. Arif Hasan, Asiya Sadiq-Polack, Mansoor Raza, Noman Ahmed, Saeed Uddin Ahmed, and Moizza B. 

Sarwar, Karachi: The Land Issue (Karachi: Oxford University Press, 2015).

25. Hasan, Understanding Karachi.

26. In fact, the MRV Plan, with its high-rise development planned in between the city and demarcated 

industrial zones, had offered a better alternative for the formal settlement of the low-income population. 

27. See Hasan, Understanding Karachi; and Hasan et al., Karachi: The Land Issue.

28. Hasan, Understanding Karachi; Gazdar and Mallah, “Informality and Political Violence in Karachi”; and 

Hasan et al., Karachi: The Land Issue all estimate the number of residents in Karachi living in KAs to be 

either 50 percent or greater. Our interviews suggest the same as well. 

29. Hasan et al., Karachi: The Land Issue.

30. Ibid.

31. Authors’ estimates. 

32. The general banking rule-of-thumb is that monthly mortgage payments should not exceed 30 percent of 

pretax income. This will capitalize back at different levels, depending on the size of the down payment, the 

length of the loan, and the interest rate. The four-year X income capitalization works out to debt servicing 

at around 30 percent of income with a 20 percent down payment, fifteen-year repayment term, and 10 

percent annual interest, which would be the appropriate terms in Pakistan today—though individual banks 

may be more or less conservative. As banks do not lend to KA property owners, consider this affordability 

level as an indicator rather than as practice.

33. For extensive details of the new bill and its implications, see Mahim Maher, “Roti, Kapra Aur Dukaan: Govt 

Schemes to Give Builders Katchi Abadi Land,” The Express Tribune, November 10, 2014, http://tribune.

com.pk/story/788350/roti-kapra-aur-dukaan-govt-schemes-to-give-builders-katchi-abadi-land/. 

34. Mahim Maher, “Govt Hypocrisy: The Plot Thickens with Karachi’s Evil New High-Rise Building Law,” 

The Express Tribune, July 8, 2014, http://tribune.com.pk/story/732452/govt-hypocrisy-the-plot-thickenswith-karachis-evil-new-high-rise-building-law/.

35. Authors’ estimate based on State Bank of Pakistan data.

36. Chung Chee Leong, “Building Sustainable Housing Finance Systems: Malaysian Experience,” Presentation 

at the 6th Global Housing Conference, Washington, DC, May 28, 2014.

37. Authors’ estimate based on interviews. 

38. The Population Welfare Department, Government of Sindh states Sindh’s population as 42.4 million on 

its website. 

39. Data obtained from K Electric. 

40. Data in Figure 3, obtained from K Electric, includes losses.

41. Data obtained from K Electric for two billing areas: SITE and surrounding localities.

42. Khurram Husain, “Analysis: Tracking Terror Money: Mission Impossible?” Dawn, January 25, 2015, www.

dawn.com/news/1159333.

43. This portion draws on fieldwork and interviews conducted with informal manufacturers, workers, and 

association leaders. 

44. Arif Hasan and Mansoor Raza, Karachi: The Transport Crisis (Karachi: Urban Resource Centre (URC), 

2015). 

45. Aquila Ismail (ed.), Transport, (Karachi: URC, 2000).

46. For a fascinating account of the process of time keeping and its attendant benefits, see Mahim Maher, 

“Timekeeping and Transport: The Minute Men of Karachi,” The Express Tribune, May 22, 2014, http://

tribune.com.pk/story/711471/timekeeping-and-transport-the-minute-men-of-karachi/.

47. United Nations, World Urbanization Prospects, 2014 Revision; Pakistan Bureau of Statistics, “City District 

Karachi at a Glance,” www.pbs.gov.pk/sites/default/files/tables/City%20District%20Karachi%20at%20

a%20glance.pdf.

48. The prevailing belief was that the driver was Pakhtun, and as a result, the incident sparked ethnic riots 

(primarily between the Mohajirs and Pakhtuns). However, the driver’s ethnicity was heavily debated, with 

some claiming he was from Azad Kashmir and some claiming he was Punjabi. For details, see Saba Imtiaz 
32 USIP.ORG

PEACEWORKS 114

and Noman Ahmed, “Bushra Zaidi, The Woman Who Changed Karachi Forever, by Dying,” The Express 

Tribune, March 8, 2012, http://tribune.com.pk/story/346933/march-8-bushra-zaidi-the-woman-whochanged-karachi-forever-by-dying/.

49. Gayer, Karachi.

50. Arif Hasan, “Karachi’s Godfathers,” The Herald, December 15, 1986, http://arifhasan.org/articles/

karachis-godfathers. 

51. Hasan and Raza, Karachi: The Transport Crisis. 

52. Interview with the head of the Chingchi association. The chingchis were banned in August 2015 by the 

Sindh High Court. This ban was then subsequently overturned by the Supreme Court of Pakistan, with a 

stipulation that the chingchis be regularized and a safer vehicle design be introduced. As of March 2016, 

the chingchis remain inoperative, because the new design has not been completed. 

53. Anjum Altaf, “Megacity Narratives,” Dawn, March 1, 2015, www.dawn.com/news/1166555/

megacity-narratives.

54. The initiation of the Metro Bus Scheme, first in Lahore and then in Rawalpindi-Islamabad, demonstrates 

that policy makers have now accepted that state subsidization is a necessary condition for creating an 

effective urban mass transit system. 

55. Mahim Maher, “Public Transport: Race to Build Karachi’s First BRT Gets Too Many Green Signals,” The 

Express Tribune, March 20, 2015, http://tribune.com.pk/story/856554/public-transport-race-to-buildkarachis-first-brt-gets-too-many-green-signals/.

56. All previous local government elections in Pakistan’s history have been contested on a non-party basis. 

57. Imtiaz Ali and Atika Rehman, “Robbed at Gunpoint: Citizens Vulnerable Despite Rangers Operation,” 

Dawn, August 16, 2015, www.dawn.com/news/1200645/robbed-at-gunpoint-citizens-vulnerabledespite-rangers-operation.

58. Maqbool Ahmed, “Operation Overkill: How Not to Improve Law and Order in Karachi,” The Herald, 

October 29, 2015, http://herald.dawn.com/news/1153278.
 5

About the Institut

The United States Institute of Peace is an independent, nonpartisan 

institution established and funded by Congress. Its goals are to 

help prevent and resolve violent conflicts, promote postconflict 

peacebuilding, and increase conflict-management tools, capacity, and 

intellectual capital worldwide. The Institute does this by empowering 

others with knowledge, skills, and resources, as well as by its direct 

involvement in conflict zones around the globe.

Chairman of the Board: Steven J. Hadley

Vice Chairman: George E. Moose

President: Nancy Lindborg

Chief Financial Officer: Michael Graham

Board of Di

Stephen J. Hadley, (Chair), Principal, RiceHadleyGates, LLC, Washington, 

D.C.• George E. Moose (Vice Chair), Adjunct Professor of Practice, The 

George Washington University, Washington, D.C. • Judy Ansley, Former 

Assistant to the President and Deputy National Security Advisor under 

George W. Bush, Washington, D.C. • Eric Edelman, Hertog Distinguished 

Practitioner in Residence, Johns Hopkins University School of Advanced 

International Studies, Washington, D.C. • Joseph Eldridge, University 

Chaplain and Senior Adjunct Professorial Lecturer, School of International 

Service, American University • Kerry Kennedy, President, Robert F. 

Kennedy Center for Justice and Human Rights, Washington, D.C. • Ikram 

U. Khan, President, Quality Care Consultants, LLC, Las Vegas, Nev. • 

Stephen D. Krasner, Graham H. Stuart Professor of International 

Relations, Stanford University, Palo Alto, Calif. • John A. Lancaster, 

Former Executive Director, International Council on Independent Living, 

Potsdam, N.Y. • Jeremy A. Rabkin, Professor of Law, George Mason 

University, Fairfax, Va. • J. Robinson West, Chairman, PFC Energy, 

Washington, D.C. • Nancy Zirkin, Executive Vice President, Leadership 

Conference on Civil and Human Rights, Washington, D.C.

Members Ex Offi

John Kerry, Secretary of State • Ashton Carter, Secretary of Defense 

• Gregg F. Martin, Major General, U.S. Army; President, National 

Defense University • Nancy Lindborg, President, 

United States Institute of Peace (nonvoting)
2 Looking for Justice

Rapid population growth, ethnicization, and a policy shift 

toward deregulation and privatization have contributed to 

a rise in informality in almost all of Karachi’s economic 

sectors. In turn, these factors have diminished the state’s 

capacity to regulate the economy and reduce violence 

and instability. The United States Institute of Peace 

conducted a study to examine the evolution of informality 

in Karachi’s land, manufacturing, and transport sectors 

and to determine whether informality has contributed to 

or been impacted by ongoing instability. The results 

varied per sector, but overall, they suggest that 

formalizing particular services will help create the 

conditions for improved economic growth and enduring 

stability. However, formalization cannot occur, at any level, 

without an empowered local government and inclusive 

master plan to effectively guide the process. 

Other USIP Publications

■ Pakistan’s Power Crisis: The Way Forward by Rashid Aziz and Munawar 

Baseer Ahmad (Special Report, June 2015)

■ Mapping Conflict Trends in Pakistan by Saira Yamin and Salma Malik 

(Peaceworks, February 2014)

■ Charting Pakistan’s Internal Security Policy by Raza Rumi (Special Report, 

May 2015)

■ Conflict Dynamics in Karachi by Huma Yusuf (Peaceworks, October 2012)

■ Pakistan’s Energy Crisis by Elizabeth Mills (Peaceworks, June 2012)

PEACEWORKS • MAY 2016 • NO. 114

UNITED STATES INSTITUTE OF PEACE • 2301 CONSTITUTION AVE., NW • WASHINGTON, DC 20037 • USIP.ORG 

@ usip