Domestic commerce in neoliberal Pakistan

Foreign capital is privileged

The internal trade of Pakistan— domestic commerce in agriculture, light engineering, garments and other small to medium businesses — is important for Pakistan’s development. But more important is that the cities — the centers of domestic commerce — have full control of decision making over their economies. They should be able to develop, implement and change economic development strategies. But this is not happening.

Because we are living in strange times, I suppose. All those things which do not contribute to the happiness of the majority of the world are happening very fast.

Are you thinking about the free markets? Yes! Free markets and their trappings: desire, seduction, and glamour — in short, consumerism spreading fast. But all of this is happening with active support of nation-states, with their people’s money, the majority of who have no stake in the trappings of free market.

And Pakistan is no exception to this. Her rulers welcoming opening the country for free markets — as uncritically as medieval bankers would wait for traders to make them their guests. The most important Pakistani cities are being reworked to become safe enclaves of capitalism.

So Lahore will not remain or become Lahore. It will become Paris or Istanbul. Lahore is being rebuilt. If you are a Lahori and you come back here after five years, you will be lost.

Karachi will not rehabilitate itself. It will become Dubai. Similarly, Faisalabad will become Manchester. And very soon efforts will be made to turn Sialkot into a city of Europe.

This change is happening in India, too. Look at Delhi. Krishnendu Bose’s 2008 documentary, Delhi — Work in Progress claimed that India would attract more than $300 billion of international investment only in the real estate until 2013. And most of this investment would come to Delhi. Impatient to become Shanghai, Mumbai is fast becoming city of concrete.

In other terms, free markets require metropolitan cities become world class cities — a world class city has all the facilities of developed world cities, only the richer cities. A world class city allows movement of capital, provide luxurious experience to visitors. If you are moving from one world class city to another, you will feel no surprises, no shocks.

Supermarkets are the frontlines of free market economy. Supermarkets of everything from retail, wholesale to real estate to financial markets. And this expansion of supermarkets of everything — especially retail and wholesale — may be harmful for domestic commerce in developing countries.

Supermarkets are the frontlines of free market economy. Supermarkets of everything from retail, wholesale to real estate to financial markets. And this expansion of supermarkets of everything — especially retail and wholesale — may be harmful for domestic commerce in developing countries. Not in itself but by affecting the allocation of resources for the promotion of domestic commerce.

Of course, the first competition of the supermarkets is with the kiryana [retail] store. In the end, the kiryana can survive by modeling itself on superstore. Or kiryana owner taking a job of salesman at superstore. The workers and technicians in agriculture, light engineering, and manufacturing also need to look somewhere else for livelihoods.

There are benefits of this but the irony is that it is the domestic commerce which has to leave space for the foreign capital. The foreign is not treated like the domestic: foreign capital is privileged.

As a result, domestic commerce may not grow as it should. Besides, some of the issues of domestic commerce such as unfair business practices and harms to consumers can also not be eliminated. When the state does not concern itself with the domestic commerce, the chances of its improvement are limited.

But the domestic commerce may be saved by giving the same attention state is giving to foreign investments. Before we discuss this, let us have a look at the situation of domestic commerce in Pakistan.

As the biggest sector of country’s economy, it contributes 42 per cent to the national wealth. It is also the biggest sector of employment providing livelihoods to 30 per cent of the labor force. Domestic commerce has grown substantially during the last few years. The data compiled by the Economic Survey of Pakistan 2012-13 illustrates this point well.

But the three cities are highly important as regards domestic commerce. Let us talk about these them. Half of the Sind and 22 per cent of Pakistani population, Karachi is the biggest place for domestic commerce, so is its contribution to the country’s economy. Economist AB Shahid has recently estimated Karachi’s contribution to the national GDP at around 16 billion rupees a day, and its daily tax revenues at two billion. It is really tremendous! Imagine if Karachi is crime-free, and well governed, what impact it can have on economic growth in the country.

In Global City GDP ranking of 2008, Lahore’s position was 36^th out of 151. Lahore’s contribution to the national GDP is higher than the individual contribution of Khyber Pukhtunkhwa, Baluchistan and interior Sindh. Lahore is expected to increase its GDP from $40 billion (Purchasing Power Parity-PPP) in 2008 to $120 billion (PPP) by 2025. Lahore is the second largest city in Pakistan, and the largest in Punjab. But Lahore has many advantages which Karachi does not have. Lahore has Gujranwala to its north, Sheikhupura on its northwest, Nankana and Faisalabad on its southwest, Kasur on its southeast. It is also near Amritsar and Delhi, the traditional trading partners of Lahore.

Faisalabad’s contribution to the GDP of Pakistan is more than Baluchistan. In sum, the economies of these three cities are contributing a lot to the national economy of Pakistan. In 2005, for example, Karachi’s share in the GDP of Pakistan was 25 per cent, Lahore’s 12.75 per cent and Faisalabad’s 4.55 per cent. PricewaterhouseCoopers calculations of the size of the metropolitan economies in Asia provides encouraging figures about the economic performance of Pakistani cities.

Figure 2: GDP PPP of Three Pakistani Cities in 2008

 (Source: PricewaterhouseCoopers, 2009)

Let us look at the problems of domestic commerce.

There are hardly any arrangements for loans for business — small and medium sizes. The bigger industries may be exceptions though. It is very difficult for entrepreneurs to find space for opening offices or retail outlets. Though government agencies such as Small and Medium Enterprises Development Authority (SMEDA) provide trainings to the entrepreneurs but they can only cover very small portion of entrepreneurs.

Let us talk about the privileges of the free enterprise zones.

The biggest problem of domestic commerce is that decision making about it is not done at local level. It is in fact the national states which ensure the movement of capital and provide safeguards to it.

Special Economic Zones (SEZs) Act 2012 grants a number of privileges to the investors — largely foreign investors. The zones are treated as foreign territories. The enterprises are exempted fromtaxes for ten years. In addition, the exemptions and incentives once granted under the SEZ law can’t be withdrawn. The zones may install their own power generation projects.

The biggest problem of domestic commerce is that decision making about it is not done at local level. It is in fact the national states which ensure the movement of capital and provide safeguards to it. The more the decision making about commerce is centralised at national level and the less the local governments have power over it, the easier it is for foreign investments to dictate the terms which only benefit foreign investors.

And the more the foreign investment, the lesser the control cities are having on their affairs. This is true for most of the cities in developing countries. It is the state and national governments which are taking control of the affairs of the metropolitan cities and their economic decision making. The facilitation of foreign capital is quite easy that way.

And more the foreign investment arrives in Pakistan, the more the domestic commerce will be relegated to margins or incorporated in foreign capital. The arrival of foreign investment will strip Pakistani cities of the power they should have to control their affairs. It is because most of the financial and economic decisions will be made by the provincial and federal governments.

One way to respond to this situation is to develop strong local governments capable enough to develop and implement Metropolitan Economic Development Strategies. Only strong local governments capable of economic policymaking can use the foreign investment to strengthen domestic commerce and local development. If it is not possible, the domestic commerce should not be weakened to the extent that it is co-opted by foreign investments.