The informal sector in Karachi, as in other Pakistani cities, has served the physical and social infrastructure needs of low- and lower-middle-income communities and settlements. In the last decade, new needs have surfaced and they have been accompanied by major changes in the global, and hence in the local, economy. For the vast majority of Karachiites, the formal sector cannot service these needs as its products are unaffordable to them and its organisational culture far removed from theirs. In addition, these changes have redefined the relationship between the various actors in the informal sector drama.
Traditionally, middlemen have always existed in Pakistani society and they have provided lower-income groups, at a considerable price, with finance in difficult times and with access to the corridors of power and hence to patronage. Historically, their activities had been small-scale when set in the larger social and economic context. Initially, it was these middle-men who came forward to bridge the housing and employment demand- supply gap in Karachi. Since the gap was considerable, they employed apprentices from various communities who, in turn, became the new informal-sector entrepreneurs. Today, it is the third generation of these entrepreneurs which is active in informal-sector activities in Karachi.
The relationship that their predecessors established with government officials and agencies for support has long since been institutionalised, and the amount of under-the-table payments to be made to different government functionaries, through whom and at what time, has also been formalised.
The vast majority of Karachiites live in informal settlements. These have been developed on government land illegally occupied by developers, with the support of government servants and protected through bribes to the police. Almost all of these settlements have residents’ organizations (created by the developers) who constantly lobby the government agencies for infrastructure and security of tenure. The developers hire journalists to write about the “terrible conditions” in their settlements and engage lawyers to help regularise tenure. Many of Karachi’s important link roads and commercial areas have been developed by these informal developers.
Loans, materials and advice on the construction of homes are provided by small neighbourhood contractors who become the architects, housing banks and engineers for low-income households. Similarly, over 72 percent of Karachiites travel in individually owned minibuses that have been purchased with informal loans at high interest rates from moneylenders.
Since the minibus owners have no terminals, depots or workshops for their vehicles, they use the roads for these purposes and informally pay the police and the local administration for permission to do so. Another important sector relates to the recycling of solid waste. Instead of taking solid waste to landfill sites, municipal waste collectors, in defiance of rules and regulations, take the solid waste to informal recycling factories spread all over the city. In the process, even organic waste, which cannot be recycled, does not reach the landfill sites. Here again, large sums of money change hands illegally
As settlements consolidate, private schools are established within them.
These far outnumber government schools and are affordable to the residents because educated women in the neighbourhood teach there at low salaries. Most of these schools begin as one-classroom affairs in people’s homes and some expand to form large institutions. They are established by entrepreneurs, public-spirited individuals and/or neighbourhood community organisations, and remain unregistered and unrecognised until attempts at their registration are made long after their establishment.
Private medical practitioners (qualified, unqualified and/or traditional), establish health clinics in the informal settlements and are not registered with any government agency or medical council. Entertainment and recreation also develop in informal settlements. Video machines, table football and carom and card-game tables are set up by entrepreneurs, without permission. The profits from these activities are shared between the entrepreneurs and the law-enforcing agencies.
The most important informal-sector activity, however, relates to employment generation. Garments, leather goods and carpets are all produced in the informal settlements. Middlemen provide training, materials, equipment and cash for the production of these items, which takes place in people’s homes, on a contract basis. The manufactured items are then taken to factories, where they are labelled before being packed in alternative packaging. In this way, exporters and industrialists are able to reduce production costs, and prevent the unionisation of labour and the application of labour laws and the minimum wage. Various parts for the light engineering and electronic industries, using lathes and rubber-moulding machines, are also produced in a similar manner in the informal settlements. Spare parts for machinery, cars, tractors and diesel engines are also manufactured in these settlements and their cost is about half that of industrially produced items. It is thanks to this spare-parts production that the agricultural machinery transport and services sector is affordable to the operators and hence to primary producers.
The success of the activities of the informal sector in Karachi has a lot to do with the availability of cheap government land, the protection provided to local industry by high import duties, the pioneering spirit of the first generation of migrants and entrepreneurs, and the helplessness of state institutions in the face of an increasing demand-supply gap in the physical and social sectors’ infrastructure. However, with liberalisation and other related developments, all this has started to change.
Economic liberalisation has been accompanied by structural readjustment, the communications revolution and major societal changes and its effects cannot be seen in isolation from these developments.
Structural readjustment has meant a reduction in import duties on all manufactured goods. Lathe machine operators in the informal settlements are not receiving enough orders, or are being asked by the contractors to lower the quality and prices of their products. Structural readjustment has also meant a huge increase in utility charges, especially electricity. As a result, carpet and textile power looms, most of which function through contractor-funded orders in informal settlements, are working at reduced profit rates or are closing down. The rupee’s constant devaluation has caused large-scale inflation and a search among the marginalised and lower-income groups for additional employment. Most working men now have more than one job. Teachers give tuition in the evenings, government servants drive taxis, policemen fleece shopkeepers, and motorcyclists and white-collar workers work evening shifts as part-time employees in the services sector, in addition to their full-time jobs.
Under structural readjustment, Pakistan has also undertaken to privatise profitable government institutions and utilities and to sell state assets, mainly related to land, real estate and industries. As a result, land that was not considered valuable has now become an important commodity. It can no longer be easily encroached upon and where it is transferred into private ownership, it is protected. This deprives the informal sector developers of raw land for development in places appropriate for their clients.
The government has also undertaken to privatise health and higher education. All this is adversely affecting low-income groups, especially those who had an element of upward mobility. Many non-establishment development experts believe that it is as a result of these issues that Pakistan is suffering double-digit inflation and a recession. Privatisation has also meant employment on merit rather than through political patronage or quota systems, and a large number of government employees have been sacked. With the privatisation of education, merit is conferred upon those who can afford education, thus marginalising poor communities. An alternative source of education and skill acquisition from what is available therefore becomes necessary for them.
Extract from the research paper ‘The changing nature of the informal sector in Karachi as a result of global restructuring and liberalisation’ by renowned architect and planner Arif Hasan