Nov. 6 (Bloomberg) -- The death threat came in a seven-line handwritten note that included a menacing insert: a spent bullet casing taped to the bottom of the page.
“If you don’t deliver us 1 million rupees ($10,440), we’ll cut you into pieces and kill your entire family,” read the unsigned letter that was delivered to a Karachi shopkeeper by a messenger he didn’t know and then passed to police.
Such threats aren’t empty in a city of 20 million people that’s riven by deadly turf battles rooted in Pakistan’s turbulent history. In the first eight months of this year, 1,345 people were killed in Karachi violence, compared with 1,715 in the whole of 2011, according to the Human Rights Commission of Pakistan, which cited criminal gangs and “political patronage” for the clashes.
Businesses in the nation’s commercial capital are bracing for a surge in extortion demands as parties representing the city’s ethnic communities seek to use their hired guns to build financial war chests ahead of parliamentary polls due in the first half of next year. Thousands of traders have already quit the Arabian Sea port city with others set to follow.
“This battle is getting dirtier as the election looms,” said Mubarak Ali, a historian who taught at Sindh University for 27 years and headed the Goethe-Institut German cultural center in Lahore. “Political parties can’t disown these extortionists and gangsters. They are the people who arrange funding for them, mobilize voters and are willing to take up arms to gain control.”
The lawlessness in Karachi, home to the nation’s stock exchange, its central bank and the Pakistan headquarters of multinational companies such as Unilever Plc and Standard Chartered Plc, has hurt the city’s economy, with its contribution to the country’s gross domestic product declining to 45 percent from 60 percent two years ago.
Karachi now generates 53 percent of the country’s tax revenues, down from 63 percent in 2010, according to the SITE Association of Industry, which represents 3,000 industrial units in the city. Political instability, a war with Taliban insurgents and record energy shortages have also deterred investors.
The downward spiral in law and order has persuaded more than 30,000 traders to leave Karachi in the past two years, said Atiq Mir, chairman of All Karachi Traders’ Alliance, which has 650,000 members. At least 40 percent of Karachi’s shops are coerced into making extortion payments, known in the Urdu language as bhatta, Mir said.
Kidnapping is another favored way to raise funds. In the nine months ended Sept. 30, 106 cases were reported, compared with 113 in the whole of 2011, according to the Citizens-Police Liaison Committee, a crime monitoring group run by businessmen. The Karachi Chamber of Commerce & Industry has put up banners across the city demanding the government address extortion, kidnapping for ransom and political killings.
The nation’s human rights commission reported 125 cases of kidnapping for ransom in Karachi in 2011, the most in a decade. The actual number of abductions is bound to be higher as many families refuse to register cases, the report said.
Eight months ago, police set up a special unit to combat the rising wave of extortion. The unit received 200 complaints up to Sept. 5, said Wasif Qureshi, a deputy superintendent of police who also heads the team. That’s a fraction of the real number of incidents as traders often prefer to pay up rather than go to the police and risk being attacked, he said.
The final straw for Mohammed Munir came on Jan. 21 when he received a call from someone he didn’t know who demanded he pay one million rupees within a week or he’d be killed.
“The caller knew the names of my grandchildren and the school they go to,” Munir, 62, said in an interview. “I thought, that’s it. I’ve had my good days, but I don’t see how my grandkids will survive in this environment.”
Eight weeks later, he moved his family to the eastern city of Lahore where he and his two sons are trying to rebuild the small plastics trading business they ran in Karachi, the family’s home for 40 years.
Organized extortion first emerged in Karachi in the 1980s as neighborhood gangs demanded money from businesses in return for protection from rival outfits, said Tauseef Ahmed Khan, chairman of the mass communications department at the Federal Urdu University in Karachi. After 1985, political parties supporting the demands of the city’s ethnic groups adopted the gangs as a way of enforcing their writ, complicating police efforts to rein in the violence, he said.
“No government agency can guarantee our security,” Arshad Vohra, SITE chairman, said in an e-mailed response to questions. “Business has suffered a lot and even employees are not safe leaving or entering factories.” Factory owners who refuse to make extortion payments have been attacked and have had their businesses vandalized, he said.
Top Judge Probe
Karachi’s ethnic mix shapes its political landscape. The Muttahida Quami Movement represents Urdu-speaking immigrants from India who settled in Pakistan during partition in 1947, while the Awami National Party draws support from Pashtuns, a community that has grown rapidly as fighting between the army and Taliban guerrillas intensified in the country’s northwest. The Pakistan Peoples Party of President Asif Ali Zardari is the third major party in the city.
The three parties formed a fragile governing alliance to run Karachi and Sindh province following the 2008 election, a coalition that splintered in September when the ANP quit blaming the MQM, which gets 90 percent of its National Assembly seats from the city, for fueling the killings and extortion.
Pakistani Chief Justice Iftikhar Muhammad Chaudhry, who initiated a probe into the killings after violence surged last year, said in his report that all the parties were to blame.
“There are criminals who have succeeded in making their ways in political parties,” according to the report. “The parties should denounce their affiliation with them in the interest of the country.”
There are few signs of that happening with politicians saying their parties aren’t involved in the violence.
“A political party cannot afford such a thing,” Wasim Aftab, an MQM leader, said in an interview Sept. 21 when asked about responsibility for rising extortion and the killings. “It can’t tyrannize its people.” He rejected allegations his party was involved.
“The extortion money is part funding politicians and the rest goes into the pockets of gangsters,” said Haji Muhammad Adeel, a Peshawar-based leader of the ANP, blaming the violence on rivals. “Karachi is slipping away from the government’s control. This city should be handed over to the army.”
Interior Minister Rehman Malik denied any link between extortionists and politicians.
“These are just mafias,” he said in a Sept. 18 interview. “You have these criminal activities in all the major cities of the world, including New York and London.”
With no sign that the city’s political leaders are willing to confront the insecurity, the nation’s top court resumed its investigation as Karachi traders threatened to strike.
The turmoil in Karachi adds to the woes facing Pakistan, where tensions between elected politicians and the military, record power cuts and the insurgency along the border with Afghanistan have stifled growth in the $211 billion economy. Gross domestic product expanded three percent on average in the last five years, below the 7 percent or more which analysts say is needed to create jobs for the 2 million people joining the workforce every 12 months.
Confrontations with the U.S., the country’s largest aid donor, over how to tackle the militants, and the suspension of an $11.3 billion International Monetary Fund loan in May 2010 after Pakistan failed to meet conditions attached to it have added to the country’s economic plight.
“If Karachi sinks Pakistan will sink with it,” said Nasim Beg, executive vice chairman of Arif Habib Investments Ltd. in Karachi, which oversees 35 billion rupees in stocks and bonds. “Karachi’s problems are related to economic frustration and disparity. Ultimately, politicians have to work together to create jobs and save this city from total chaos.”
Karachi remains home to many global companies and its expanding population, educated workforce and better infrastructure still give an unparalleled advantage to businesses operating from the city, according to Beg.
British retailer Debenhams Plc, Nine West Group Inc., and Spanish clothing chain Mango all chose Karachi for their first Pakistan outlets this year.
Lack of Confidence
Still, without an urgent remedy to the levels of violence afflicting Karachi, “we may see companies cut and move their operations to other cities or even to foreign countries,” Saad Amanullah Khan, president of the American Business Council, said in an e-mail. “Some businesses continue to do well. If not burdened with security issues, they would have done even better.”
A Sept. 26 survey of the members of the Overseas Investors Chamber of Commerce & Industry showed just 16 percent of respondents expect to expand business in Pakistan and had a positive outlook for increase in sales and profit for the next six months.
Extortionists avoid targeting units of foreign companies which are considered less prone to pressure than more vulnerable local businesses, Asif Jooma, the chamber’s president and managing director of Abbott Laboratories (Pakistan) Ltd., said in an interview.
For small traders, dealing with the threats has become part of doing business, said Rehan, a store owner who agreed to give only his first name during a visit to Karachi’s Bolton Market, a wholesale market for a range of products. Rehan recalled an incident near his apartment building in July when about three dozen armed men on motorbikes “took the police hostage.”
Speaking at his electronics appliances store overlooking a police station, Rehan said the men “went to all the shops in the market one by one and took money. Some paid 5,000 rupees, some 10,000 rupees. Those who didn’t have money were told to pay later.”
“When someone comes, we humbly give them what they want,” said the owner of a sporting goods store who didn’t want to identify himself for fear of being targeted. “We don’t argue or talk or even look them in the eye. They’re quite merciful if you comply, they’re quite deadly if you don’t.”
To contact the editor responsible for this story: Peter Hirschberg at email@example.com