Karachi has been a very lucky city from 1729 the year when it was founded to the 1980s. It was called the Paris of Asia. After the 1980s the city suffered devastation on account of certain developments in the region, negligence by the people in power and internal strife between its dwellers. In the post-war situation things are expected to change substantially.
Let us look back in history. By 1924, an aerodrome was built in Karachi, establishing its importance as a key air transport hub connecting India to the rest of the world. The first flight from London to Australia (Darwin) took place from November 12 to December 10, 1919, with major stops including Lyon, Rome, Cairo, Damascus, Basra, Karachi, Delhi, Calcutta, Rangoon, Singapore, and Surabaya. In 1839, the British recognized its potential to secure routes to the Persian Gulf and Central Asia. They fortified the harbour and dredged the channel to manage the expanding trade, with the Karachi Port Trust established in 1887. Karachi is one of the best places for landing with 365/24 service. It is one of the safest ports having no history of any major hurricane. There is no reason why this city should not be a commercial, financial, travel and industrial hub of the region. Mumbai or Calcutta in India is not comparable to Karachi in any sense. It was therefore rightly called ‘The gateway to the East’. The process of its development which started in the 18th century continued till the 1980s. The period from 1980 to 2026 is the worst part of its history. Despite its economic issues Karachi is still the only city which provides employment to over 200,000 migrants from interior Sindh, Punjab and KPK and Balochistan
The best way to destroy a city in the modern times is to disturb its connectivity through most modern way of commuting; i.e. by air. It has been done very systematically in such an organised manner that it touches the boundaries of conspiracy theories. In 1985, the year when Emirates was formed PIA was the first Asian airline to operate the Boeing 737-300, receiving six new aircraft (AP-BCA to AP-BCF) to cover domestic and regional routes. The airline also operated Airbus A300B4-200s and Boeing 747-200s during this period, and leased a Boeing 737-300 and Airbus A300 to help launch Emirates. The status in 2026 for both the airlines is known to everyone. There are around 1.5 million captive passengers travelling from North America to
Pakistan on yearly bases and all of them are shabbily treated like second-class citizens while in transit in Dubai or Doha, etc. The bad times are over. PIA has been privatized and one of the most progressive business groups is the new owners. Air travel will soon be non-stop, cheap, fast and convenient.
Karachi is at the gateway to the Persian Gulf from the Orient. Karachi-Basra and then onward to Europe is one of the oldest trade routes. It was developed well by the British. This route is around 2500 km shorter than using the Suez Canal. A port at Faw in Iraq is under construction which when operational will be the biggest container port in the region. The gateway for it will be Karachi. The first phase is going to commence in 2027. The war in the Middle East has demonstrated that any port inside the Persian Gulf beyond the Strait of Hormuz is not safe. This includes Dubai, Ras Tanura, and Bandar Abbas. Accordingly, the businesses are not expected to use such ports for transshipment activities. There is a huge import from China and other countries to the places around the Persian Gulf. Even a very small fraction of that if handled in Karachi and other Pakistani ports would change the maritime dimension of the region. This is other than the security apparatus which the navy at Karachi can provide to such trade. This means that the role which was envisaged by the British in the late 19th century is going to be materialized.
One of the results of the end of the war may be the lifting of sanctions on Iran and opening of Iraq for trade. Those who are aware of the business environment of the city of Karachi know that Karachi-Basra has been a very important trade route. In 1914 the construction of a modern harbour was begun at Basra, which previously had had no wharves. During World War I the British occupied Basra and used it as the port whereby communications were maintained between Mesopotamia and India. Iraq and Iran are heavily devastated by war. The populations of Iraq and Iran are 47 and 95 million, respectively. Their per capita income is low but comparatively higher than Pakistan’s which is less than USD 500. Iraq and Iran’s per capita income is US USD 5800 and 4800, respectively. There is big space for Pakistani trade and trans-shipment for Iraq and Iran. It would be almost 50 percent cheaper as the cost at Jebel Ali in the UAE is too high. Iraqis and Iranians are more comfortable with Pakistan.
Pakistan maintains a high rate of tax and a relatively strict foreign exchange regime whereas Dubai provides relaxation in both these spheres. Furthermore, a tax treaty has been signed with the UAE which is destructive for Pakistan’s fiscal interest. These factors resulted in movement of huge sums of money and business from Karachi and Pakistan to Dubai. The world has changed after the war started by Trump and Netanyahu on February 28, 2026. Iran is directly hitting the UAE on account of US military bases in that country. In this situation three alternatives are available to the US, Israel and the UAE. These are (i) remove the bases; (ii) destroy Iran to the extent that her capabilities to engage the UAE are eliminated and (iii) remove sanctions and let Iran operate in a free mode. In practical terms the first two options do not appear to be possible. Resultantly, Iran will be open after the war with a completely new paradigm for Dubai. Dubai was the direct beneficiary to sanctions in Iran. This matter can be properly understood if the size of prosecution undertaken in the UAE to trade breaking the sanction is examined.
Even if Iran emerges with the present regime after the war then that will directly affect the trust which is required for moving any tangible long-term investment to Dubai. The investment and trust in Dubai are based on an effective US guarantee. The quality of the guarantee has been severely impacted by the war. Accordingly, it would not be prudent to place long-term investment in a state in confrontation with a strong enemy in the region. Dubai being an emirate being ruled by a family with more expatriate than locals and without any constitution cannot guarantee stability for the investor. It is not expected that funds would move back from Dubai to Karachi; however, it is almost certain that Pakistanis would not endanger their future in a fragile economy. The best comparative case is Hong Kong. Before being taken over by China it was a place for investment. Now there is no sovereign guarantee of the small state. Trust depends upon the stability of the Chinese economy for which Shenzhen is also an opportunity.
India has appropriately amended her tax treaty with the UAE in order to avoid abuse of treaty to avoid tax in Pakistan. The author is fully cognizant of the abuse of treaty between the UAE and Pakistan. It is high time to keep the national interest over and above other considerations. There cannot be a treaty giving capital gains exemption with a country that has an effective tax rate of 9 percent as against Pakistan’s rate of 40 percent plus.
The opportunities emerging for the city of Karachi require improvement in its infrastructure. We are observing certain important developments of roads and highways, including expansion of Karachi’s Jinnah International Airport and establishment of another airport near Bahria Town on Super Highway. What is needed is the setting up of an export-based special economic zone in Karachi, which effectively provides all the regulatory, foreign exchange and fiscal that were available in Dubai. It is not being asked that a tax free regime be introduced. What we need is to relate the regulations with the export and employment provisions by the investor. Some of the proposed steps are:
a. Port Qasim, Pakistan Steel and Dhabeji SEZ to be consolidated into a new city under one administration in line with what done in China and Vietnam; outside the administrative control of the Government of Sindh and Karachi. This was envisioned by Zulfikar Ali Bhutto in 1970 as Zulfikarabad. The present structure of Zulfikarabad will be dismantled and a composite plan for a big city on the lines suggested be made. This is the future of Pakistani Dubai.
b. The first step is to further refine and improve ‘Roshan Digital Account’ (RDA). Under RDA, Pakistanis can keep assets in foreign currency repatriable without any approval. At the moment there are restrictions on amounts which can be placed under RDA. A relaxation be provided that 25 percent of export proceeds in all cases can be placed in such accounts.
c. Dubai’s regime has severely spoiled the gold trade and markets in Pakistan, leading to smuggling and other problems. The answer lies in reintroduction of import of gold in required quantities and also allowing processing of gold in Export Processing Zone. The Indian experience in this regard is quite encouraging;
d. Immediate privatization of Pakistan Steel or at least conversion of land around Pakistan Steel into SEZ Export Processing Zone with free availability of plot for those who bring in export proceeds equal to the price of land in the following two to three years. In the original plan there was a city to be developed called Zulfikarabad. That proposal is to be revived;
e. Dhabeji SEZ to be converted into an export processing Zone. It is to be noted that in EPZ there is deregulation of foreign exchange which is the main problem for export-oriented industries in Pakistan. The export city is administered by a private sector company.
f. Allocating around 10,000 acres of land between Landhi and Dhabeji as a new city to be developed for the labourers for that area, replicating the action done in China; and
g. Earnings from Export Processing Zone to be available for investment in industry in Pakistan without any tax in the country.
The author is almost certain that the Middle East war has changed the world, especially the region. The usefulness of Karachi has reemerged as there is a natural reason for the revival of Karachi.
