Despite incorporating all demands of the auto manufacturers in the country’s five-year Auto Industry Development Plan, the prospects for increasing the indigenous production of cars to 500,000 units by 2010 look dim, if the local production of cars during the year 2006-07 is taken as an indicator.
Against a production target of 210,000 cars projected by the Engineering Development Board (EBD) for the year 2006-07, the total production of local cars in the year stood at 160, 496 units against 160,642 in the year 2005-06. This means a shortfall of 49,504 units in the projected target and a decline of 146 units than the production figures for the year 2005-06.
Instead of enhancing the capacity of their plants, the car manufacturing companies, considering the great demand for cars within the country, have not only increased the prices of locally assembled cars but also the “premium money” following the government policy to restrict the import of used cars.
Meanwhile, the level of motorization has been gradually rising over the years in Pakistan. In 1998-99, it was three cars per 1,000 persons, which significantly increased to 11 cars per 1,000 persons in 2005-06. For a developing country like Pakistan, such rapid motorization is a sure indicator of accelerated growth in the industrial sector in general and auto sector in particular.
As far as the production of cars in the country is concerned, against 30,131 cars in 1995-96, it stood at 160,642 units in 2005-06 and at 160,496 units in 2006-07, showing an increase of over 430% during the last 11 years.
Notwithstanding a manifold increase in car production during the last few years, the country still stands relatively low in terms of motorization when compared globally and even to its neighbours, like Iran which has a ratio of 23 cars per 1000 persons. Naturally, the demand for cars in the country is still a lot greater than their supply.
The increase in demand for automobiles can be traced to rising income levels, creation of new job opportunities and liberal auto financing by financial institutions. As a result, on an average, some 13,000 vehicles were assembled and marketed every month during the last two years.
Consumers believe that the government decision to restrict the import of used cars would, once again, lead to a 2004-like situation when automobile manufacturing companies were charging whatever money they liked for premium and car price because of monopoly. The say that the government decision to allow import of used-cars had broken their monopoly to some extent and brought down the prices as well as the rate of premium. But, the car prices and the premium, also known as ‘own money’ has been increasing since the last budget that banned the import of ‘five-year-old cars.
As a consequence, not only the number of imported cars has declined, it has also adversely impacted the import value and the customs duty as well. The customs duty from the automobile sector registered a decrease of 25.2% during 2006-07, incurring an overall loss of 7.6 billion rupees to the national exchequer.
Auto Industry Development Plan
Meanwhile, the authorities, according to EDB, have developed an Auto Industry Development Plan (AIDP) to facilitate and encourage investment, domestic competition, enhance competitiveness and stimulate innovation through technology acquisition, human resource development, capacity expansion, auto cluster development, etc. AIDP provides the targets and goals and a clear development programme through a road map for the next five years.
Realizing that the rapid growth in auto industry is difficult to sustain without efficient human resource, the development plan also envisages the establishment of an Auto Industry Skills Development Company (AISDC) and two centres of excellence under AISDC’s management. Besides providing incentives against the newly installed productive assets to stimulate investments in the production capacities of auto part manufacturing, AIDP provides for the establishment of two auto clusters, one each at Lahore and Karachi, land for which has already been acquired.
Since technology level remains low in the auto parts manufacturing due to high cost of technology acquisitions, under the Technology Acquisition Support Scheme matching grants are planned to be provided so as to enhance the technology level, quality and encourage further localization. AIDP also provides for Auto Industry Investment Policy (AIIP) for the investors to start manufacturing of vehicles in the country.
The government has also constituted an Auto Industry Development Committee (AIDC) to provide focused and continued attention to the auto industry at a government private level. AIDC consists of 24 members, 12 representing the private sector and 12, including the committee’s Chairman, various government departments. CEO EDB is the Chairman of this Committee, while its other official members include concerned Joint Secretary of the Ministries of Industries, Science & Technology and Environment, a Representative each of the Planning Commission and Higher Education Commission, Chief Customs FBR, MD Pakistan Standards & Quality Control Authority, Chairman and Vice-Chairman PAAPAM and GM (Policy Development) EDB.
AIDC’s private members, as recently notified by EDB, include: MD Pak Suzuki, CEO Atlas Honda, Chairman APMA, Chairman Millat Tractors, Director Hino Pak, Director Centre for Research of the Lahore School of Economics and Business, and CEOs of Development Analysis Research Team, Yusuf Industries Agri (Pvt) Ltd, Rubatech Manufacturing Company, Rastgar Engineering, Thal Engineering and MD Hybrid Technics. The tenure of private members is two years and after expiry of every term it is envisaged to rotate the membership amongst the assemblers, vendors and experts associated with the auto industry.
Through a regular dialogue and effective communication with the auto industry, AIDC has been mandated to steer implementation of AIDP. It has been authorized to initiate deliberations and to adopt necessary measures and recommendations to encourage further indigenization, discourage rollback and to achieve the objectives of AIDP. The Committee is also responsible for continuous analysis of the emerging trends in the global scenario and do out of the box thinking to identify opportunities for auto industry and define its direction. The Committee will also regularly deliberate on the issues of quality, standards, environment and consumer satisfaction.
Globally considered as the mother of all industries, Pakistan’s automobile sector has been showing an upward trend over the past few years, except 2006-07, and, presently, it is contributing 3.6 billion dollars annually in GDP besides providing direct employment opportunities to about 192,000 people. There are 39 assemblers, manufacturing cars, including light vehicles, buses, trucks and tractors, in the country.
Further, Pakistan is manufacturing almost all body parts and mechanical parts, plastic components, tyres, batteries, seats and some parts of car engines. However, some critical parts of the units are still imported by the assemblers. As the cost of local components is much less than that of the imported components, the economists assert the need to increase the deletion of auto parts because auto assemblers having achieved localization of 50-70% components, but still pay higher amount on the balance 30-40% imported components. The assemblers that have achieved higher deletion levels are correspondingly cheaper than those that have lower deletion level.
