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Automotive sector: key for economic stabilization

Published on 3rd Aug, Edition 31-32, 2015

 

Prices of locally-assembled vehicles are competitive with global prices

Automotive sector is one of the fastest growing sectors in Pakistan, as it contributes towards the nation’s economy in the form of technology transfer, employment and revenue generation. Local vendors deem to play an important role in the growth of auto industry as they bear the responsibility of producing auto parts and sub-assemblies according to the benchmark set by the respective OEMs.

On the other hand, local auto parts manufacturing industry is still in the process of development and lacking competitiveness in terms of quality, cost and flexibility of manufacturing systems. Unfortunately, the EDB said Pakistan has not been able to derive maximum benefits in terms of technical know-how, production technology and quality control in order to upgrade the vendor base of auto sector.

Those associated with auto and allied sectors told PAGE that constant policy is vital for growth of auto industry, which is one of the most important sectors of the economy and amongst the highest taxpayers in the country, however the government must come up with comprehensive auto policy for at least 15 years and minimize sales tax rate at rational level. They said many countries have stabilized their economies by strengthening manufacturing and auto sectors while taking measures for the protection of local industry.

Experts believe that the automotive manufacturing is a high profile industry that generates enormous revenue, employs millions of people and is proxy for a nation’s manufacturing prowess and economic influence and therefore, regarded as the ‘Mother of all Industries’ due to the value chain it creates.

It may be noted that in US, five per cent of the employed population is involved in automotive and allied industries, while in Japan and South Korea about every 8th person is connected to this industry. Pakistan is set to become the 4th largest populated country by 2030 and this presents a huge potential for growth of mobility in the country and equally the opportunity of providing employment and skilled jobs for the growing youth.

Pakistani local auto industry sold only over 124,807 locally assembled cars (including light commercial vehicles, commercial vehicles, vans and jeeps) in the FY2014, depicting only 2.3 per cent increase from last year, despite enormous reduction in imported used vehicles due to age restriction.

Pakistan exported worth of $18.677 million of auto parts and accessories till the end of April 2014 in FY2014 while transport group imports in Pakistan stood at $1.833 billion during the said period.

As far as Foreign Direct Investment (FDI) is concerned for the automobile sector, India fetched $1.517 billion inflows during the FY2014 for the development and growth for the automotive sector from foreign countries.

With the presence of three world renowned Japanese automakers in the Pakistan, FDI received during the first 11 months for the automobile sector was not compatible as it stood at $27.3 million of which $24.9 million was invested in cars assembling while $3.1 million was coming for two wheeler industry. Buses, trucks, vans and trails’ assembling industry of Pakistan was remained failing to attract FDI as it stood at negative growth of $0.7 million during the first 11 months of this fiscal.

In Pakistan, the situation leads totally different as unavailability of locally assembled small cars’ segment to market share of 1000cc to 1300cc cars to 30 per cent, while only 21 per cent of the local market is covered by an 800cc to 1000cc cars.

 

Cheap prices and immense growth

Interestingly, the country of lowest economic growth in the region and having awful energy crisis has 49 per cent share of the local auto market of above 1300cc luxurious vehicles. With the alleged gloves in hands of policymakers with local assemblers, Pakistani auto industry saw only partiality nothing else during the last decade.

Locally assembled vehicles are competitive with global prices and in some instances are actually cheaper in Pakistan than in neighboring countries, market analysts said. According to them, the Pakistani auto industry, much like any other industry, attracts government levies such as import duties and progressive taxations. The prices of vehicles manufactured in Pakistan are even cheaper than other countries such as India, UAE and Thailand.

Pakistan has rich human resources and this offers immense potential for growth in the automobile sector. Our country has a vibrant auto industry with major global OEMs setting up their assembly plants in the country and using upto 90 per cent local parts being supplied by a network of almost 350 PAAPAM members, a spokesperson of PAAPAM said.

“We are one of the most competitive global manufacturers of tractors and 2-wheeler and are now gearing up for overseas export opportunities. This is only due to the high levels of localization achieved by our members,” he said.

The prospects for rapid growth are extremely bright. Countries with comparable populations, such as Brazil, are producing over 3.5 million passenger cars every year. It may take a while, but Pakistan must target similar levels of volumes over the next 10 years. OEMs have played a major role in taking localization to new heights and vendors have lent them full support; may this partnership flourish further in the years ahead. I assure you of PAAPAM’s best efforts to work closely with the OEMs as well as the government best serve our members and safeguard our industry’s interests, by contributing towards creating a conducive and growth oriented environment for the automobile sector. Currently, local companies produce auto parts meeting global standards and local vendors are also exporting auto parts directly or through their OEM customers. The members of PAAPAM are playing an important role in the economic development of automobile and related industries, through development of engineering base in Pakistan, he added.

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