Home / This Week / Cover Stories / Contribution of auto industry to Pakistan economy

Contribution of auto industry to Pakistan economy

All sorts of vehicles put together are the biggest source of logistics, consumer of energy products, sources of employment and contribute towards multiple economic activities. Quantifying their contribution to the economy may not be as easy as perceived by those having a myopic view. Some analysts also car the automotive industry is a burden on economy as is still remains heavily dependent on imported components and also consumes the largest percentage of total energy products, mainly imported. However, by taking a holistic view, policy planners can come up with policies that can make automotive assembly foreign exchange earner rather than forex consumer.

If one clubs motorcycles, cars, light commercial vehicles, tractors, buses and trucks under automotive manufacturing (import of completely built units (CBUs), SKD and CKD kits) the industry collectively eats up billions of dollars every year. If one added to this steel, plastic and glass components the quantum increases manifold. If one also adds the dollars spent on import of energy products, there may be a consensus that the production of automobiles may be curtailed. However, looking at the value addition and broadening the horizon facilitates the decision makers in coming up with policies that lead to enhancing automobile manufacturing in Pakistan.

Some critics say that the jobs created by assemblers are paltry when compared with billions of dollars invested in the facilities. However, one has to also explore the trickle down affect. It may look that SKD/CKD kits used per vehicle are a few but more than 3,000 components are used. Therefore, the contribution of vendor industry has to be examined rather the assemblers. In Pakistan about half a dozen assemblers operate but over 30,000 vendor units feed them the components. It may be said that the real driving engine of auto industry are vendors and not the assemblers. The vendors provide employment to over 300,000 workers.

Auto financing a growing business but mostly confined to private cars. The huge market comprises of public transport i.e. buses, trucks, minibuses and rickshaws. The Yellow Cab Scheme introduced by Nawaz Sharif introduced in his first tenure proved to be complete disaster. The scheme was good but its implementation was pathetic. While borrowers, car industry, banks and insurance companies were the net losers, the cheaters made billions. This disgusted the financial institutions to a point that they decided not to participate any such venture in the future.

 

Auto insurance contributes handsome percentage to total premium collected every year. However, a serious problem arises as the insurers are not ready to more than five-year old vehicles. Even if have to issue a policy for more than stipulated old units, the premium rate is high. Often the owner has no option but to drive the vehicle without any insurance cover. The consequences are disastrous if the vehicle is substantially damaged.

The problem is much talked but most neglected ‘For Act Only’ segment. According to the law no vehicle can be brought on road without this policy, which is aimed at protecting others from losses in case the vehicle hits them. Traffic Police has the mandate to check this policy and also impose fine if the driver is not carrying this policy. Since it is only a legal requirement, very innocently people buy fake policies to satisfy the legal requirement. In case of any loss caused by the driver carrying a fake policy, the affectees don’t get any claim or compensation. Hundreds and thousands of such policies are issued by the cheaters, which causes billions of rupees losses to the national exchequer every year. Despite the best efforts and approach to the law enforcing agencies and the courts, the business continues as usual.

In the replacement market (selling spare parts), smuggled components are sold in huge quantity. These parts are usually imported as scrap but sold in the market as new. The business goes on with the connivance of law enforcing agencies. In the past shops selling parts without any documentary evidence of its official purchase were arrested. It seems that the officials law enforcing agencies have become the partners of businessmen and smuggled parts are being sold in broad day light. This on one hand causes losses to the vendor industry and on the other hands deprives the national exchequer from billions of rupees.

Provincial government collects billions of rupees as ‘Vehicle Tax’ every year. One of the regrets of the vehicle owners of Karachi is that the government hardly spends this amount on the maintenance of the roads of the city. Highly depleted roads not only cause the worst traffic jams, but are the biggest wastage of imported motor gasoline and gas. Traffic jams also spread pollution and become the sole reason for ‘acid rains’. Climate change is also causing torrential rains and floods.

Pakistan has an agro based economy and famers need tractors and other machinery for improving yields of different crops. Pakistan has completely indigenized production of tractors. However, the benefit could not be transferred to farmers as they are dependent on financial institutions for the financing of tractors. With regular intervals the government announces special tractor financing schemes which neither benefit the local tractor manufacturers nor the farmers.

Check Also

EFU General - The largest and the oldest company of Pakistan

EFU General – The largest and the oldest company of Pakistan

Today, with over 85 years of winning the customers’ trust, EFU General Insurance Limited is …

Leave a Reply