Home / This Week / Cover Stories / Future vision of Pakistan’s automotive industry

Future vision of Pakistan’s automotive industry

Pakistan is a rising market for automobile and allied industries. The type of these industries plays a pivotal role within the large-scale manufacturing sectors in arousing economic growth. Pakistan occupies an eminent place among the automobile producing countries Pakistan’s automotive industry is one of the oldest in the Asian countries.

The industry started production of trucks (Bedford) in 1949 by (General Motor). Its market has been overtaken by other countries in Asia such as China, Thailand and India entered in the market in 1980. Take the example of neighbouring country India auto industry which is one of the largest in the world now. The industry accounts for 7.1 percent of the country’s Gross Domestic Product (GDP). India is also a prominent auto exporter and has strong export growth expectations for the near future. Overall automobile exports grew 13.01 per cent year-on-year between April-December 2017.

Indian auto industry is set to witness major changes in the form of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and safety norms. The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route. The industry is supported by various factors such as availability of skilled labour at low cost, robust R&D centres and low cost steel production.

India’s industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labor. The Indian automotive aftermarket is estimated to grow at around 10-15 percent to reach US$ 16.5 billion by 2021 from around US$ 7 billion in 2016. It has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product.

The Indian automotive aftermarket is estimated to grow at around 10-15 per cent to reach US$ 16.5 billion by 2021 from around US$ 7 billion in 2016. It has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 percent to India’s Gross Domestic Product.

The automobile industry in Pakistan includes companies involved in the production/assembling of passenger cars, light commercial vehicles, trucks, buses, tractors and motorcycles. The Automotive Parts industry has shown a progressive growth in the last several years and different type of automotive parts has been developed locally.

The shortage of technology transfer in the vendor industry has not yet been achieved due to vested interests of Vehicle Assemblers. Pakistan has the 6th largest population while 50 percent of the total population is below 30 years in age.

There are over 90 million young potential consumers demand for cars and other passenger vehicles is being increased day by day but existing auto manufacturers and assemblers are unable to match the demand. After the oil & petroleum sector, auto industry sector in Pakistan is the second largest taxpayer in the country.

It is also noted that the overall performance of Pakistan automotive sector has not met its genuine potential. Motorcycle segment has shown remarkable results but the car segment with few exceptions is providing lesser technology and features as compared to global market. Small cars segment the technology still used has been phased out in the international market and the safety features like air bags and ABS brakes etc are not provided and most of the cars come with inefficient fuel technology engines.

Car assemblers are continuously increasing prices and making huge profits by not providing Pakistani consumer with the features essential in global markets of the same make and model. The passenger taxi car have many issues like lack of safety and reliability features, surplus production capacities and lack of competition in Pakistan market. Instead of solving these issues the government relaxed the import of used cars.

Parts manufacturers and vendors failed to develop critical components and acquire technology transfer. They were unable to deliver due to many issues like formulation of quality standards and specifications. The Government run organizations like PITAC, TUSDEQ and PSQC did not play their role in upgrading the local auto parts industry. The misuse of SRO’s like 577(1)/2005 which provides exemption on the duties on import of used cars and 655(1)/2006 and 656(1)/2006 have also in a way curbed the growth in local automotive industry.

A large number of automotive industry are involved in the production of aftermarket parts 200-240 companies supply parts for OEM (original equipment manufacturer) production. Due to depreciation of Pak rupee they are switching back to local sources as the imports are becoming more expensive and profit margins being reduced.

Research and development is essential for the growth of this sector. Government should encourage R&D by giving sales tax exemptions on new products, or cost-sharing with local firms through technology development funds. Foreign participation and increased investments in the domestic sphere can phenomenally re-establish the industry along worthwhile lines.

The new linkages should be initiated with an aim to satisfy the local demand for increased comfort and safely at par with international standards. Only then can the much-touted automobile policy actually realize its vision of bringing in economic prosperity. It is strongly recommended that before devising any policy government at all levels should consult all the stakeholders that are automobile assemblers and automobile parts manufacturers.

The import of CBUs or used cars must be discouraged and local industry must be facilitated in order to enhance employment and economic activity in the country which will in turn contribute largely in national exchequer and development of country. According to the Engineering Development Board (EDB), which works under the Ministry of Industries and Production, it is facilitating fresh investments in the auto sector from new companies including joint ventures with foreign players. It is anticipated that with the revival of Dewan Farooque Motors, which has been given the go-ahead to manufacture vehicles under the new policy, Shehzore pick-up trucks will be re-launched shortly whereas Daehan Dewan Motor will manufacture Ssangyong Tivoli SUV with an investment of $145 million.

Local auto industry is facing immense pressure of increased input costs, due to regulatory duty on steel. Regulatory duty was imposed on imported products/raw materials that were available indigenously. Pakistan is not producing auto grade/tensile steel still RD is imposed on it. Auto industry is employing around 2.5 million direct and indirect labors and had a lot more untapped potential which was linked to predictable and transparent policy. The industry needs support from the government in terms of transparent and consistent policies to regain its lost status both at the front of utilization and production level.

Check Also

Islamic finance education in Pakistan – challenges and growth

Islamic finance education in Pakistan – challenges and growth

Islamic finance industry in Pakistan has witnessed a strong growth in Pakistan over the last …

Leave a Reply