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Automative parts and accessories manufacturers en route for growth and double the investment

Automative parts and accessories manufacturers en route for growth and double the investment

Rising per capita income with changing demographic distribution with influx of workforce help push auto industry to expand
Interview with Mr Sohail Shamim Firpo – Director, Firpo Group of Companies

Profile:

Mr. Sohail Shamim Firpo is Director of Firpo Group of Companies. He is also Chairman of Pakistan-Romania Business Council (PRBC). He also holds position of Senior Vice Chairman of Customs and Valuation Sub-Committee of Karachi Chamber of Commerce & Industry (KCCI) since 2012. He is also Chief Coordinator (Trade Wing) of Pak-Ukraine Trade & Culture Information Center since its formation in 2009. He is a Member of Diplomatic Missions & Embassies Liaison, World Trade Organisation (WTO) Intellectual Property Rights, and Labour & Social Welfare Sub-Committees of KCCI.

Firpo Group of Companies is in business since 1968. It has its sales office and showroom at M. A. Jinnah Road, Karachi and manufacturing plant at Korangi Industrial Area, Karachi.

Firpo Group has an extensive track record in providing products and services across the globe. For last 51 years the Firpo Group has been building a strong and valued clientele across both the public and private sectors.

Firpo Group deals in all kind of automotive bulbs and parts. Firpo Group always focuses on consumer satisfaction with the motto of “Only the Best is Good Enough”. Firpo is registered brand name which is well known amongst automobile industry in Pakistan, all the top auto manufacturing industries purchase and use its bulbs for lighting and automotive parts.

PAGE: Your views on auto parts business in Pakistan:

Sohail Shamim Firpo: Auto parts business is growing and emerging business in Pakistan. The auto spare parts industry is an allied of the auto industry. The auto & allied industry form a major manufacturing sector in Pakistan. The automobile industry in Pakistan includes companies involved in the production/assembling of passenger cars, light commercial vehicles, trucks, buses, tractors and motorcycles.

Pakistan is producing up to 70 percent auto parts of cars & HCVs, 90 percent of tractors, motorcycles and three wheelers locally for Original Equipment Manufacturers (OEMs) to export and supply in domestic market. There are approximately around more than two thousand companies operating in the automotive parts market in Pakistan and a large number of these are involved in the production of aftermarket parts 200-240 companies supply parts for OEM (original equipment manufacturer) production.

Auto part manufacturers, which are working as vendors for global car manufacturing companies, are now looking to enhance their stake in the rapidly developing auto market of Pakistan. At present size of the auto industry stands at around Rs370 billion in which around Rs20 billion has been invested by the domestic vendors, who are providing spare parts and accessories for different automobile categories, according to statistics.

Automobile and Allied Industry play an important role within the large-scale manufacturing sectors in spurring economic growth having enormous investment opportunities with positive growth in the sector. Pakistan is among the 40 automobile producing countries and 4 of the top 10 global car makers have plants in Pakistan. The Economic Coordination Committee of the cabinet has approved Auto Development Policy (ADP 2016-21) in March 2016, which is the sole authentic document that governs the industry.

PAGE: How would you comment on import of auto parts?

Sohail Shamim Firpo: The auto industry is governed by the Automotive Development Policy (ADP) 2016-21 under this policy, all APMs (auto parts manufacturers) are registered with Engineering Development Board (EDB), who govern and monitor all imports of their raw materials to safeguard against misuse of concessionary duties fixed in the ADP. Levying high Regulatory Duty of upto 35 percent on import of auto parts is discouraging their import and encouraging local manufactures to increase their production to meet market demand. However Pakistani automakers mostly import parts and assemble them in Pakistan, contributing to the ever-growing import bill. Import of accessories touched $809 million against last year’s number of $660 million. Currently, localization figure for the assembled cars in Pakistan stands at around 40-70 percent.

Imports of spare parts for two-wheelers increased as well in FY 2018. In FY 17, the assemblers imported bike parts worth $92 million against FY 18’s imports of $106 million.

I am also of the view that government should not give tariff concessions on import of spare parts and accessories that are locally manufactured under the proposed trade agreements with some countries. For localized parts, offering concessionary custom duties in the FTAs would be incomprehensible, as they would compel the entire auto parts industry to shut down their units and this would also deprive the national exchequer of tax revenues.

 

PAGE: Could you tell us about the taxes on auto parts?

Sohail Shamim Firpo: At present motorcycle spare parts are subjected to 35 percent customs duty, 11 percent additional duty, 17 percent sales tax, 6 percent income tax and 3 percent additional sales tax which is terribly raising the cost of these spare parts and make them unaffordable for the masses and encourage parallel import. These unnecessary and exorbitant taxes and duties imposed on the imports of motorcycle spare parts are needed to reduce with a view to discourage smuggling and provide relief to common man.

PAGE: Your views on auto sector of Pakistan?

Sohail Shamim Firpo: Automobile sector of Pakistan has been playing a vital role in the overall national economy. This industry is the one of the fastest growing industries of the country employing a workforce of over 1,800,000 people. The sector is one of the major contributors to the manufacturing sector in the country and is registering a growth of over 30 percent per annum. Improved shape and style of locally manufactured cars and up-gradation in the living standards of the masses are main factors behind the impressive growth in this sector. At present there are around 32 automobile manufacturing units in the country with a capital investment of US$ 1.5 billion (assembly & auto parts) and employ 5,600 workforce. Auto parts vendor industry consists of around 2,000 units in organized and unorganized sector and employs over 140,000 workforce.

At present the automobile industry has enjoying continued growth. The demand in the auto sector has been catalyzed by low interest rates in the financial markets, a persistent inflow of home remittances, cheaper and easy availability of car financing and frequent model changes induced by furious competition in the car industry. The increasing trend touched almost every segment of the auto industry. Currently there are around 10 cars for every 1,000 people in Pakistan. This is one of the lowest ratios among emerging economies, which itself speaks of high potential of growth.

The automotive parts and accessories manufacturers are clearly heading towards the growth of industry and committed to double investment in coming years. Faster growth in vending industry has enabled the local automobile sector to achieve expansion in capacity as well as manufacturing technology.

If I talk about last decade this industry has witnessed a rapid growth since 2010. The auto industry predicted a growing demand in Pakistan and invested over ₨20 billion (US$190 million) during this decade. Motorcycle production hit a record level in 2016-17, with 2.5 million units made.

In 2015, the Auto Policy 2016-21 was introduced, to help lure new automakers, which has traditionally been dominated by Honda, Toyota and Suzuki. The auto industry remains the second largest payer of indirect taxes after the petroleum industry in Pakistan. Rising per capita income with changing demographic distribution and an anticipated influx of 30 to 40 million young people in the economically active workforce in the next decade will provide a stimulus to the industry to expand and grow.

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