EXPLICIT PROTECTIONISM TO BRANDISH LOCAL AUTOMOBILES
TARIQ AHMED SAEEDI - email@example.com
Jan 14 - 20, 2008
While automobile industry contributes over 3 billion dollars to the national economy complete local brands of LTVs and HTVs are not adding significant contribution to annual revenue growth of the industry. Although the industry provides an import substitution worth of over one billion dollars encouragement of local industry can not only reduce import's requirement to support maintaining balance of payment and to eliminate burden on trade deficits but also increase employability in the sector and augment production of vehicles per thousand persons. Local automobile manufacturers introduced cars and light trucks with indigenous brands to have experienced depreciating market response. Perhaps, the reasons might be brand equity of and loyalty with existing market players. Or, "imported" label on a product soothes comparatively well our consumers' urge. There are presently 82 vehicle assemblers in the industry producing cars, light commercial vehicles, trucks, buses, tractors and two and three wheelers. There are over 600 vendors existing in the industry. Reportedly, with a total investment of Rs.98 billion automobile industry has created employment of around 192,000. In neighboring country the perspectives of indigenized automotive sector is fairly burgeoning aimed at expanding outreach of low-priced vehicles. Already, some 10 million people are working in factories across India - making cars and motorcycles, tractors and trucks - or in sales and service centers. Currently, the sector accounts for 5% of India's economic output, but it is set to grow much faster than the rest of the economy. Automobile assemblers can not alone undertake top to bottom line production works. They ought to out source facilities for fulfilling demands of parts and accessories in order to build a complete unit. In Pakistan, however, the perturbing situation indulges players of auto industry into compromising misuse and often abuse of import privileges. Import policy incentives have not been strategize to cope up unfair market practices. The government of Pakistan has started to understand the importance of local industry growth and presented auto industry development plan last year. In past import of automobile parts that include CKD and CBUs has enjoyed special privileges. To justify consumer interests, friendly import policy was introduced. However, it seems that policy makers are confused in making fine line between consumer and local industry interests.
AIDP: Auto Industry Development Plan (AIDP) is a 5 year plan under which the government aims to increase the local production of cars from current 200,000 to 500,000 by 2011 by making local auto industry more competitive, creating capacity for local design and innovation, domestic competition, human resource development and auto cluster development . Keeping in view the interests of both assemblers and consumers the used car import policy would be regulated not to impede the growth of local industry while protecting the consumer interests under AIDP. The plan also envisaged indigenization of local auto industry. Sales incentives, introduction of new models coupled with easy availability of low cost finance with comfortable repayment options continued to drive demand and sales of automobiles. The risk of an increase in the interest rates and increase in the costs of inputs such as steel, utilities, and power outages are the key concerns for the players of the industry.
PAKISTAN'S LIQUID FOREIGN RESERVES POSITION
The total liquid foreign reserves held by the country stood at $ 15,549.1 million on 5th January, 2008. The break-up of the foreign reserves position is as under: -
i)Foreign reserves held by the State Bank of Pakistan:
$ 13,265.5 million.
ii)Net foreign reserves held by banks (other than SBP):
$ 2,283.6 million
Total liquid foreign reserves:
$ 15,549.1 million
Pakistan's automobile industry is segmented into cars and light commercial vehicles (LCVs), two and three wheelers, tractors, trucks and buses, and vendor industry. Remittance of capital, profits, and dividends are allowed to attract foreign investors in automotive sector. Apart from this 100% foreign equity is allowed.
The deletion program for the automotive sector was replaced by the tariff based system (TBS) in the mid of year 2006 to exempt custom duty on import of raw materials to 0%; sub-components to 5%; components to 10%; and sub-assemblers to 15%. Under TBS, imports in CKD condition would be allowed only to assemblers having adequate assembly-line facilities and registered with the sales tax department. Localized parts imported in CKD kit for industrial assembly are to be levied with higher duty. Parts not indigenized would be allowed at CKD rate of custom duty. Underlying objectives of the TBS were to promote job creation; to protect the existing and projected investment of OEMs and vendors; to promote new investment; to encourage value addition; to promote new technologies; and to expand the consumer base to create economies of scale. Production of vehicles for population in Pakistan is positioned at the lowest level in the region. According to a report, production of vehicles per 1000 persons is 765 for USA; 641 for Malaysia; Japan 543; UK 426; Philippines 31; Srilanka 25; Iran 23; Indonesia 21; India 12; China 10; and only 9 for Pakistan.
The capacity utilization of automotive sector of Pakistan is in stark disproportional to actual annual production. While, according to an official report, cars assemblers have installed capacity of 275,000 units they gave production figure of 77,452 in the second half of fiscal year of 2006-07. Same is the situation with LCVs, where total installed capacity of production is around 40,000 in contrast to actual production of 17,366 units. Assemblers of buses have ability to assemble 5,000 units per annum yet they barely assembled 462 buses in the same period. It is interesting to note a wide difference in installed capacity and capacity utilization in terms of motorcycles. The increasing demand of two wheelers has attracted various local and foreign investors to enter into the sector. Thereby, quantity of manufacturers and assemblers has surged to considerable numbers resulted into gross expansion of installed capacity to over 2 million. In contrast not more than 450,000 units were produced in the same aforesaid period.
Experts of the automobile sector attributed the under utilization automobile industry to many factors. Among them very important, they believe, is unchecked import. It is common that local industry is always supported by imported products. But, there are few market forces abusing and misusing policy incentives given by the government. Value addition is an ideal and classical condition to boost economic growth and to realize full potentials of any industry. However, in case of automotive sector let alone value addition even capability of automobile assemblers and manufacturers to produce and to meet local demands is willfully neglected.
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