FACTORS AFFECTING GROWTH OF AUTO SECTOR
Businesses can adjust around bad policies but they cannot adjust to changing policies
By ALI AGHA
Sep 13 - 19, 2004
The automobile industry has achieved a remarkable growth during the fiscal year 2003-04 due to friendly economic policies and of course cheap and easy finances available in the market.
As is evident by the key economic indicators for 2003-04, suggesting investments and fixed investment of 18.1% and 16.4% respectively of the total GDP in the automobile sector, with Credit to private sector Rs.224.56 billion in 2003-04 compared to Rs.106.63 billion in 2002-03. The same fiscal period of 2003-04 witnessed an increment in the KSE index to 61%. Also, foreign investment showed an upward trend, and rose from US$ 750 million during FY 2002-03 to US$1000 during FY 2003-04.
With the key targets of three-years, 2004-07, investment is targeted to reach 20% with a rise of 1.9% to add towards the GDP in order to boost the growth rate to 8% by FY 2006-07.
As during FY 2002-03, the GDP growth was standing at 5.1% when the growth rate of manufacturing and large-scale manufacturing was 6.0% and 7.2% respectively. Similarly, when the manufacturing and large-scale manufacturing reached to 13.4% and 17.1%, the GDP growth rate increased to 6.4%.
With improved Per Capita Income that increased from US$ 492 to US$ 652 during FY 2002-04 , and substantially improved remittances, financial institutions have equally benefited considerably, through offering Auto Financing that rose from Rs.15,800 million during FY 2002-03 to Rs.24,500 million during FY 2003-04, with interest rates that declined from 10.5% to as low as 7% during FY 2002-04.
What is needed is protection and creation of an investment-friendly environment, through ensured long-term policy. This will result in restoration of local investors' confidence, which, in turn, will allow the local auto industry to thrive by attracting more domestic and foreign investments for itself and for different segments of Pakistan's economy.