SHIFTING GEARS

SABEEN IBRAHIM
July 17 - 23, 2006

Perturbed by facilitation extended to overseas Pakistanis in import of cars through gift and baggage schemes, the automobile industry has repeatedly requested the government to prepare a long term policy for the sector, which must be unalterable and should be based on a long term policy with a long term strategic approach rather than a short term policy. The car manufacturers fear that the import of used cars is disturbing their plans of further investment in the automobile industry, if the government continues to change policy every year. All capacity building and expansion plans might have to be shelved if measures are not taken to protect the local makers.

What might benefit the local assemblers is a policy by the government which doesn't allow import of cars and other vehicles under the budget and the trade policy along with support from the government who should ensure that they will not raise or curtail taxes and duties levied on the automobile industry.

For example the auto-parts manufacturing industry in Pakistan has over the years gone through a transition process to meet not only the demands of the upcoming local assemblers but also to compete in the international market. Although a few of the engine and body parts are locally manufactured, there are many that have to be imported for original engine manufacturing as well as for replacement of auto-parts.

Although there is sufficient potential in the vending industry, local manufacturers are not able to fulfill the current demand. As far as the quality and pricing of locally manufactured auto-parts is concerned, the quality standards do meet the minimum international standards.

While Pakistan's auto sector is fairly less advanced as compared to that of India and China, both these countries do have an upper hand as they have larger markets and therefore benefit from economies of scale which Pakistani assemblers and vendors don't. Pakistani consumers have high purchasing power, which the local assemblers have yet to benefit from.

However, Pakistan's auto sector is surely better off than many other Asian neighbors but its high time that local manufacturers and assemblers enter the global market. What Pakistan lacks is research and development facilities. In Pakistan, fuel is Rs57 per liter hence development of an underpowered, fuel efficient car is required. This would not only require lesser fuel intake but will also be comparatively cheaper.

The conclusion is that the automobile industry can establish continuous growth as there is a growing demand coupled with a growing economy and consumption as well as a potential to export in foreign markets. The future of auto industry is as promising for Pakistan as it has been for Japan, provided there is a balance between production levels of vendors and assemblers and continued governmental assistance. Help is needed to make Pakistan a global supplier of auto components and embodying incentives to facilitate R&D. Import tariffs should be fixed to help promote manufacturing of cars and auto parts locally, while the government should encourage investment for capacity expansion in order to meet the rising demand.