THE AUTOMOBILE SECTOR
Engineering Development Board devises strategy for automobile exports
SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Nov 13 - 19, 2006
Following a series of meeting with stakeholders the Engineering Development Board (EDB) has prepared a long-term policy for the automobile industry, laying main thrust on exports.
According to the EDB spokesman, the policy draft has already been submitted to the Ministry of Finance and its approval is expected by next month. The new policy has been prepared on the pattern of South Africa offering fixed and guaranteed tariff for 8 to 10 years. The Ministry of Finance is examining these days as to how adjust the fixed tariff in its trade policy and the budget prepared on annual basis.
Talking to newsmen recently, Chief Executive Officer of the Engineering Development Board Mian Imtiaz Rastgar said the plan has been prepared keeping in view the long term needs of the industry which give eight-year clear roadmap for investment. The demand for long-term auto policy has been fulfilled in the form of new plan, which not only gives a clear timeframe but also tariff structure for about eight years to the industry for expanding their units.
To a question about a policy for new entrants, he said the rules are being prepared and government wants to open the doors for new investors in the auto sector. The new entrants in the automobile sector would create competition, he added.
Under the plan, manufacturers will be given a target of producing 0.5 million cars and one million motorcycles by the end of 2010-11 for which the government would provide all out support to the industry. The total car production till May 2006 is 143,921 against the total sale of 140,071, whereas the production of motorcycles, according to EDB officials, stood at 600,000 units.
This policy will meet the long-standing demand to discourage import of automobiles. With fixed tariff guaranteed for about 8 years, the local auto manufacturers have agreed to make fresh investment to double the production of motorbikes and increase the car production by about 150 percent by 2010. Auto manufactures will have to find market to export about 400,000 cars and vehicles annually. As a matter of fact the primary thrust of the policy is to encourage local manufacturers to increase investment and enhance their production not only to meet the demand of the local market, but also to ensure that a sizeable chunk is available for export.
A source in the EDB told PAGE that the policy has been prepared on the pattern of South Africa on the strong recommendation of Renault Group of Paris (France), a renewed name in the world automobile industry which offered to set up a truck manufacturing plant in Pakistan for export purposes. The proposal was made last year by Renault Group and consequently a delegation of experts was sent to study the auto policy of South Africa, which proved highly successful.
PAKISTAN AUTO INDUSTRY
NO OF UNITS
CAPACITY IN UNITS
Organized Sector: 500
Rs. 26.5 B / $ 0.46 B
Rs. 72 B / $ 1.25 B
Contribution to GDP (03-04)
Rs. 129.08 B / $ 2.24 B
Rs. 24.81 B / $ 0.43 B
Contribution to Revenue (03-04)
Rs. 43.5 B / $ 0.75 B
Rs. 8 B / $ 0.14 B
Foreign Exchange Saving (03-04)
Rs. 60.99 B / $ 1.06 B
Rs. 11.25 B / $ 0.195 B
South Africa entered in the field of auto-making in 1994. By now vehicle production is the second biggest industry in South Africa's manufacturing sector. Vehicle exports have grown around nine-fold since 1994, and now account for nearly 7% of the country's exports. Overall, the automotive industry, including manufacturing, distributing and servicing of vehicles and components, is the third largest sector in its economy after mining and financial services, contributing 7% to gross domestic product. All of the major vehicle-makers of the world are represented in South Africa as well as eight of the world's top 10 auto component manufacturers and three of the four largest tyre manufacturers. South African vehicle exports are projected to rise strongly through 2006-08, following a record year for South African vehicle production and sales in 2005. Domestic vehicle sales soared by a record 22% in 2004, followed by a new record 27% in 2005, making the country one of the best performing automobile markets internationally. Between 1999 and 2005, production of cars and light commercial vehicles grew from 315,000 to almost half a million units, while exports more than doubled from approximately 60,000 to 140,000 units. All of the large manufacturers in the country have launched major export programs in recent years - the latest being General Motors.
Mr. Jeard Etourebet, a senior official of Renault Group, called upon Imtiaz Rastgar, CEO EDB, on October 19 in order to exchange views about starting assembly of cars and trucks in Pakistan. He said that his company was discussing the project with the Pakistani authorities since November 2005 and "now is the time to finalize things". He added that the facility would be mainly used for export purposes, therefore, they need incentives in the shape of tariff concession and duty drawbacks. When asked to give specific proposals, he said that South African scheme would suit them. He assured that maximum local components would be used in assembling their products.
Mr. Imtiaz Rastgar informed that South African proposal given by him during his last visit was seriously taken up by the Engineering Development Board and a delegation was sent there to study the system in-depth. On return, the delegation's recommendations were submitted to the authorities, which could be reactivated now. He also gave overview of export potential of the local auto sector and incentives given by the government. He specially mentioned two SROs of CBR having inbuilt incentives for exporters. However, he underlined the importance of sustainable long-range policy for development of the auto sector. He said that EDB was working on a duty drawback scheme for engineering sector, including auto, with the approval of the CBR.
Automation industry in Pakistan is in a state of transition. For the past couple of years there has been a turning point in the Pakistani automobile sector as a whole. In 1999-2000 it suffered negative growth demand, but in the years to follow it has developed to an extent that in 2004-05 consumer demand has surpassed the available production capacities.
At present Pakistan's automobile industry is mostly dominated by foreign assemblers. It dates back to 1953 when the US General Motors set up its first plant. But things really took off in the 1980s and 1990s when the Korean & Japanese giants moved in. Pak Suzuki was the first, and is still the market leader. Apart from Pak Suzuki, the industry comprises several other joint venture companies - some domestic firms and leading automobile manufacturers from Japan and South Korea, namely: Toyota, Nissan, Mazda, Honda, Yamaha and Kia.
According to the Economic Survey of Pakistan the automobile group has contributed to the overall growth by an impressive 30.1 percent. However, ample amount of potential still lies unutilized, as there exists a huge supply-demand gap in the local consumer market. As stated by a Yahma official, local assemblers this year have over-achieved their respective targets. They are rather enjoying the perks by not enhancing their capacity or production levels - leading the prices of vehicles to rise due to shortage of supply. However, automobile industries have doubled and some like Suzuki have tripled their production levels, but the question at hand is how long will this demand persist? So far there has been an inflow of remittances and ample amount of leasing thereof demand persisted. To maintain the growth momentum the export potential has to be tapped. This needs fresh investment for which auto-makers demand certain guarantees, which have now been provided.
The new policy, as estimated, would attract fresh investment of about $5billion with expansion in the existing facilities as well as new entrants in the field. We are already exporting motorbikes at the present level of our production of about 600,000 units, which is slightly surplus to our requirement. Large markets exist in Nepal, Bangladesh and even South Africa where motorbikes are not manufactured. In the case of cars, vans and trucks we will have to fight for our share in a highly competitive environment.
Imported Completely Built-in Units
Customs duty (billion)