COULD PAKISTAN EVER BECOME A CAR-EXPORTING COUNTRY?

Pakistan needs to chalk out plans to gain a bigger share in auto investment.

KHALIL AHMED
Senior Correspondent

Nov 13 - 19, 2006

Prevalent perception these days across the country is that monopolistic culture in the auto industry is on the verge of elimination. Japanese companies have dominated the Pakistani auto sector for decades and until recently it has been virtually impossible for the new players to make their entry, however, the "Auto Industry Investment Policy - New Entrants in the Car and Light Commercial Vehicle Sector" would be presenting an entirely new scenario in the auto sector. There are reports regarding the new foreign brands making their way in the field, which, of course, is good news for the consumers since it would initiate pure competition in the booming auto market of Pakistan.

At present, the country enjoys the advantages of economic growth and rising middle class. The foreign investors seem to be taking interest in the market of 160 million population. It is being said that the new auto policy is a welcome sign and the European car manufacturers such as Renault, Volkswagen, Porsche and London's Black-Cab could make their way to reap the benefit of surging Pakistani auto market.

Auto manufacturers across the USA and Europe are suffering a great ordeal due to rising labor cost. The US auto giants, General Motors and Ford, have incurred heavy losses over the period of last four years and are still facing tough times and there are lots of news about the closure of plants and laying off of workers. The basic problem being confronted by the European and the US car manufacturers is high labor cost which has compelled them to look to the East Europe, China and India.

Any car manufacturer, which makes direct investment by setting up plants in Pakistan, would benefit in terms of cheap skilled as well as unskilled labor, and of course the promising export options. Pakistani labor is far cheaper than the labor in either India or China. According to Mercer Human Resource Consulting, average annual pay of accountant, sales rep and production worker in China is 4,677, 2,649 and 1,214, respectively, whereas in India such figures were calculated as 2,956, 2,464 and 964, respectively. The car manufacturers can get both skilled and unskilled workers for the wages far below the workers being paid even in India. Pakistani market is a kind of lucrative market for the manufacturers who look towards a cut in the production cost.

Pakistani auto sector has made amazing progress over the period of particularly last six years - reasons being economic growth and car leasing/financing schemes offered with convenience. Owing to an increasing demand with every passing year, more and more cars were being rolled out to meet the undying demand in the Pakistani market. Car production stood at 31,079 units in 1995-96, however, in 2000-01 the production reached 39,575 units. The production capacity got a boost within a couple of years as a total of 62,073 cars were rolled out in 2002-03. The growth surged due to the high demand and the very next year 2003-04 ended with an excellent number in production as 98,461 cars were rolled out during the fiscal year. The sales of cars touched 127,309 figure in 2004-05. There are predictions that the car sales might touch 150,000 mark during the current year. It may be noted that car sales in Asia, according to Autopolis, touched 12.9 million in 1996 and in 2005 around 12.94 million cars were sold in Asia.

CATEGORY OF VEHICLES

DUTY & TAXES (US$)

1. Up to 800cc(Asian make only)

4,000

2. Up to 800cc( Other than Asian make )

6,000

3. From 801 cc to 1,000 cc

5,000

4. Up to 1001 cc to 1300 cc

10,000

5. From 1301 cc to 1500 cc

14,000

6. From 1501 cc to 1600 cc

17,000

7. From 1601cc to 1800 cc
(Asian makes only, but excluding Jeeps)

21,000

Source: CBR

Asia has become a big market in terms of sales and production and it is the focus of attention of all major car producers in the world. It is said that Iran, India and China are being eyed by the investors. When the investment takes place, it leads to employment opportunities and economic growth of a country. When Pakistan is compared with its neighbors in terms of production and sales of cars, it is observed that the country lags behind and needs to do much more to draw the attention of foreign investors for the higher production and export options.

India opened its economy to foreign investment in 1991 and since then the country has been doing a tremendous job in terms of manufacturing. India is one of the leading producers of cars in Asia. At present Hyundai, the South Korean auto giant, alone produces over 300,000 cars every year and employs over 8,000 Indians in one of its factories. India's unemployment rate stands at 10%, however, with more and more manufacturing taking place in all sectors including the auto sector which is booming like the Indian economy, more and more Indians are expected to get jobs.

Iran's auto industry has boomed recently and it employs over 150,000 Iranians out of the country's 70 million population and the sector accounts for about 4% of the GDP. As per reports, India had a market of around 800,000 units a year against Pakistan's 100,000 units a couple of years ago. Over a million cars were sold in India last year against 155,514 cars sold in Pakistan, leaving India as one of the fastest growing car markets in the world. It is a point to be noted that the Indian car industry started gaining momentum in the year 2000 like that of Pakistan's and today India is the favourite investment destination of the car manufacturers in Asia.

Foreign firms are using China as a global manufacturing base and the production is being used for export. China's booming exports rose to $546.4 billion in the last fiscal year. General Motors invested $3 billion and plans to double Chinese production by 2007. It is said that foreign vendors hold around 70% share of the Chinese domestic market. Car manufacturing is in the boom in China for over half a decade and at present China has become the third biggest car market after the US and Japan. By 2007, about 7 million vehicles will be sold in China, less than half the 15 million produced. China would be flooding the world markets particularly the recently discovered African markets with its vehicles. The country intends to boost annual car exports to $70 billion by 2010. Iran, the Middle East's leading car producer, produced 984,000 vehicles in 2005. It exported 15,000 vehicles mainly to Syria and the former Soviet Union and it plans to increase exports to 100,000 cars in 2007.

At present, Pakistan needs to ban the import of cars and rather promote heavy investment in the car sector particularly from the American auto giants, GM and Ford, which have failed to perform in the US and Europe. In case these two companies make significant investment in the car sector and if the annual production rises to one million cars, Pakistan will be able to eliminate unemployment to greater extent, reduce poverty significantly and get good contribution in the GDP. Sources quote that the European and the US carmakers are on an investment frenzy in Asia and intend to invest around $13 billion to triple annual capacity to six million units by 2010. Pakistan needs to chalk out plans to gain a bigger share in this investment. Having done that, Pakistan should not have any difficulty in terms of export of cars, as the markets of Iraq, Afghanistan, Syria and also Africa would be able to consume the Pakistani products.

As far as the domestic market is concerned, on average of around 25% growth has been witnessed in the car market in the last couple of years. This growth might continue in case the interest rates do not rise, economy performs at over 7%, insecurity does not prevail and the financial sector offers leasing/financing facilities.