PAKISTAN'S AUTO INDUSTRY

Now is the time to reform

HUSSAIN TALIB
Dec 25 - 31, 2006

At last count, Pakistan's automobile industry boasted one of the fastest growth patterns amongst all of the manufacturing industries set up within the country. At present, Pakistan is home to 72 auto assembly plants, with over 600 component manufacturers working indigenously to meet the assembler's demands. This large manufacturing base has been one of the vital reasons behind Pakistan crossing a mark of over 1 million units of cars, buses, trucks, LCV's, motorcycles and tractors during the last fiscal year alone. The manufacturing of cars alone, amounting to 160,642 during the last financial year, is set to cross the 500,000 mark within the next four years.

During 2005-2006, Pakistan's auto industry has seen a growth rate of over 50%, with the manufacture of components also being on the rise. One of the major impetuses for increasing investment within the local auto industry has been a zero duty on imports of all kinds of inputs for parts manufacturing, the availability of some of the best infrastructure as well as a high pedigree of human resource. With over 192,000 people directly employed within this sector, and an expected increase to about 250,000 by 2010, the importance of the auto industry to Pakistan's social and economic growth cannot be emphasized enough.

Additionally, as highlighted at various trade exhibitions that are held throughout the course of the year in the country, the Pakistani auto industry has a downstream effect on a number of affiliated industries. These downstream industries include textile, plastic and rubber, fabricated metals, auto parts, advertising and media, glass, steel, aluminum, etc., thus influencing growth and increasing economic value across a spectrum of industries.

Considering the ever increasing demand for automobiles, and the industry targets set, it is obvious that the entire automotive industry needs to streamline its processes and work towards ensuring increasing and sustainable investment within all spectrums of the industry.

Component manufacturing, literally the backbone of the automotive industry still faces problems in Pakistan such as low productivity, high prices and under utilization. Therefore the obvious need for investment in the component-manufacturing sector to make maximum use of the uncapped potential of this particular sector of the industry.

However, the need of the hour is for the government to devise a path that would ensure maximum possible opportunities for foreign investment to come into Pakistan, enabling of the direct liaisons between Pakistan automobile and component manufacturers with such investors, and ensuring the smooth flow of business once agreements have been finalized between all vendors. This need has long been felt across the entire spectrum of the automobile industry, and it is perhaps why there was much anticipation and expectancy from the revised draft of the Auto Industry Development Program (AIDP) announced by the government during mid November 2006, an additional step towards offering a more proactive environment for investors, manufacturers and vendors within Pakistan.

The AIDP, which is the first step towards a full fledged policy for the automobile industry, with commentary and opinion from all stakeholders being evaluated before the policy is put into final shape. The AIDP offers a five year pre announced tariff structure on the CKD (completely knocked down) units as well as auto parts for all kinds of vehicles, in addition it outlines policy and incentives for new entrants, liberalized import of used cars, the establishment of a Rs. 6 billion fund for competitiveness, technology acquisition, research and development of two auto clusters for establishing the sector on solid grounds.

One of the major targets of the AIDP will be to enable the auto industry to double its contribution to the GDP in the next five years, to the tune of Rs. 600 billion, whilst reaching an export level of components of USD 350 million for components, aimed at the international market and to the various OEM's across the world. A major vision outlined within the AIDP is the formation of two auto industry clusters, one each in Karachi and Lahore, enabling cooperation between automotive firms working within Pakistan, whilst enhancing the opportunity for innovation and specialization within the production and supply chain. A major impetus for this has been provided with the proposed creation of a Rs. 6 billion fund to match grants for the industry's competitiveness, research and development, as well as technology acquisition (TAF).