NEED TO PROTECT LOCAL INDUSTRY

An exclusive interview with Mohammad Ashraf Shaikh, CEO Yusuf Industries

SHABBIR H. KAZMI, Special Correspondent
Mar 19 - 25, 2007

PAGE: What is the size of local vendor industry on the basis of investment, employment and contribution to national exchequer?

MOHAMMAD ASHRAF SHAIKH: During 2006 the automobile industry invested Rs 130 billion. This included Rs 83 billion investment by the vendor industry alone. Besides Rs 24 billion were invested in cars and light commercial category, Rs 8 billion by motorcycle segment, Rs 3.5 billion by tractor assemblers and Rs 5 billion by bus and truck assemblers. Out of a total employment of 221,250 people, 206,250 are employed by the vendors. Another positive contribution to the national exchequer is of Rs 12.8 billion out of a total of Rs 70.19 billion contributed by the automobile industry

PAGE: How the global prices of steel, etc. are affecting the cost of production?

ASHRAF SHAIKH: Pakistan does not have all the categories of steel required by the automotive industry. It is highly dependent on imported steel. Therefore, with the increase in global prices of steel the price of steel products also increases. This aspect does not seriously affect the vendors because the prices of imported parts also increase.

PAGE: Do the government policies support growth of vendor industry?

ASHRAF SHAIKH: The recently introduced TBS is basically tariffication, which alone is not sufficient for the protection of local vendor industry. This is because OEMs have the muscle and clout to reduce the prices of selected imported parts (to reduce local tariff payments) for a sufficient period of time, to cripple local competition. All automobile assembling units depend on other import deterrents along with import tariffs.

PAGE: How the new auto policy going to affect vendor Industry?

ASHRAF SHAIKH: Slowly but surely the new auto policy (which is basically tariffication) will transform Pakistan's automobile industry into purely an assembly operation. Therefore, all auto-parts will be imported and the vehicles will be assembled locally. It is imperative that the auto policy approved by all the stakeholders should be implemented in true letter and sprit

PAGE: What has been the impact of imported CBUs on the local production?

ASHRAF SHAIKH: Importing new CBUs is not a problem. The real problem is the import of used vehicles because 1) used vehicles attract 25% customs duty whereas auto-parts attract 35% duty. 2) All variants of a vehicle attract the same customs duty regardless of the accessories installed in the vehicle.3) Massive corruption at the import stage facilitates mis-declaration leading to huge custom duty evasion.

PAGE: Is it true that the worst affectees of the policy are the bus and truck assemblers?

ASHRAF SHAIKH: Buses and trucks have been imported in the garb of vehicles attracting minimum duty. In my personal opinion we, as a nation, have to protect the industries because every developed country protects its indigenous industries through tariff and non-tariff barriers. One such example is recent action taken by India i.e. imposition and/or increase in duties on certain items despite being a signatory to SAFTA Agreement. Why we wish to be holier than pope?