EXPORTING POTENTIALS OF AUTO SECTOR
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
Oct 20 - 26, 2008
The importance of international participation in promoting auto sector of Pakistan is not deniable as the sector demands consistent flow of sizeable investment as well as updated technology to become production and export oriented. Past result has shown foreign companies rising interest in auto sector of Pakistan and verified huge potential existed in export and production of auto parts. However, recent economic disturbances would likely to slow down the process of interest building and may jeopardize prospects of foreign investment inflows in overall auto sector.
To make auto sector global and increase participation of stakeholders in achieving this goal, ministry of production and industries had envisaged auto industry development plan two years back. In spite of that industry sceptics shed doubts over the ability of AIDP in facilitating transition of auto sector from deletion regime to tariff based system and likelihood that plan would achieve landmark of bringing local auto sector at par with global standards, AIDP has well included five years road map of tariff and non tariff initiatives and has vision to enhance GDP share of auto sector to 5.6 percent by 2012.
Making passenger cars, two and three wheelers vehicles, buses, trucks, etc., production process in auto sector of Pakistan concentrates mainly on assembling and depends highly on complete built units and knocked down kits imported across the border. Despite robust growth in investment and considerable performance of sector during yesteryears, total indigenization has not been attained so far. Production still consists of major imports in form of raw materials or industrial goods. Unfortunately, indigenization has not been achieved at a place where it becomes possible as well as beneficial to economic sustainability. For instance, making of engine parts in local market could have been possible had investment been directed towards it.
Automatically, auto share to GDP might have been improved after employment and consumption received substantial push. Manufacturing allows generation of employment opportunities besides expands sustainable productivity in the sector. It is not that attempt to localization has not been made so far. Local enterprisers started Pakistani made cars but failed to wean local consumers from xenophile. Consumers prefer foreign brands over local ones. Reasons are many such as quality promise of locally assembled foreign vehicles and prolonged and tight gripped existence of foreign brands in Pakistan's markets.
In car and motorcycle segments, Japanese brands cloud over market scene. While LCVs of Suzuki get holds of highest portion of market shares, Honda motorcycles occupy 40% of entire sales taken place nationwide. Top car makers in Pakistan are these two and Toyota. Car production which is the prime segment of auto sector witnessed declining trend in 2007-08 to 164,710 attributable to demand downslide, rising cost of production, and cautious progress of assemblers in the wake of economic volatility.
The plan of increasing annual car production to 500,000 by 2012 has to pass through critical time period. Government needs to develop policy framework in consultation with stakeholders to mull over ways of improving production cost effectiveness; of fulfilling customer expectations; and of meeting environmental obligations.
Pakistan auto sector produced around 1 million vehicles including two and three wheelers during 2006-07. During last few years, the sector had been striving to align itself with growing customer demands. Now the situation has been different but not to the extent that exposes serious risks to performance of auto sector. This sector still magnetizes investment both from within and outside.
In global market, share of Pakistani auto sector is very low and there is a huge gap to be filled. Pakistan's total share of car and commercial vehicles remains 0.37 percent of the world production during 2006-07. In preceding fiscal, sector' turnover was more than $3.6 billion, which was 2.8 percent of GDP. Global trade of automobiles is over $1 trillion. Pakistan is one of the nations where industrialization of auto sector is emerging and attractive.
Contrary to its potential, auto sector contributes very marginally in national exports and is slow in exports that take boost directly from standing of manufacturing in the country. Motorcycle sector has underlying export potentials according to experts who believe since saturation in sales is nearing in local markets, neighbouring countries should be explored.
Vertical and horizontal linkages of auto sector with number of allied industries provide breeding ground to engineering sector and increase employment and interchanging technology. Its backward integration in consumption of steel, copper, plastic, rubber, etc. and forward integration with channel of distributions and marketing are believed to promote industrial development in the country.
Capacity building of workers and human resource development are necessary to weather demanding challenges of recent times. While competitiveness of local made vehicles improves with customization of technological expertises, Pakistan can score edge over competing economies in global arena through human resource and research developments in auto sector.
Pakistan auto sector can become part of global supply chain by promoting and strengthening local industrial base and assisting vending industry. Technology up-gradation and skill development of small and medium sized vendors do not only improvise quality of automobiles but also entitle Pakistan good name in international market.
AIDP is relevant to maintain growth of auto sector in years to come. The challenge is to ensure incorporation of stakeholders' suggestions while devising policy frameworks in accordance with the current developments. Achieving export target of $650 million by 2011-12 seems plausible however imports till then should also be rationalized. Increasing volume of import would invalidate benefits of exports to the economy otherwise.