Oct 12 - 18, 2009

Yamaha Motors, a leading Japanese company, plans to invest $150 million in motorcycle manufacturing plant in Pakistan. The plant, which is to be established in the National Industrial Park at Bin Qasim in southern port city of Karachi, will not only create 25,000 jobs for Pakistani engineers and workers but also serve as a central location for Yamaha's move into Pakistan, India, and other emerging regional markets.

Analysts believe that Yamaha has decided to make a direct entry into Pakistan by establishing a manufacturing plant to beat China, which has proved a tough competitor to Japanese bikes in the south Asian country. The geo-strategic location of the country gives Yamaha an added advantage to use it as a base for exports to neighboring Asian and African countries. Dawood Yamaha Limited or DYL Motorcycles Ltd. a local company is presently engaged in the manufacturing and assembling of Yamaha brand motorcycles in its manufacturing facility and assembling plant in Lasbella district of Balochistan province.

In a recent meeting with Noor Mohammad Jadmani, Pakistan's Ambassador to Japan at the company's headquarters at Hamamatsu, the President of Yamaha Takashi Kajikawa announced to invest $150 million in a new motorcycle manufacturing plant in the south Asian country. In the first phase, the company would assemble around 22,000 motorcycles by 2012, after that it would manufacture the motorcycles by using various domestically manufactured parts in Pakistan. In the final phase, the company would start manufacturing motorcycle engines in the country by 2017. The Pakistan envoy informed privileges, facilities and tax concessions offered in exclusive Japanese Special Economic Zone (JSEZ) being established at an initial cost of $5 billion in the country.

'The company intends to make Pakistan a base for exports to neighboring Asian and African countries,' local media quoted Takashi as saying.

Yamaha's move to establish a plant in Karachi also reflects mistrust in the local manufacturer of Yamaha bikes, which have rapidly lost sale to Chinese bikes in the country where Japan was dominating the motorbike market. During last five years, the Japanese bike-manufacturers have been making downward adjustments in their prices.

Critics say that DYL Motorcycles Ltd, the local manufacturer of Yamaha motorcycles under franchise arrangement, created monopoly in the market by way of driving other competitors out of the market. The local assemblers of motorcycles of various Chinese brands contend that after the arrival of Chinese origin motorcycles in the market, the prices of Japan origin motorcycles have significantly come down which means that previously the local manufacturers were over-charging.

The Chinese bike makers are the key players in the rapid growth of the local bike industry. By the year 2005, there were 22 motorcycle manufacturing plants in Pakistan, which have increased to 53 now. In the same year, there were 19 plants producing Chinese motorcycles, which have presently reached to 50. The strong point of the Chinese bike assemblers has been the difference of Rs 20,000 to Rs 25,000 as compared to Japanese bike makers. The bikes are now running side-by-side today with the Japanese counterparts on the roads in Pakistan. Even the imported Chinese bikes are also racing neck to neck with Japanese bikes.

In 2006, a complaint was lodged by one of the leading Japanese bike assemblers, Atlas Honda Limited, with the Customs Valuation department alleging that the motorcycle parts were being imported from China by the commercial importers and the bike assemblers on 'under-invoiced' value.

Atlas Honda Limited had also submitted a list of specific items wherein the under invoicing is rampant, which is hurting the local manufacturers of these components.

According to annual report of Atlas Honda Limited for the year 2006, the company had suggested valuation of 26 major parts to the Customs Valuation Department. As per report, the valuation advice for 15 parts was issued and working on remaining 11 parts was in the process. The already issued advice was partly implemented on different customs posts. Under-invoicing had emerged as a core issue for the organized industry, causing unfair competition and loss of revenues to the national exchequer in billions of rupees. The report had also mentioned about a raid on 10 units in the unorganized sector which had unearthed a huge tax evasion scam. Over Rs1 billion penalties had been assessed. According to the report, tax evasion was the main cause of price difference between Japanese bike and Chinese bike.

Several Japanese producers including Suzuki, Sony, and Marubeni have already shown interest in establishing their units in the JSEZ, which is being set up in Karachi for Japanese investors. Though the country has offered the best incentives for investment, including 100 percent equity, free flow of money with remittance of royalty and technical fee, yet the new Japanese entrants into the country have been rare in recent years due to security concerns. Present government has already directed the Board of Investment (BOI) to prepare a workable report suggesting remedial measures to remove all sorts of hindrances and bottlenecks to encourage the Japanese business sector to enhance operations and investment in the country.

In 2007, Japan had reached basic agreement with Pakistan to revise a nearly 50-year-old tax treaty to promote investment and build closer economic ties. Under the current treaty, when a Japanese company has a branch in the country, Pakistani taxes are levied on all the income made within the country even if it is made through a direct business with its headquarters in Japan. The same applies to companies in Japan. The revised treaty will however impose taxes only on income made through operations of branches in the other country. Other revisions include rationalizing investment income tax levels for dividend, interest income, and other fees. In this regard, Japan and Pakistan are expected to sign the agreement this year.

Officials in Islamabad claim that Pakistan is rated higher in business ratings around the world, as there is as such no restriction on the foreign investor to repatriate his capital, assets, profits and royalty.

The International Finance Corporation (IFC)-World Bank Doing Business Report 2010, reported no improvement in Pakistan doing business and the country continues to be ranked at 85th in the world among 131 countries, according to a report recently published in Daily Times. The country's ranking in starting a business has improved by points and the country had been ranked at 63rd in 2010 report whereas it was ranked 80 in 2009. In Pakistan, some 10 procedures are required and it takes some 20 days costing 5.8 percent of income per capita. Pakistan's ranking in protecting investors has also shown decline and the country has been ranked at 27 in new ranking as against earlier 25.