IRRITANTS TO AFFORDABLE TRANSPORT
SHABBIR H. KAZMI
June 27 - July 3, 2011
Pakistan being a developing country suffers from limited purchasing power of people, which does not allow bulk of the population to own a car. The importance of a two-wheeler in the life can be gauged by the fact that during financial year 2010-11 overall sales of cars and light commercial vehicles might remain around 150,000 units, but motorcycle sales close to two million.
This year sales have been driven by a phenomenal increase in the income of rural population, mainly due to high cotton prices, good sugarcane crop and of course bumper wheat output.
Added to this has been skyrocketing prices of motor gasoline, diesel, and CNG, making use of four-wheelers too expensive. Many of those who have cars are purchasing motorcycles as the first alternative, especially when one person has to move around.
In Pakistan, 70cc motorcycles have been most popular, mainly because of the fuel economy. However, lately there has been a substantial increase in sales of 100cc and 125cc types, demand mostly originating from the rural areas. These models are considered more rugged if bitumen-carpeted roads are not present. These models also have special liking for the younger generation living in the urban areas. One of the reasons for the phenomenal rise in demand for motorcycles has been introduction of Chinese models. The added advantage has been that nearly 90 per cent of the components of motorcycles are now made locally.
According to a report, Pakistan produced 750,000 motorcycles during 2005-06 and the forecast is about two million two-wheelers for 20010-11.
Analysts can still recall that at one time there were only three assemblers, whereas the number has estimated to around 45. There are about 2,000 units producing components for two and three wheelers employing more than 50,000 workers directly. Indigenization has helped in bringing down cost substantially. Availability of motorcycle financing has also been instrumental in increasing the off-take.
As compared to other industries in which competitiveness can only be achieved with high levels of human capital, the motorcycle industry is more concerned with better management of human resources and high levels of productivity at all levels, OEMs as well as parts and component manufacturers. During 2006 Competitiveness Support Fund (CSF), a joint initiative of Ministry of Finance, Government of Pakistan and the United States Agency for International Development (USAID) undertook a study. The primary objective of the study was to carry out a policy analysis on the competitive advantage of the local motorcycle industry along with identification of the problems being faced by the sector and recommending solutions. The concept of the CSF was based on similar funds established in other economies (India, Thailand, Turkey, Ireland, and Finland) and benchmarked against these funds, structured according to the international best practices and tailored to the Pakistani economic environment. The scope of work included carrying out a survey of the OEMs, component manufacturers, government agencies and other stakeholders like banks, etc. In addition to the collection of primary data, detailed analysis of the secondary data and its linkage with the primary data was also carried out.
According to this report, global motorcycle production increased from 30 million units in 2004 to 40 million units in 2005 with China alone producing 17 million units. The second largest producer was India with 7.7 million units while Pakistan came at number seven with a production of 750,000 motorcycles or about two per cent of the global total. The world market for motorcycles is dominated by the Japanese brands, namely Honda, Suzuki, Yamaha and Kawasaki. Although Japan itself produced only 700,000 motorcycles, its brands with strong presence in the low cost countries like China, India, Indonesia, Thailand etc., control 50 per cent of the world market.
In Pakistan, motorcycle assembly started in 1964 when Atlas Group started assembling Honda motorcycles in Karachi. In addition to Honda, the other Japanese brands being manufactured in Pakistan include Yamaha and Suzuki. The most successful design among the Japanese brands has been the Honda 70CC which enjoys tremendous popularity on account of its fuel economy, resale and low maintenance features.
At that time there were 43 OEMs producing various brands of motorcycles. The Engineering Development Board (EDB) issues licenses to the OEMs for undertaking assembly operations. The Pakistan Standards & Quality Control Authority (PSQCA) is responsible for monitoring the production of quality products by the OEMs. As such, both the EDB and the PSQCA play an important role in the establishment, licensing and monitoring of the technical operations of the motorcycle assemblers.
According to some analysts, quality of locally produced motorcycles needs further improvement, particularly fuel efficiency. This has become all the more important because price of motor gasoline is skyrocketing. These analysts say that in a way motorcyclists emerged as the single largest group buying motor gasoline, because CNG/LPG kits are not available for two wheelers. Introduction of CNG rickshaws helped in achieving two objectives 1) bringing down consumption of imported motor gasoline and 2) containing air and noise pollution.
The demand for CNG rickshaws has remained robust because of financing facility introduced during the previous regime, mainly to get rid of two-stroke technology considered inefficient as well as more polluting. This program needs to be further improved, as these wheelers have proved more economical for short distance travelling. Introduction of these has helped in containing consumption of high speed diesel.
Pakistan should also focus on export of two and three wheelers. Since it has to compete directly with China and India, some incentives have to be provided to the local manufacturers. A little focus on cost optimization can further improve competitiveness of the local manufacturers.