MOTORCYCLE MAKERS SEEK PROTECTION FOR LOCAL INDUSTRY

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Sep 12 - 18, 2011

Pakistan's motorcycle industry has raised a strong voice against what they called plans for granting a self-proclaimed "new entrant" customs duty concessions and tariff and non-tariff benefits at the cost of local manufacturers.

The local motorcycle industry is gradually drifting towards a crisis-like situation that will translate into unfavorable trend for local players who are already working in a challenging environment.

The government is mulling over to allow a Japanese manufacturer, Yamaha, with exceptional concessions particularly in imports of spare parts at the expense of billions of rupees running industry, which is believed to sustain in long run if present level-playing field is maintained while providing protection to local players.

The government seems to have been so na´ve and unaware about the history of Yamaha and forgetting the fact that Yamaha can never be considered a new entrant. The company has done its business in Pakistan for 35 years and sold out its shares to local assemblers who are manufacturing brands such as Yamaha Royal, Yamaha 4, and Junoon.

The incentive of duty relief to the Japanese investor against the pledge of mere US$150 million investments in ten years is under consideration despite the fact that the government will lose revenues of more than the investment amount.

The statistics clearly show that despite numerous hiccups the economy had during past four years, the growth in motorcycle production has been robust at 15 percent. "A decade back, the total motorcycle production was around 100,000 units; now the largest player in local industry is alone rolling out half-a-million units while total production of two wheelers has crossed 1.5 million. The encouraging aspect in this regard is that industry is on the path to sustained growth. The local demand for motorcycles is likely to exceed two million units within a year or two.

The current players, from Italy, China, and Japan are also in various stages of developing new models of 100-150 cc range with the latest technology. However, they were not offered any relief even on the import of the environmental friendly Euro 2 components, which have already been introduced in local bikes production.

The local motorcycle assemblers have left no stone unturned in meeting the local demand and broadened their businesses in large and small cities of every province within a decade with their quality products. The bike makers have developed the local industry with heavy investment on human skills and technology capital and achieved localization of their manufacturing plants up to 90 percent to enhance their production around 1.5 million units per annum.

The motorcycle sales have now reached 125,000 units per months in the country where 60 assemblers share their business amid tough competition within themselves and with Japanese models as well, the statistics of Pakistan Automotive Manufacturers Association (PAMA) noted.

In 2000-01, the three Japanese motorcycle brands had retained their more than 90 percent share in the market with 108,850 units out of total 119,169 units, whereas the local assemblers produced merely 10,319 units in the same year.

In 2009-10, the local bike markers have attained 56 percent share with 764,634 units and Japanese assemblers could maintain 44 percent share with 622,366 units. The potential of bike sector was discovered two years ago when it started exports of locally-assembled motorcycles to few countries and attracted nearly three to four countries.

Surprisingly, they got tremendous response and stretched country's exports to six thousand motorcycle units to four different countries. According to the exporters, Pakistan has potential to exports its made-up to South African and some Asian countries which could be soaring exports' revenue manifold within a year.

Currently, Pakistani bikes are being exported to Afghanistan, Somalia, Sri Lanka, and Bangladesh on regular basis.

Motorcycle exports stood at $786,310 in the year 2009-10 and surged to $3.5 million in the next year on the strength of $50 per unit research and development facility provided by the government of Pakistan. The facility was withdrawn in 2010-11.

Definitely, like other businesses the hike in electricity tariff, surge in petroleum products, and rising import cost following depreciating rupee against dollar has hurt their businesses locally and at exports level too. However, bike manufacturers in Pakistan have started regaining lost grounds in international markets as during the past four months, April to July 2011, the industry has exported in excess of 2,500 units per month. This is against an average export of around 1,200 units per month last year.

This massive recovery by motorcycle exports is testament to the resilience of this sector. The progress this sector has made over the last ten years or so is a proof that Pakistani entrepreneurs can compete with the best in the world if consistent policies are in place to effectively cope with domestic market demand of over 1.5 million units. After successful launch of their products in global markets, the local motorcycle producers are now planning further investment of $100-150 million in their existing units.

Growth in this sector means that upstream businesses such as part making in industries like steel, rubber, electronics and plastics etc. also get a boost. Investment comes in and jobs are created in all these industries.

Similarly, this leads to investments and additional jobs in downstream avenues like motorcycle dealerships for new and old bikes, repair and maintenance workshops and spareparts businesses. The multiplier effect of this industry is huge.

The motorcycle industry moves the wheel of the economy. High employment creation and technology transfers make it an ideal sector for a country like Pakistan.

The government must maintain level-playing field for all new and local entrants then the local industry may survive in long-run particularly it should not provide any relief to the assembler like Yamaha.