AUTO FINANCING MAY GET A BOOST
Oct 17 - 23, 2011
Over the years, auto financing at a higher interest rate has seriously impinged on the growth of automobile sector. Now, softening of monetary policy is expected to spur the growth.
Actually, the business and industry leaders are expecting yet another cut in the policy rate to the single digit when the State bank of Pakistan will review the monetary policy in December 2011.
It will be interesting to note that majority of the car purchase during last four years came from agriculture income while buyers from urban centers were restricted on two counts i.e. higher cost of financing and the burden of taxes.
The business community has appreciated the unexpected move on the part of the central bank and attached hope that the present stance of the financial regulator will revive the stagnant economic activities. As a sequel to high cost of financing persisting in the country for quite a few years, the investment growth has been noticeably slowed down.
The cut in policy rate has received widespread appreciation from all and sundry especially from the capital market.
Since the next year is being taken as the election year, the government of the day may like to win the support of the business community as well as the general masses by radical financial reforms including softening of the monetary policy as a measure to hush up the political noise being heightened by the political opponents.
The outstanding financial support by the Punjab government somehow has given a boost to car sales. The Punjab government has paid in advance to Pakistan Suzuki for production of 7500 taxis. The newly introduced taxi scheme has become the key contributor to 16 per cent growth in sales of locally assembled cars and LCVs to 14,014 units in September 2011.
BLANKET TARIFF ON CBU IMPORT
Meanwhile, the authorities are likely to discuss the pros and cons of the recommendations on auto import tariff rationalization by an Australian consultancy firm, Gary Persul in light of strong criticism by the FBR and ministries of commerce, industries & production besides local OEMs, Pama and Paapam.
The expert opinion of setting import tariff at 25 per cent has drawn severe criticism from the engineering industry in the country. Another imported intellectual having no ground knowledge is recommending procedures which will completely destroy the local industry, they whined.
The Gary Persul suggested no checks on imports, drastically lowering import tariffs, no specific duties, no classification between manufacturing and import and no licenses for import and export and few other recommendations which will prove to be suicidal.
The western economists and consultants prepare their reports on western economic theories and our planners conveniently forget that even the most developed countries do not strictly follow these theories in their own countries.
The analysts have sounded a note of warning that the recommendation to give blanket tariff of 25 percent would pave the way for manufactures and importers alike to import CBUs (completely built units) rather than CKDs (complete knocked down) which would completely destroy the engineering base of the country.
The import tariff rationalization will eventually make Pakistan a nascent state having no manufacturing and employment generation activity rather importing each and every item from other countries spending depleting forex reserves, they added.
They further added it would not only be a massive loss to national kitty but more than two million local youth will be left unemployed besides the loss of billions of dollars investment at the plants of OEMs and associated vending industry.
They recalled that on the recommendation of an Australian team, similar sort of decision was taken in New Zealand in the year 2000 which brought the local production at zero level and completely devastated its local auto industry.
The analysts said that recommendations might be ideal for societies where transparency level is very high and the incidence of corruption is very low. The foreign consultant failed to realize that many industries in Pakistan are at developing stage and need some protection till they achieve global level efficiencies, they added.
The experts in auto industry were of the view that the consultant should have recommended measures to first bring transparency in the customs department before asking for reduction in tariff. It also should have suggested technology that could have eliminated the menace of under invoicing, and the ways to monitor the borders, seaports, and airports to eliminate smuggling.
The reduction in tariff would work only if these measures are fully and transparently implemented.
Pakistan's economy is fairly free already and average rate of taxation is already low. The name tariff rationalization is thus another name of targeting the local auto industry ostensibly to facilitate certain interested parties who want to import luxury cars at cheaper rates, they concluded.
Pakistan's auto engineering sector, despite of being stuck in the turmoil due to ever increasing inflation and adverse import policies, has showed tremendous improvement during the past decade as it has achieved on average 60 per cent localization while generating employment for thousands of people and bringing latest technology in Pakistan.
According to the industry sources, Indus Motor Company (IMC) has taken a commendable initiative by supporting Pakistan Association of Automotive Parts Accessories Manufacturers (Paapam) for organizing 'Pakistan Auto Parts Show (PAPS) 2011' being organized on 24 October in Lahore to showcase the development and advancement in auto part manufacturing and seek new export opportunities.
Paapam is playing an important role in economic development of automobile and related industries to display the efforts of local engineering sector in development of engineering base of Pakistan.
IMC, being the platinum sponsor of PAPS 2011, has given a practical shape to the dream of bringing all vendors to a common platform to showcase their localization and hunt for the new markets.
PAPS 2011 will provide a unique platform to these vendors where along with OEMs they will demonstrate their products and attract potential buyers. Almost 130 companies will be participating in this exhibition, including three large OEMs. "OEMs have played a major role in taking localization to a level it is at today. IMC alone has developed sixty vendors for local parts across Pakistan and has arranged 34 technical assistance agreements for transfer of technology, showing its commitment to localization," sources added.
Sources in the industry revealed that there are many local vendors whose ventures are associated with the highly-skilled international suppliers such as 20 local vendors are working in collaboration with around 34 foreign suppliers, like Gabriel from USA, Kayaba and Aisin Seiki from Japan, Continental Tyre from Germany, Autoliv from Australia and so on, and getting technical assistance from them.
They said that the sophisticated technology transferred through these agreements enable local engineers to produce the auto parts meeting global standards and local vendors are also exporting some of the auto parts after fulfilling the local industry's requirements.
It is up to the government now to formulate policies which support local companies, both OEMs and vendors, so that the country gets most benefit instead of supporting the business of foreign economies by allowing imports of completely built units or used cars, of up to 10 years old which will result in millions of job losses in the auto manufacturing and allied industries which are barely surviving.
They further added that since 2008 many engineering companies either closed down or diversified to survive as the AIDP of 2007 was not sincerely implemented by the government, which became an impediment to growth.
The industry witnessed unprecedented retrenchment during last three years, but it was the commitment of OEMs that supported the local engineering firms not only to survive but to grow to new levels where they are now producing auto parts as per international standards and their quality has also been endorsed from OEM's parent companies in Japan.