AIDP ON THE ANVIL

MOHAMMED ARIFEEN
(feedback@pgeconomist.com)

Nov 28 - Dec 4, 20
11

Over the last few decades, Pakistan has made great strides in manufacturing of automobiles. The manufacturing of automobiles puts into use local resources. This increases economic activity with excessive availability of jobs in the auto industry.

Despite the praise worthy growth, with high domestic and foreign investment in the auto sector, the industry has still failed to ameliorate quality, design, and safety and sound environmental certification of the manufactured automotives. Although latest technology has been improved significantly in this sector, it is still fairly far behind international standards.

According to Pakistan automotive manufacturers association (PAMA), car production in the country increased from 42,679 units in 2001-2 to 133,972 units in 2010-11 depicting an increase of 214 per cent.

The production of trucks was enhanced from 1,134 to 2,810 units, indicating an increase of 148 per cent. At the same time, the number of motorbikes produced in the country increased from 120,627 units to 838,550 units, reflecting a dramatic increase of 595 per cent.

The production of buses however indicated a decrease from 1,326 units to 490 units. The report examined that Pakistan failed to deliver on the key objectives of the auto industry development plan (AIDP).

The global automotive industry has continued to show an impressive growth even in the face of the worst recession since the great depression. The report states that the global vehicle production rose from 61.8 million units in 2009 to 77.9 million units in 2010. Vehicle production achieved an increase even in countries that have been greatly stricken by the recession.

This global growth can be partially attributable to the reality that leading global car manufacturing companies have growingly cut down on their costs and have complied with tax and legal changes. These companies have also inducted in new technologies, designs, safety, and environmental conditions that have produced good results.

As many as 134,855 jeeps and cars were produced during July-June (2010-11) as compared to the production of 122,819 units during the same period last year. Motorcycle production increased by 17.88 per cent from 1,389,047 units in 2009-10 to 1,637,450 in 2010-2011.

Consumers held their buying activity for locally produced cars thus pushing up its overall sales by 23.4 per cent to 51,755 units in July-Oct, 2011 as compared to 41,941 units in July-Oct 2010.

Higher imports of used cars, price increase by assemblers on account of losing value of rupee against the yen, and rising petroleum and gas prices did not make negative impact on sale of locally produced cars.

The demand of locally produced cars has been lively due to buying from record inflows of home remittances and higher agricultural income.

Pakistan completely failed to muster policy support, which was necessary for accomplishing the determined targets. These included supplementing the industry's contribution to GDP to 5.4 per cent per annum and increasing the exports of the auto sector to $650 million per annum.

The local auto sector entered a new chapter of development where the local industry entered tariff based system replacing deletion program. Under the TBS model, assemblers would be free to buy parts from a competitive supplier. This development augur well for the manufacturers since it would present them with growth opportunities.

The Pakistan automobile industry has had its upward and downward trend, however overall we can see that there has been positive development in this sector. This was noticed in all parts of this industry, from production and sales, to employment levels.

According to a study by the World Bank, there is one vehicle for every thousand people in Pakistan; this alone shows the possible opportunity for growth in this particular industry.

Auto vendor industry must embrace the latest technologies to meet the requirements and ever increasing global challenges. It must vigorously explore the global markets not only to enhance their business but also to meet the challenges at domestic level.

The auto parts makers have asked the government to restrict the import of finished auto products from India to enable them to develop the industry with joint ventures and technical collaboration with Indian companies

The auto industry has welcomed trade liberalization with India but it has some strings about import of certain finished products, which are also produced in Pakistan. They say if Pakistan imports the finished products, the growth of local industry will come to a halt. However, they support the import of machinery and raw material and collaboration with the Indians in technical assistance.

The current auto industry development plan will expire in 2012 after which a new five-year plan will be implemented.

The auto industry emphasized that the present tax rate needs to be kept for the development of the sector. The production capacity of new cars is targeted to reach around 380,000 annually by 2017 against the current capacity of 300,000 units. It also proposes to impose duty and tax on the basis of weight instead of units in order to curb under invoicing. The recommendations have been presented to the government and requested to be implemented in the upcoming budget.