VENDORS STRUGGLING FOR SURVIVAL

ASKING NO INCENTIVES BUT REMOVAL OF IMPEDIMENTS

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

Sep 24 - 30, 20
12

Historically, manufacturers of parts and accessories (vendors) in Pakistan have remained subservient to the government policy, greatly influenced by the assemblers. It has never been realized that the success of Indian automobile industry has been driven by a robust steel industry, strong light and heavy engineering and above all strong support by the government. Some of the analysts go to the extent of saying that India first developed the vendor industry and only then invited the global brand leaders. Foreign investors were told in explicit words that they have to use locally made components. When the OEM tried to seek permission to import components, Indian government went to the extent of saying that they (assemblers) have to use the available components else pack up their operations. This enabled India to develop a robust vendor industry.

As against this, policy of the Government of Pakistan has remained under the influence of assemblers. Firstly, no effort was made to follow the deletion program. In fact Pakistan is at a disadvantageous position. It neither has a robust steel manufacturing industry nor basic ABS/plastic manufacturing facilities. On top of that allowing yearly changes in models gave the reasons to the assemblers to continue to import SKD/CKD kits, which put the local manufacturers at a disadvantageous position.

One of the complaints of the assemblers is that the size of Pakistan market is 'too small' to go for basic manufacturing. However, one wonders, why the foreign brand holders have not succeeded in exporting locally assembled vehicles? In the past assemblers didn't produce cars according to international standards but to 'minimum acceptable standard'. Exporting these 'strip' models was almost impossible. However, local assemblers of Hino buses and trucks managed to export some the variants to the UAE, of course complying with the standards of importing countries.

Some experts say that automobile policy is not prepared on the dictate of local assemblers but the groups having vested interest. It is on record that when an elected government introduced 'Public Transport Scheme' it supported import of CBUs rather exempting the CKD/SKD kits and other imported components tax free for the locally assembled vehicles. At one stage sale of locally assembled cars plunged because one could get an imported vehicle after paying Rs25,000 down payment. At that time 70cc motor cycle was selling for Rs70,000. The policy of importing CBUs was justified on the basis that local assemblers could not meet the delivery schedule.

Manufacturers of parts and accessories two common complaints: 1) government has failed in cascading the duty structure and 2) facilitating soft-term loans to the units mostly falling in the category of micro enterprises or small and medium enterprises. Initially, the government wanted to introduce concept of 'clusters' but the idea fizzled out due to the lack of interest of the government and also because of the resistance of the owners. The general apprehension was that if these units become part of an officially recognized cluster, the government will soon impose some kind of taxes.

However, the condition of industrial sites and even the export processing zones confirm that the government has been failing in ensuring supply of basic utilities at affordable cost. Over the years these sites have been suffering from prolonged outages of electricity and gas, dependence on tanker mafia for water requirement and highly depleted sewerage system. The result is that till today the concept of 'clusters' could not be implemented. Investors may have the apprehensions but resolution of the perceived or actual threats is the responsibility of the government.

It is not a secret that 'replacement markets' are flooded by smuggled products. A million dollar question is how these parts reach the market? Some of the critics say the business is going on with the connivance of Customs officials. Some of the cynics go to the extent of saying that bulk of these products is imported under 'Afghan Transit Trade'. However, the goods meant for landlocked Afghanistan never go out of Karachi. They refer to the illegal import of tyres and batteries which has been going on for ages. New compressors are imported as scrap and the list is very long.

Insiders also say that packing of many of the parts produced locally often mention name of a country, other than Pakistan but most of these are produced locally. This is happening only because buyers prefer to buy an imported part at a premium. This perception is also created by the shopkeepers who are never tired of praising parts manufactured outside Pakistan.

If the government is serious in making local manufacturers of parts and accessories robust, smuggling of these has to be stopped at the earliest. It is true that every year a limited number of units of a brand/variant is produced but total population runs into millions. One of the reasons for preference of a few brand names is that locally made parts of these vehicles are available throughout Pakistan.

It may not be out of place to mention that when Korean and Chinese light commercial vans came to Pakistan didn't have very attractive look. However, the manufacturers of parts and accessories have given these brands an entirely different look, which is also liked buy the buyers.

Similarly, about 50 different brands of locally assembled motorcycles are available. With the passage of time prices have nearly come down to half, only because of locally made components. CNG rickshaws are also a glaring example of interchangeability of components. All this has happened without the support of the government.

However, it is necessary to emphasize that the local manufacturers need support of the government. They are not asking for big favors but removal of the impediments. Since this a labor intensive industry, keeping it robust will ensure new employment opportunities. The focus of the government should not be revenue collection but creation of new employment opportunities.