It's probably a false alarm. As per central bank data, mobile phone imports came in at roughly $74 million for July 2019 (August numbers are awaited). As some news reports recently pointed out that the July import number is almost double the June figure, it is creating an impression that suddenly handset imports have skyrocketed and that it can place a burden on forex reserves if the pattern endured in the future.
But that analysis is misleading. Firstly, it is better to wait for some more months' data and then comment on the import trend. Secondly, a better comparison is on a year-on-year basis, not monthly changes, as handset importers have a supply side that is linked with seasonal factors like new phone releases and holiday seasons abroad. Even on that count, July 2019 imports were only 14 percent higher than July 2018.
Also bear in mind that the current fiscal follows a year of significantly lower imports. In FY19, mobile phone imports had declined by nearly 20 percent to settle at $596 million. A good $140 million was thus saved on this count last fiscal. For several reasons, these imports are expected to pick up this fiscal and revert to the average import bill of $650 million seen in the last five fiscals.
For one, vendors had been following a wait and see approach as import taxes and duties were gradually raised last fiscal, in a bid by the government to reduce the import bill and raise additional revenue. On top of that, significant currency devaluation took place since December 2017, raising prices. In addition, customers, feeling the drop in purchasing power, started down-trading as retail prices soared.
This fiscal, the vendors should have a better visibility on the scale of import duties and a good reading on how the economic slowdown has affected consumer behavior towards replacing their smartphones. Amid existing stocks depleting thanks to lower imports during FY19 and the arrival of improved products at different price points, one expects the vendors to import more than they did last fiscal.
Besides, crackdown on smuggling and abuse of baggage facility – which started late last year – may also start showing hitherto grey imports into the official data. Meanwhile, the FBR is reportedly slashing the regulatory duty on mobile phone imports. This will also increase the number of imported phones.
It would have made more sense to lower the duty only for low-priced phones, in the interest of improving ICT density among the low income groups. But the proposed revision includes high-end phones as well. It must be noted that revising the import duties up and down without a clear thought process may make it difficult to attract foreign companies to build cell-phone assembly plants. This sector looks ripe for import substitution.