Auto industry: the deletion programme

The automotive industry in Pakistan is one of the fastest-growing industries in the country. It provides job opportunities and contributes to the growth of vendor industry. With a growing middle class and availability of affordable vehicle purchase loan facilities, the automobile market of Pakistan has emerged as one of the attractive markets in the region. Honda, Toyota and Suzuki have footprints in Pakistan for a long time. Some of the new entrants are Renault, Nissan, Proton, KIA, Hyundai and FAW.

Auto Policy 2016-21 offers tax incentives to new automakers to establish manufacturing plants in the country. The government in return, expects investment, technology and expertise transfer and local value addition through a laid out deletion programme and undertaking by the investors to implement it.

The benefits which the government looks up to are manifold; these include:

— Local vendor industry development;

— Skills, training, and job opportunities for local people;

— Competitive prices of finished goods for local consumers;

— Cross sale of parts and components to other manufacturers;

— Opportunities of exporting parts and components to other countries;

— Opportunity for local brands’ development;

— Downstream spiral economic benefits;

Not much of the above benefits are available to the nation — although some of the automobile companies have their footprints in Pakistan for many decades.

While the manufacturers are availing tax incentives to their advantage, they have done little or nothing to refine the art of giving back. Suzuki, Honda and Toyota have carried out some local value addition by supplementing the imported axillary parts with the local ones.

In no way can it be termed any worthwhile technology transfer. Yet, even with limited value addition they have managed to gain price advantage over imported vehicles. Insofar as new entrants are concerned, they have yet to make a worthwhile mark. They import in CKD condition and simply assemble vehicles and sell them.

The import bill of the country has recorded an exponential growth and the gap between imports and exports has widened to an alarming level. Import of automobiles is one big chunk contributing to the gap.

Automobiles, under CKD condition, are imported in the guise of input for the industry and get away from scrutiny.

Engineering Development Board (EDB) Islamabad is the regulator to monitor and enforce local value-addition in the engineering industry and more significantly in the automobile industry of the country. But, like the other regulators of the country, EDB is ineffective, compromised, lacks competence and will to deliver.

The government must restructure EDB into an effective and competent authority to monitor and enforce local value- addition in the engineering industry. A beginning should be made with the automobile industry deletion programme to provide vehicles to the nation at affordable prices.

(The writer is former President, Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2022