Investment put on hold by bike makers

Local motorcycle manufacturers have put on hold further investment in the industry due to volatile policies of the government, it is learnt. To their disenchantment, recently some government officials, having failed to convince relevant departments, initiated a study on motorcycles regarding tariff structures by National Tariff Commission (NTC).
On the other hand, the Planning Commission has also undertaken an exercise, known as 'tariff rationalisation'. Some oreign brand manufacturers are reportedly holding back their expansion plans due to this very reason. However, increasing exports and encouraging response from new markets like Iran and Central Asia for Pakistan-made bikes, the manufacturers need to enhance their capacity now or else Pakistan would not be able to grab this opportunity.
Industry, particularly engineering concerns, havsseverely criticised these initiatives and has termed the same as anti-industry plans at a time when more than 60 active manufacturers are working under the current tax regime without any problem, while most of them had entered the industry in last two three years at existing tariff structure.
Chief Executive of 'Ravi Motorcycle', Fahad Iqbal, said this was another blow to the two-wheeler industry that has just started recovering with a 13 percent increase in production, from the earlier damaging step of the government of withdrawing Research & Development (R&D) facility in 2010-11. Resultantly, exports of bike industry had witnessed negative growth of 135 percent in FY 2010-11 to stand at just $1.34 million, against the positive growth of 76 percent in FY 2009-10.
Motorcycle exports stood at $786,310 in the year 2009-10, which surged to $3.2 million in the next year on the strength of $50 per unit R&D facility provided by Government of Pakistan. He said that the progress this sector has made over the last 10 years, or so, is a proof that Pakistani entrepreneurs can compete with the best in the world, if consistent policies are in place.
Fahad said that between April and July 2011, bike industry exports averaged 2,500 units, which was against around 1,200 units per month in 2009-10 when record exports were witnessed. "This is a sign that high quality and low prices of locally produced bikes can effectively make their mark in the international markets," he added.
According to industry sources, local motorcycle market of over 1.5 million units a year had earlier planned to further invest $100 to 150 million in their existing units. But, facing the inconsistent policies, they have put this investment on hold. A decade back, total motorcycle production in Pakistan was around 100,000 units, but now the largest player alone is rolling out half a million units while total production of two-wheelers has crossed 1.5 million a year. This is also testified by the data of Ministry of Industries that manufacturers in the country are producing 1.6 million units of motorcycles a year.
With the local demand for motorcycles likely to exceed two million units in the near future along with 0.5 million increase in the exports by 2016, local manufacturers are bound to invest over $100 million in the next couple of years. There are about 12 local manufacturers which have production of 50,000 units a year or above and now, in order to catch up with the market demand, each of them would have to expand capacities by investing $10 million to $15 million.
In total, this would cross $150 million--a huge investment plan that is going to be relegated just by dint of non-serious approach of the government towards this important industry. Industry sources urged the government to refrain from taking steps that might jeopardise this statement, as the investment of $150 million by local players without any government concession is better than vying for similar investment over a period of 10 years from a foreign player on back of huge concessions.
The current players--from Italy, China and Japan--are also in various stages of developing new models in the 100/150cc-range with latest technology, but they are not offered any relief even on the import of environment friendly Euro 2 components, which has already been introduced in local motorcycle production.
The CEO of General Engineering, Arshad Awan, said that apart from expanding current production capacities, local manufacturers have also planned to invest in the areas like sheet metal parts, die casting for parts like crank cases and crank covers, electronic parts such as CDI units, engine parts like ACG, clutch, pistons, shock absorbers (cushions), and plastic parts such as emblems. Besides having more than 90 percent localisation, high investment parts like carburettors, EFI, chain-drive and sprocket sets will also be localised in the years to come, he said.
Market players and industry sources said they believe that the government should not disturb this industry that pushes up investment and creates additional jobs in downstream avenues like motorcycle dealerships for new and old motorcycle, repair and maintenance workshops and spare-part businesses. Consistent policies with level playing field are the need of the time to fetch more investment into the country in this sector, they added.