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Handset imports continue to remain hot. Latest central bank data show that mobile phone imports had surged by 80 percent year-on-year to reach $1.97 billion during FY21. Roughly similar growth was seen in FY20 as well. The shipment-based data from the Pakistan Bureau of Statistics is painting a similar picture, marking these imports at $2.1 billion for FY21, reflecting 51 percent yearly growth.

The pace of growth in handset imports has far exceeded overall imports, which increased by 23 percent year-on-year in FY21 to reach $54 billion, as per the SBP data. As a result, mobile phones’ share in total imports increased to 3.7 percent in FY21, compared to 2.5 percent in FY20 and 1.1 percent in FY19. About 10 percent of Pakistan’s incremental imports in FY21 were accounted for by mobile phone imports.

As per the PBS data, Pakistan had imported roughly 20 million mobile phones in FY20 – the number is expected to be much higher for FY21. The major factor behind the surge of mobile phone imports in recent years is the regulatory crackdown on informal, illegal or grey imports, thanks to the PTA’s DIRBS (Device Identification, Registration and Blocking System) mechanism. Rationalization of import duties by the FBR also played a part. Also at work is the pandemic-era needs for digital interactions (work, study or health) as well as travel-related restrictions that have helped to formalize handset imports.

Considering that smartphone penetration in Pakistan is not universal yet and mobile broadband coverage has not gained ubiquity so far, the more such gadgets come into the market, the better it is for the growth of the digital economy. There is also positive spillover of such imports on the wholesale and retail levels of electronics markets in major cities as well as markets in second-tier cities and towns.

On the other hand, the kind of surge one is witnessing in handset imports is not sustainable from the forex perspective. After all, the country dished out nearly a billion dollars in additional forex on these imports in FY21 alone. Now the question is whether handsets will continue to be imported at high growth rates (82% average growth in the past two fiscal years) in the future? How soon can local assembly operations catch up with the advanced functionalities, service quality and branding of the imported smart phones?

The volume of locally-assembled mobile phones has been increasing, albeit such phones are mostly feature phones or low-end smartphones. Nearly two million devices were assembled locally in 2017; the tally increased to 5 million in 2018; whereas 12 million handsets were made in Pakistan during 2019, as per PTA. Pursuant to the promulgation of the Mobile Device Manufacturing (MDM) Regulations (2021), the PTA had, as of May 2021, issued 10-year licenses or “Mobile Device Manufacturing Authorizations” to some 19 firms (foreign and local) to produce 2G, 3G and 4G mobile devices in Pakistan.

Recent developments suggest positive vibes for smartphone manufacturing in the country. Samsung’s reported decision to partner with Pakistan’s Lucky Motor Corporation bodes well for entry of more players in this segment. The government also incentivized local assembly by increasing the import duty differential between CBU and SKD/CKD units in favor of the latter. The need is for a faster transition from CBU imports to SKD/CKD imports, so that local market demand is largely met through local assembly.

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