AUTOMOTIVE INDUSTRY IN PAKISTAN: HYUNDAI PAKISTAN - READY FOR THE TAKE-OFF SUCCESS OF NEW INVESTMENTS TO RESHAPE
Having lost more than a decade in the fallout of war and mistaken priorities, Pakistan now stands at a time where decision making for the future has never been simpler. Diverse and labor-intensive industrialization hold the key for the country to extricate itself from its economic woes. In such sense, auto sector holds a pivotal position in the journey of industrialization as it offers the most promising and unsaturated avenue for the industrialists. The sheer scale of the local market makes Pakistani auto sector an attractive sector to exploit and rivals the emerging markets in terms of attracting foreign investments.
Hyundai Nishat Motor Private Limited ('Hyundai Pakistan') was established under the auspices of Auto Development Policy 16-21 (ADP) with the promise to re-ignite Hyundai brand in Pakistan and enrich the automobile spectrum in the country. The Company is a joint venture between renowned conglomerates of Nishat Group, Millat Tractors Limited and Sojitz Corporation (a Japanese corporate heavyweight). The project is the first auto company being underwritten by MIGA (World Bank's insurance agency) which manifested their confidence in the sponsors and in particular Pakistan's auto sector.
Despite the headwinds of the pandemic, Hyundai Pakistan was able to deliver on its promise and created history by introducing x4 new locally assembled models in a span of 19 months while carving new market niches along the way. In line with the Government's "Make in Pakistan" initiatives, the company started its commercial production with the iconic Hyundai Porter. Hyundai Tucson was next to grace the Pakistani roads bolstering the trend of an SUV shift followed by the elegant Hyundai Elantra in a conventional sedan market. However, the latest offering of the 8th generation Hyundai Sonata is the crown jewel in Hyundai's line-up being the country's first ever locally produced premium segment sedan. Having been overwhelmed with the response from the market, Hyundai Pakistan is now in the midst of doubling its production capacity in 2022.
NEW AUTOMOTIVE CITY
The state-of-the-art Hyundai assembly plant located at FIEDMC Industrial City has rallied the development of a new automotive city in the country. The talent pool for the sector was previously confined only to the outskirts of Karachi and Lahore for both the mainstream OEMs and vendors. A new location for auto vendors has been created to explore and thrive in Hyundai's ecosystem. Establishing industry closer to the workforce hub has led to a new breed of young aspirants to work in a non-conventional industry closer to their homes. Scaling up the human skill-set to mid-tech industry has massive potential to diversify the economic base and accelerate the growth of middle class which eventually will precipitate into demand creation for the sector itself.
COMPETITION DRIVING RAPID INDIGENIZATION
Given its ambition to be a world class manufacturer, Hyundai Pakistan is now embarked to catalyze the indigenization of Korean technology in Pakistan to enhance the scale and competitiveness of the local vendor industry. A new model of partnership has been created where interest free loans are being disbursed in a quasi-equity form to support the vendors in deleveraging their investments. Besides Hyundai Pakistan is also facilitating its vendors in availing factoring services to reduce their cash conversion cycle.
To the mutual delight of the consumers and the industry, the consistency in Auto Development Policy has started to reap dividends. The market has now become awash with new models and inspiring new features. The policy has been instrumental in ushering a new era of market-based price stability. It would be a little premature for the Government to consider any kind of intervention for such a short-lived competition. The need of the hour is not to lose faith and keep up the momentum of attracting fresh investments to foster competition. Any wrong signal to the foreign investors at this juncture may diffuse an attractive growth story and with it the prospects of diversifying the industrial base.
The outgoing policy has been a resounding success in luring leading global brands to Pakistan and raised the total installed capacity to 425,000 units per annum with another 100,000 pledged for the next auto policy period.
Taking the baton forward, the new policy with its fiscal liberalism shall ramp up the realization of "Make in Pakistan" and advance import substitution besides developing export base for the vendor industry. Apart from promoting Eco-friendliness in the transport segment, the onus for the new policy is now to rally the demand side. In a country where transportation needs of a common consumer are met through private means, bringing new channels and innovation in consumer financing can help utilize the expanded capacities faster. The monetary policy has provided the much-needed breather by lowering the interest rates for industrial expansion and ensuring penetration by setting disbursement targets. Besides such conventional channels, OEMs can be offered licenses to set up special purpose entities in a "simplified" regulatory environment. Special purpose entities geared towards auto financing (tagged with consumer tax breaks) can surely go a long way in effectively bridging the demand supply gaps. It can prove to be the single largest stimulus for the current regime to realize its dream of making engineering sector the bedrock of economic growth.
CEO - Hyundai Nishat Motors Private Limited
Copyright Business Recorder, 2021