KARACHI: The Small and Medium Enterprises Development Authority (SMEDA) on Tuesday urged the government to promulgate a single, unified auto policy applicable to all players, both established and new, to create a level playing field and drive industrial competitiveness.
“Pakistan cannot achieve sustainable economic growth while expanding its auto sector on imports instead of localisation,” said Mashood Khan, Director SMEDA, terming it a deepening structural crisis in one of the country’s most strategically important industries.
CKD and SKD import mechanisms were originally conceived as transitional tools to help build domestic manufacturing capacity and facilitate technology transfer. However, data covering the period from 2021-22 to 2025-26 tells a different story; imports have steadily increased rather than declined, exposing a fundamental failure to achieve meaningful localisation alongside industry growth, he added. “The policy intent was localisation — the outcome is dependence on imports,” Mashood said.
Rather than maturing into a value-added manufacturing sector, Pakistan’s auto industry is increasingly functioning as an assembly-based operation, with the bulk of key components sourced from countries such as China and South Korea, and minimal local content integrated into the final product, he said.
A significant driver of this imbalance, according to him, is the policy framework governing new entrant Original Equipment Manufacturers (OEMs), who have been permitted to import CKD/ SKD kits at concessional tariff rates with relatively relaxed localization requirements. While these incentives were designed to attract investment, boost competition, and encourage technology transfer, many new entrants have yet to demonstrate meaningful progress toward localisation targets or vendor development.
He drew a sharp contrast with the industry’s earlier era, recalling how Suzuki’s entry into Pakistan’s market in the mid-1980s catalysed the development of a robust auto parts entrepreneurship ecosystem, a model subsequently followed by other Japanese players. “We appreciate and need the same spirit and encouragement for our SME entrepreneurs,” he said.
The consequences of unchecked import reliance are rippling across Pakistan’s broader economy. With the country’s foreign exchange reserves already under strain and its export base narrow, the rising auto import bill is contributing directly to a widening trade deficit and increased dependence on external financing.
The auto parts manufacturing sector has borne the brunt of the localisation shortfall, experiencing declining demand, stunted growth, and stagnation in technological advancement.
The result stands in stark contrast to the performance of established players who have successfully built local supply chains and supported SME growth through long-term commitment.
He urged policymakers to undertake a rigorous and honest evaluation of past failures, recommending the eradication of the heavy sub-assembly model to break the cycle of import reliance.
Furthermore, he said that the government should make it mandatory for all new entrant OEMs to indigenize at least 30 percent of vehicle parts within two years and link policy incentives to verified technology transfer and local parts manufacturing, while showing zero tolerance for policy gaps, with a clearly defined roadmap embedded in the new framework. “If Pakistan does not strengthen local manufacturing, it will remain trapped in a cycle of borrowing to finance imports,” he said, adding that Pakistan must decide whether it wants to be an assembly economy or a manufacturing economy; however, the current trajectory cannot sustain both growth and stability.
Despite the challenges, Khan expressed confidence in the sector’s underlying potential, saying that the auto industry is well-positioned to drive industrial growth, employment, and exports but only if anchored by consistent, forward-looking policies centred on localization, innovation, and self-reliance. “Investing in Pakistan’s local manufacturing ecosystem is not just an economic priority - it is a national necessity,” he said, calling on policymakers to act decisively and correct the shortcomings of previous frameworks before the window for meaningful reform narrows further.
Copyright Business Recorder, 2026
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