Spike in mobile phone imports

If these are indeed the times of consumers tightening their belts vis-à-vis discretionary expenditures, then the sudden rise in mobile phone imports is rather inexplicable, at least from the lens of purchasing power. As per the latest data released by the Pakistan Bureau of Statistics, the country’s mobile handset import bill came in at roughly $388 million for the Jul-Oct period, a growth of 49 percent year-on-year.

Such an unusual growth in cellphone imports is occurring at a time when the overall import bill is shrinking in double digits. Overall goods’ imports, as per PBS data, have declined by 19 percent year-on-year to come down to $15.3 billion in 4MFY20. Between FY11 and FY19, cellphone imports averaged 1.4 percent of good’s imports for the period under review. In FY20 thus far, handset imports have surged to 2.5 percent of goods’ imports.

Historical quantitative data from the PBS suggest that imports of cellular mobile phones (HS Code: 8517.1219) typically grow in volume in one year followed by a lean year. With imports averaging 11 million units in last three years, it is plausible that volumetric imports are picking up this fiscal, after imports coming in at 9.8 million units in FY19.

Developments in recent months suggest a propensity to import more. First, the stability that has set in for PKR this fiscal provides commercial importers a better visibility on their margins. Second, there has been no headway with the government over regularizing millions of smuggled, non-functional phones that are already present in the market. This is depleting the legit inventories, with vendors feeling the need to replenish their stocks, or lose business to others who do.

Third, the duty-free personal import of even one mobile phone was withdrawn under the revised baggage rules earlier in July, dealing further blow to the flow of smuggled smartphones in the main mobile markets. Last, but most important, the federal government, since the FY20 budget in June, has been lowering cellphone import duties. Recently, in September, the regulatory duty on most slabs was significantly reduced, with the supposed aim to improve volumes and collect more revenues for the exchequer.

Be that as it may, at the pace of growth seen this fiscal, the import tab for talking machines will easily exceed the billion-dollar mark by the end of the fiscal year that is 2020. That will deplete roughly half a billion dollars in additional forex compared to FY19. This isn’t exactly a doomsday scenario; however, these imports are among some areas where the country needs to start saving precious dollars by gradually moving towards import substitution.

While local assembly of cellphones isn’t exactly a low-hanging fruit, the latest import data should nudge the economic team into action. The crackdown on smuggled phones ticks one important box in the checklist for incentivizing assemblers to set up assembly plants in Pakistan. But much more needs to be done. A “Mobile Device Manufacturing Policy” is reportedly in the works at the Ministry of Industries. The sooner it is launched, the better.