Analysing Pakistan’s auto industry | By Prof Abdul Shakoor Shah

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Analysing Pakistan’s auto industry

THE automobile industry is one of the foremost driving economic forces in the world. Almost 18 million well-paying jobs directly and millions indirectly are being offered by this sector.

The world’s annual production of 4 wheelers is around 100 million.

In 2020 the total worldwide motorcycles manufacturing roughly touched 49 million units.

Oil, gas, and now electricity is also heavily reliant on wheels that consume 50 % of the global oil.

The Pakistan automobile industry is quite proportionate with the global GDP contribution, with about 3 percent of the total $297b GDP.

It’s also bringing millions of lucrative jobs to the table.

Auto industry accounts for 4 % of national GDP and employs over 1,800,000 people.

Presently there are 3,200 automotive manufacturing plants in the country, with an outlay of ?.92 billion (USD 870 million) manufacturing 1.8 million motorcycles and 200,000 vehicles annually.

Its input to the national exchequer is virtually ?.50 billion (USD 470 million).

The sector, as a whole, provides employment to 3.5 million people and plays a pivotal role in promoting the growth of the vendor industry.

Auto industry was the highest tax-paying industry a few years back followed by cigarette, tobacco and telecom sectors.

The first car was driven in South Asia in 1897.Till the 1930s, the direct importation of cars was limited.

Chiefly they were used by the affluent or white collar cream of the crop of Indian Civil Service.

The World War II changed the scenario. In 1945 Mahindra initiated amassing the Jeep CJ-3A utility vehicles from Willys and soon branched out into the manufacture of light commercial vehicles and farming tractors.

Pakistani auto history can be segmented into numerous phases. The first phase is from 1947 until amassing of trucks (the Bedford “Rocket”), the second, from 1972 until the prologue to private sector and the third was the introduction of tractor manufacturing and motor cycle assembling.

During the fourth phase, the private sector automobile assembly plants were set up and the vendor industry initiated.

The latest phase covers the exports era.The first automobile plant was set up in 1949. This plant started on an experimental basis and grew rapidly into an assembly plant for the Bedford trucks and Vauxhall cars.

Ali Automobiles was set up with collaboration of the United States to assemble Ford products in 1955; Haroon Industries to assemble Chrysler’s Dodge cars in 1956; and Kandawalla Industries to assemble American Motor products in 1962.

Hyesons established the Mack Trucks plant in 1963.All these plants were restricted to semi-knocked down units (SKD) and only had assembly operations.

Ghandhara Industries Limited was permitted to undertake the progressive manufacture of Bedford trucks and buses in 1966.

The process of localization was not made possible due to technological inefficiency, lack of professionalism and absence of skills.

In the Post Nationalization Period from 1972 Automobile units were renamed and their functions were redefined.

The supreme stipulation for the incorporation of the public and private sectors was grasped in the 80s to achieve the national objective of development.

The need for another car manufacturer was felt in the mid-eighties.During this phase the vendor industry established its very first assembly plant.

The first autoparts manufacturing unit was established in Lahore in 1942 for the purpose of providing after sales service.

From 1950 to 1970, initial focus of the industry was limited to tractors, buses and auto parts as well as to provide to needs of the after sales market of different automobiles.

The Phase 5 started from 2000 to 2011.The first decade of the new millennium witnessed the automobile industry in Pakistan growing rapidly and making a substantial input to the manufacturing sector.

However, in 2008-09 it experienced a bulky downturn, with sales dropping by 47 %. During 2009-10, the recovery in sales helped boost the production from 99,307 units in 2008-09 to 141,654 units.

According to State Bank of Pakistan, the country’s trade deficit increased by 106 % to $7.6 billion during the July-October 2021.

Trade Development Authority of Pakistan indicated a 579 % boost.Meanwhile, in particular import of the transport group increased by 140 % to $1.5 billion during July-October 2021.

The current import of cars has observes an increase of 579 % due to the influx of the vehicles booked previously, The accessibility of ships and influx of shipments have played a pivotal role in boosting auto imports.

Pakistan’s growing imports have exerted terrific pressure on the national currency, which closed at Rs174.89 to a dollar on Tuesday, Feb 2022, gaining 0.23 percent against the previous close.

According to the Pakistan Automotive Manufacturers Association the sale of locally assembled passenger cars has increased by 71% in the first four months of the current fiscal year from 43,865 units to 74,952 units.

Car sales in October 2021 jumped by 45 % from 11,997 units in October 2020 to 17,413 units last month.

However, they declined by over 8% on a monthly basis when compared to the statistics of September 2021.

In FY21, new cars and jeeps held the highest share with 10,157 units compared to just 893 units in FY20, 2,427 in FY19 and 3,758 units in FY18.

In overall automobile imports of around $2 billion, the import bill of entirely and semi-knocked down (CKD/SKD) kits for cars, bikes and heavy vehicles stood at record $1.

6bn in FY21 as compared to $727m in FY20 while $386m was spent for import of used and new vehicles in FY21 as compared to $219m in FY20.

Over the last two decades, as the use of vehicles has increased significantly with the increasing population, improved infrastructure along with the increased mobility of people from one place to another for jobs and improved living standard, the demand for automobiles has also increased.

Pakistan has to depend on import of auto parts cars from abroad and then cars are assembled in Pakistan, which is not a very efficient way of running the country’s economy.

Time has come to manufacture cars and automobiles in Pakistan now.The country has alluring market for auto sector.

The new policy, Automotive Industry Development and Export Plan 2021-26, aspires to give incentives through reduction in duties and taxes.

Moreover, the policy also looks to pave the way for manufacturing of hybrid cars and electric vehicles.

Under the policy, sales tax has been reduced to 12.5 percent from 17 percent for the cars below 1000cc.

—The writer is an educationist, based in Lahore.

 

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