Auto industry in India, Thailand protected more than Pakistan

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Salim Ahmed

Lahore—Pakistan’s auto industry is certainly not unusual in the protection that it receives vis-à-vis other most established countries both in the region and globally as well. In fact research revealed that Motor Vehicle industry is the second most protected industry on the basis of effective protection globally. This was disclosed in the well researched Regional Competitiveness Study Report on Pakistan’s Auto Sector released by Institute of Development and Economic Alternatives (IDEAS) and funded by the World Bank.
On the occasion Khurram Dastgir Khan, Federal Commerce Minister said that Pakistan’s auto sector had great potential to grow, adding that such policies were being introduced, which would help boost this sector and its exports. He stressed over make in Pakistan opportunities and vows to support industry with policies which will encourage industry to invest in acquiring new technologies and position themselves for exports. Government has clear resolve to attract new players in market which is evident from the recently announced new auto policy. It is recognized that the Auto Policy encourages “made in Pakistan”. Vehicles rather than CBUs, as it provide incentives to new entrants. It however stops short of doing the same for current players, who it is believed would have brought in investments much quicker than any new player.
Dr. Faisal Bari, Professor of Economics at LUMS and coauthor of the report, in his presentation said that the auto industry of Pakistan is at a crossroads and policy makers now have two options for catalyzing change: They could take the direction of increasing consumer choice by opening imports of cars, at the cost of already well established domestic industry and the millions of jobs it creates. Alternatively, they could take the direction of increasing commitment to local industry by providing not just continued tariff protection, but adding to it the full complement of supporting policies and schemes. Research report revealed that protection to the local industry was undermined by unpredictable and frequent changes in policy environment which together with the non-implementation of various schemes envisioned in AIDP 2007-12 led to non-realization of policy objectives.
Report also confirmed long held industry position on policy that globally auto industry is subsidized because of its potential role in driving industrialization through its spillovers to upstream and downstream businesses. This is a valid reason to continue to support the auto industry even today. Subsidies and protection afforded to the sector during the incubation period can be outweighed by the benefits accruing in terms of long term growth in auto and linked industries. Top auto parts exporting countries like Thailand, Malaysia and India continue to undertake protectionist policies in order to reap industrialization benefits.
However, policy makers should ensure that advantages of protection should come through by effectively regulating industry but first they have to ensure level playing field and set the stage for economic development by providing public goods such as law and order/security, infrastructure, energy, good financial system, intellectual property rights and sound legal/contracting environment for healthy industrial growth. On increasing exports, report suggests that exports can only be increased when supported by strong set of investment incentives along with public sector investments in the trade and logistics infrastructure to improve cost of doing business in Pakistan for not just foreign but also for domestic firms. As this require long gestation period so in short run government can establish Export Processing Zones (EPZ) with favorable policy and regulatory environment for exporting firms. Simultaneously, industry together with government should jointly undertake export marketing which includes thorough study of regional markets to identify current and expected demands of specific products. Report also warned that: Pakistan must negotiate its FTAs cautiously to ensure market access of its exports. This is critical for Pakistan’s national interest as healthy industrial base is necessary for employing millions of people who are entering the working population. Speaking as panelist on the report launch, Dr. IjazNabi, Professor of Economics (LUMS) and Member of Prime Minister’s Economic Advisory Council stressed that Govt needs to give priority to manufacturing sector which currently is neglected. Traders are not subjected to any labor laws whereas all labor laws and policies are strictly implemented on documented manufacturing sector which unnecessarily dampens the job creation. Pakistan is a country of over 200 million people, to provide jobs the Govt needs to have a vision for manufacturing sector and should put due focus on it which is critical to ensure adequate job creation for millions of its people entering working population,’ he added.
Sikander Mustafa, CEO, Millat Tractors said, there is a need to change the mindset of opening up the sector to foreign investment, whereas there is a strong need to support those who have already invested in the sector because they are the ambassadors for new investors as we can proudly say that against the general perception Millat Tractor has been exporting tractors, said Speaking on the occasion Ali S. Habib, Chairman Indus Motors Company, said that efforts of IDEAS and LUMS for this report on auto industry are commendable. We are glad that Government has finally come up with an auto policy which gives a clear vision for next five years. Consistency and predictability are keys to success for any industry. Industry needs a level playing field. Fully documented manufacturing businesses has to pay 17% sales tax and undocumented sector first under-invoice at import stage and then does not pay any GST or Income Tax thereby eliminating the level playing field. So how can we expect local industry to thrive and export as well under such circumstances? He also said that globally OEMs make sourcing decisions based on what is profitable and beneficial for their shareholders which has to be kept in mind whilst we debate on increasing automotive exports.
Chairman PAAPAM Mumshad Ali urged that Govt should also take an initiative of completely eliminating import of used cars from next policy and take measures to curb misuse of Personal Baggage/Transfer of Residence/Gift Scheme. Aamir Allawala former Chairman PAAPAM added that the auto part manufacturing sector is the real job creating sector of auto industry, almost 90% of skill based jobs are created in auto sector.

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