By Fida Hussain
ISLAMABAD: The implementation of Auto Industry Development Programme (AIDP), which has been proposed and unveiled by the Engineering Development Board (EDB), will further disturb the country’s trade deficit as the board is seeking concessions for the auto industry, whose own deficit is constantly increasing, an official told Daily Times.
The draft AIDP, which is yet to be finalised in consultation with all the stakeholders, attracted some criticism as initial response among the economic ministries and tax authorities. However, the independent analysts did not reject the draft and as they said that the trade deficit recorded in the last fiscal has already been attributed to other factors.
However, according to the an official in the ministry of commerce it is the auto industry whose import value is always higher while the industry’s role in enhancement in the country’s export has remained marginal so far.
The draft AIDP said that deficit in the auto industry is whooping as the industry’s exports valued $35 million against the $1.11 billion import in the last fiscal, when the country’s total export stood at a little over $16.5 billion and imports at around $28.5 billion.
The deficit in auto industry is whooping despite an impressive growth in auto sector has been witnessed during the last 5 years. According to a CBR official, this means that trade deficit of the industry and the country would increase if there would be further investment coming into the country.
The EDB itself admitted that trade deficit in auto industry is a source of major worry for the government, he added. He admitted that total imports for auto industry also include the import of used cars (CBU), but he claimed that total share of imports of engines and other equipment for vehicles assembly at home was a major portion. The industry is faced with various challenges, importantly being the capacity constraints at both OEMs and vendors, issues of competitiveness which are due to productivity on account of both level and infrastructure, low technology levels, innovation, human resource development, absence of R&D, drawing, designing and styling capability, absence of any standards, certifications and accreditation.
The industry’s focus on emission controls, road infrastructure and auto vehicle examination is vital issues, which have been remained unattended so far. A strong commitment for improvement is needed through persistent and concerted efforts at the Government and industry level.
The industry is also faced with dilemma of governments’ liberal policy on used car, tractor, bus & truck imports under various schemes. Pakistan is already producing competitively priced agriculture tractors, with high indigenisation level and having potential to export to the world markets.
The AIDP said that import of tractors both new and used free of duty is expected to jolt this industry shortly on two fronts firstly, the local assemblers falling under the TBS regime are subjected to 35% customs duty on import of their indigenised parts, while the CBU duty remains at zero percent. Secondly, investments by the existing assemblers or new investment would not take place when there is no tariff protection.
In steel the right specifications in desired quantities are never available. Despite the industry is allowed to import raw material at zero rate of duty under SRO 655(I)/2006 conditions to buy steel from Pak Steel remains major hurdle for long term sourcing, according to the AIDP.
An official, while commenting on these issues said that EDB itself admitted that right specifications in steel are never available in Pakistan. Keeping this fact in view, the auto industry, if made fresh investment and resultantly it registers a growth, it would definitely require more steel that would be met through imports.
He said that auto industry is already working under high protection tariff due to which the business environment has been competition free. Market is monopolized by few OEMs, and the products are characterized by relatively low quality, high priced, fewer models, long delivery times and poor service to the customers. And due to these factors, the government in the last fiscal introduced various schemes to facilitate the import of used cars - the schemes that are generally welcomed by the EDB.
The EDB, in the draft strategy, has opined that the government should not further lower tariff on CBU cars import. But on the other hand, it supported the reduction of import duty on trucks in the budget 2005-06 from 60% to 30% and elimination of sales tax on CBU and CKD kits has not affected the industry adversely. The EDB argued that industry has rather expressed signs of healthy growth in local production, price reduction and competition due to this tariff rationalization, said the official.
The programme is not largely based on basic facts. The EDB is giving stress on vendor industry, which consists of only small and medium enterprises. Most of the entities were established during the last 5 to 7 years with small capital base, few of them re-ploughed their profits into expansions but majority could not. It will require a huge investment of over Rs 150 billion in the next five years to give the results, desired by the EDB.