Opening up auto sector for new investments
By Shazia Mehmood Khan
The Economic Coordination Committee (ECC) of the Cabinet has approved the long-term auto policy. It has been designed for five-years. According to the government, it will not hurt the local industry but rather attract new investments. The government has also decided not to change the current import policy so that consumers’ interests could be protected.
Global importance
Globally, the automobile industry is considered to be the mother of all industries and an engine of growth for the economy. It is a well known fact that countries that have achieved major industrial growth in the last century have focused on the auto industry, for example USA, Japan and, in more recent times, India, Korea, Thailand, Taiwan, Malaysia, etc.
In our own country the automobile sector has been registering high growth for the last four or five years due to the country’s business friendly policies along with lower tariff rates, persistent growth in GDP, and per capita income.
Salient features
(a) 0.5 million new cars would be manufactured per year by 2011-12 against the current production of 0.2 million.
(b) Total investment in car manufacturing would reach Rs225 billion by 2011-12 as compared to Rs98 billion in 2005-06
(c) Automobile’s share in GDP would touch 5.6 percent against the current share of 2.8 percent.
(d) Contribution of automobile sector in the LMS manufacturing sector would increase to 25 percent in five years from its existing share of 16 percent
(e) Share in indirect tax would reach Rs190 billion in 2011-12 against Rs63 billion.
(f) The sector is presently providing employment to 192,000 people and the number would increase to 2,50,000 by 2011-12
(g) 50 percent tariff for localized parts of cars in 2006-07, followed by 50 per cent in 2007-08, 50 percent in 2008-09, 47.5 percent in 2009-10, 45 per cent in 1010-11 and 45 percent in 2011-12.
(h) Tariff for non- localized parts has been proposed by 35 percent in 2006-07, followed by 35 percent in 2007-08, 32.5 percent in 2008-09, 32.5.5 percent in 2009-10, 30 percent in 2010-11 and 30 percent in 2011-12.
Reservations
According to the tables, it is clear that the government is more than eager to pursue the existing policy. According to latest data, every month 3000 to 4000 cars are being imported. This means import of around 40,000 cars in a year and 20-25 percent of local production, which ultimately damages the local industry. It is estimated that the imports of auto sector cause $1.08 billion trade deficit.
Analysis of data
According to latest report, during the last five years, the auto industry has shown tremendous growth and the production of cars have increased by 27.9 percent, trucks - 41.01 per cent, light carriage vehicles (LCV) - 27.31 per cent, farm tractors - 13.16 per cent, motorcycles - 31.85 per cent and only the production of buses has decreased by 53.18 per cent. Iran has also offered joint venture in auto parts.
Latest trends
The local automobile industry has experienced impediment and decline in its different segments as compared to earlier where the industry observed tremendous high growth in terms of production and sales.
The auto industry will invest Rs225 billion in the next few years to achieve a new target of 500,000 cars a year, generating more than 30,000 jobs. At the current rate, by 2010 the country would make 500,000 cars a year and pay Rs100 billion in taxes, provided the government ensures a long-term and consistent policy to protect the interests of local industry and to attract fresh investment.
Importance of auto sector in the economy
With over 192,000 people directly employed within the auto sector and an expected increase to about 250,000 by 2010, it can play an important role in our socio-economic development. Since 2001-02, the automobile market has grown by over 40 per cent per annum and if an average growth of 30 per cent is maintained during the coming years, the country’s auto market will cross the milestone of 500,000 units by the year 2010.
Expansion programme
Five local auto manufacturers have assured the government that they will increase their total production of units up to 0.516 million by 2011-12 from the current 0.197 million units to meet the growing domestic demand.
Honda Company has projected to increase its production of units to 100,000 till the year 2011-12 from the 30,000 units produced in the year 2005-06.
Suzuki Company has projected to increase its production to 250,000 units till the year 2011-12 from the current 90,000 units.
Indus Company would increase its manufacturing capacity to 100,000 units till the year 2011-12 from the current level of 44,000 units.
Dewan Company has projected to increase its capacity to 48,000 units till the year 2011-12 from the current 44,000 units.
Finally the Nissan Company has also projected to increase its production to 18,000 units till the year 2011-12 from the current 13,000 units.
Local automobile industry
The local automobile industry appeared largely satisfied with the long-term policy approved by the ECC of the Cabinet. However, local manufacturers want the government to check the misuse of the import facility granted to overseas Pakistanis.
Conclusion
Although, ECC has approved the auto policy but still lot of consultation is required before its final institutionalization. The genuine concerns of the local auto industry should also be addressed.
Comparative analysis
CBU Tariff/duty % Period
1500cc 50 2011-12
1500-1800cc 65 2008-09
1500-1800cc 60 2011-12
Exceeding 1800cc 75 2008-09
Exceeding 1800cc 70 2011-12
According to the latest data the import of vehicles in completely-built unit [CBU] condition witnessed growth of 83 per cent during the first two months (July-Aug) of the fiscal year 2006-07 over the same months last year
Category Tariff/duty % Period
LCV (CKD kits
localised parts) 50 2008-09
47.5 2009-10
45 2010-11
Non-Localised parts 20 Till 2011-12
2008-09