Auto disappointments

May 22, 2022

LAHORE: Automobile industry of Pakistan goes through periods of bust and boom that has also been a characteristic of Pakistan’s economy in the last 25 years. Budget proposals of the industry,...

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LAHORE: Automobile industry of Pakistan goes through periods of bust and boom that has also been a characteristic of Pakistan’s economy in the last 25 years. Budget proposals of the industry, which may boost local production are ignored by the authorities.

Two major stakeholders in automobile production are auto component vendors and the original equipment manufacturers. Both plead with the government to produce a long-term policy of at least 20 years to encourage setting up of engineering raw material industries that are currently imported by the engineering sector.

Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) Chairman Abdul Razzak Gauhar said another major issue was the way import of dozens of fine and precise components like rings and pistons, fuel pumps and shafts was allowed. The duty was levied on the basis of weight.

He said these precise components were released on nominal duty much below their actual cost. “You cannot determine the import value of a state of art component on the basis of its weight.”

Component manufacturers’ the world over waste a lot of high-cost metal while fine tuning the components to their final shape. The duty of state of art auto components should be on its international price based on per unit basis.

He said the original equipment manufacturers procure the same components from local auto-vendors at a higher price because their quality is approved by their foreign principals.

However, he regretted that the same components could be sold in the domestic after sales auto-market as the imported components pay less government levies than the local component producers because of very low import value determined on weight of the components.

This he added has deprived the local auto vendors of the huge after sales domestic market of auto components.

He said Pakistan on average produces 300,000 or a little less cars in a year, and auto vendors supply components to the OEMs. But have nominal or no share in the 20 times larger after the sales market.

After sales market is even larger in case of motor bikes. The local auto vendors cannot scale up because of this flawed policy. It handicaps their competitiveness in the global auto spare market.

Every year the PAAPAM unsuccessfully pleads in its budget proposals to stop allowing component imports on a per kg basis. This is not practiced in any other economy.

Indus Motor CEO Ali Jamali said there was need to set up the basic raw material industries that could supply types of steel, aluminum, and copper needed by automobile and other engineering industries.

He said long-term foreign investment would come if a stable 20-year policy was guaranteed.

Jamali said heavy investment was required to set up basic raw material industries for the engineering sector.

The foreign investor takes 3-4 years to prepare a feasibility report and prepare a business plan. Heavy investment industries were not coming to Pakistan because the planners in Islamabad were addicted to maximum five-year policy.

Former chairman PAAPAM Nabeel Hashmi said the locally produced raw materials would be cheaper than imported raw materials, which would reduce the cost of engineering products and pave the way for exports.

Jamali and Hashmi supported ban on import of luxury cars as national interest demands that precious foreign exchange should not be wasted on luxury imports.

In its budget proposals for 2022-23 the PAAPAM pointed out that the auto industry was currently governed by Automotive Development Policy (ADP) 2016-21

Under the above policy, customs duty tariff rates are fixed for raw materials, sub-components, components, sub-assemblies, localised CKDs and non-localised CKDs. The above policies are governed by SROs 655, 656 and 693.

The association proposed that all imports of raw materials for local manufacturing of automobiles should be allowed at “zero duty” if the raw materials are not manufactured locally.

Regulatory duty should be imposed on import of finished auto parts or vehicles. National Tariff Commission should withdraw anti-dumping duties on “auto engineering steel”.

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