CHANCES of new auto players entering the Pakistani market or the old ones expanding and modernising their facilities appear slim until the government’s policy parameters for the industry are clearly defined.

Since 2012, when the last auto policy expired, the country’s third-largest taxpaying sector has been working without updated guidelines.

The policy is said to be in the making. It is not clear how much more time the process will take, but according to high level sources, the policy draft has already been finalised and its summary has been forwarded for clearance to the Economic Coordination Committee.

“We have provided a level playing field for the current car assemblers and the new companies interested in investing in the booming auto sector,” said federal industries secretary Arif Azeem

As many members of the recently formed 11-member economic committee delegated with the responsibility to expand industrial production and exports were away, it could not be confirmed if the auto policy would first be scrutinised in the said forum or put up directly for approval by the cabinet.

Ishaq Dar and the finance ministry team were in Dubai for the IMF review meetings. Commerce Minister Khurram Dastgir and Board of Investment Chairman Miftah Ismail, along with some other members of the ministerial committee, have proceeded to Minsk to attend the Pakistan-Belarus business and investment forum. Prime Minister Nawaz Sharif and Belarusian President Alexander Lukashenko will also participate.

Arif Azeem, the federal industries secretary, told this scribe from Islamabad that after taking the input of stakeholders, the ministry has finalised the draft and forwarded it to the government for final decision.

“At this point, it would be inappropriate to share its contents, but the policy has struck a fine balance between the interests of car users and carmakers,” he said.

“We have provided a level playing field for the current car assemblers and the new companies interested in investing in the booming auto sector,” he said, avoiding a direct answer to a question regarding the terms and conditions in the policy for used car imports.

A recent report had suggested that the government intended to liberalise the car import regime and facilitate the entry of new players to end the monopoly of the three Japanese companies: Toyota, Honda and Suzuki.

An assessment report of the Competition Commission of Pakistan (CCP), released last October, confirmed the undesirable dominant market position of the assemblers, to the chagrin of car users in the country.

Last November, the CCP had reportedly sought liberalised import of used cars and suggested increasing their age limit from three to five years to induct market competition.

The said study, conducted to gauge the level of competition, found that previous auto policies had shielded the dominant players at the expense of consumers.

The fractured and insufficient public transport system in a fast urbanising country has kept the demand for private cars and motorcycles high for the past three decades.

The leading carmakers, operating their plants round the clock, have failed to catch up with the pace of growth in domestic demand. In the absence of options, buyers pay higher for a vehicle that lags in quality and safety standards. Often, the cars are delivered up to four months after the payment.

The said report noted that “the Pakistani automobile industry is inward-looking and tries to protect itself through the use of regulatory instruments…. Pakistan needs to develop the automobile industry instead of protecting it, and in this regard imports will have a disciplinary impact on domestic firms”.

Ahmed Kuli Khan Khattak, president of the Pakistan Auto Manufacturers Association (Pama), was sceptical. “Confusion is the name of the game in the auto sector. If the file of the draft auto policy has moved in Islamabad, I am not aware of it. If not Pama, whom are the ministry officials consulting? I will take up the issue with the prime minister next week as I am part of the trade delegation that will accompany him to Belarus,” he said.

Commenting on reports of possible new entrants, he said rumours have been doing rounds for some time, but much will depend on the timing and the contents of the auto policy. “I have just returned from Dubai where I met businessmen who were evaluating Pakistan’s auto market and were quoting staggering sums of money that their benefactors wish to invest in the vendor industry before the launch of their company and products. They were still reluctant because of the unpredictable policy environment,” he said over phone.

Keen to get a foothold in Pakistan’s auto market, a delegation from German auto giant Volkswagen was in the country a few weeks back. The company’s spokesman, Christoph Adomat, told the press that while “Volkswagen is constantly evaluating market opportunities on a worldwide basis, there are no decisions for an investment by the Volkswagen side in Pakistan”.

Munir K Bana, chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers, dismissed the allegations of market manipulation by the leading automakers and cautioned against a misstep by the government by changing the tariff regime to encourage used car imports.

“The industry is operating in a very challenging environment. It is wrong to counterpose the interests of the local automakers and the consumers. The perception of dearer, low quality vehicles is a myth. People must not forget that the tax component in a vehicle’s price is as high as 35pc. This means that a 1000cc car priced at Rs1m currently can be sold for Rs650,000 if the government foregoes taxes,” he said.

He blamed the government for the delay in delivery times. “The automakers had planned expansion but shelved their plans when the government allowed the import of cheaper used cars. When demand exceeds supply, such gaps appear. Let the government improve the environment through the auto policy and you will see expansion plans put in motion in no time,” he defended the automakers.

Published in Dawn, Economic & Business, August 10th, 2015

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