IT has been about three years since we had the last automobile sector policy. Government officials keep saying that a new policy is about to be announced, but this has been going on for more than a year now. The last automobile sector policy, though a good document, was never fully implemented.

It is not surprising that we are, as far as the automobile sector is concerned, not in a place where we want to be after 30 odd years of having the capability to produce vehicles locally. The total local production is only 250,000 cars annually; the entire auto sector, inclusive of motorcycles, cars, trucks, tractors, as well as part manufacturers, has almost non-existent exports; people here generally feel that car manufacturers are enjoying protection but have not lived up to their potential or society’s expectations. The government also feels that the sector could have done a lot better.

Some popular misperceptions should be cleared. It is true that the auto sector is protected through tariffs. But all countries that produce automobiles protect domestic producers and Pakistan’s protection rates are not out of line with those in other countries.

Many people believe that locally produced cars are more expensive here than in other countries and that they are also of inferior quality compared to similar models abroad. Both these assertions are not really accurate. Cars are an expensive item everywhere in the world. Allowing for tax differentials, cars produced in Pakistan are not more expensive, and barring bells and whistles (leather seat covers, better music systems etc) the quality of most models (apart from Mehran that is now not produced in other countries) is also comparable across comparable jurisdictions.

Successive governments have failed to provide a consistent policy for the automobile sector.

But the fact remains that our industry is still small, and our vendor industry (part manufacturers) is not, by and large, integrated into the global value chains. There are a host of reasons for this. In this article I will focus on a few salient ones.

Though the auto sector continues to be protected, and has been for decades now, successive governments have failed to provide a long-term, consistent and predictable policy vision and environment to the sector. Developing comparative advantage in the auto sector requires decades of hard work and significantly large investments in the engineering sector.

We, as a nation, need to decide if we want to have an automobile sector in the country. Not every country in the world produces automobiles. But countries with vibrant and successful automobile sectors have provided the industry with a long-term vision for its development and have then had a policy environment that has been conducive to achieving this vision.

In our work we have documented dozens of policy changes in the auto sector over the last decade alone: frequent tariff rate changes, changes in import policy, sudden free trade agreements with other countries, taxation changes and the introduction or removal of subsidies are some examples. Frequent policy changes make the environment uncertain for existing and prospective investors, and since investments in the auto sector have a long gestation period, policy uncertainty impacts the sector more.

Automobile sector development requires large complimentary investments from the government. These investments are needed to facilitate development and the implementation of quality standards and certification mechanisms; the development of research and development capabilities; and the development of human resources (engineers, technicians and design experts). It is not that previous governments and industry players were not aware of the need to make these investments — past auto sector policies have discussed these issues in detail. But successive governments have failed, quite miserably, in ensuring that these investments are made.

Let me explain through two examples. We do not have a quality standards policy for automobiles, far less for parts manufacturers. There exists a quality standards authority in Pakistan but it has neither human or infrastructural capacity nor the resources to make and implement a standards policy. Without quality standards, thinking of exports is nearly impossible.

Most Pakistani auto sector vendors are very good at making parts the designs for which are given by the principals. They can employ reverse engineering or follow a given design but they do not and cannot undertake research and development (R&D) to make new and better parts. R&D capacity building is needed for the larger good of the public, and the government must become a partner in making capacity-building investments. Though past policies have made promises on the issue, almost nothing has been practically achieved in the area.

The auto sector also needs development of the consumer finance market. One reason for the large expansion we have seen in the localisation of production and the sale of motorcycles — apart from the fact that the clone for 70cc motorcycles was produced by Chinese manufacturers which led to substantial decreases in the price of this motorcycle — was the emergence of leasing and instalment-based sales in the motorcycle market. This was done entirely through informal finance providers. Cars are too expensive to be funded through informal finance. Formal financial institutions, with the government’s help, need to think about ways of opening the car market.

We, as a nation, need to decide if we want to have a viable and vibrant automobile sector in the country. If we do, we need to ensure that we provide a long-term vision for the sector that has buy-in from all the relevant quarters, and, importantly, we need to ensure that we not only stick to the vision but make all the necessary investments that are needed. The role of the state is crucial in all of this. Otherwise, the automobile sector will function as it is has been doing all this time and will continue to be a source of dissatisfaction for all concerned.

The writer is a senior research fellow at the Institute of Development and Economic Alternatives and an associate professor of economics at Lums, Lahore.

Published in Dawn, December 18th, 2015