It has been a good couple of years for domestic mobile manufacturing.

Based on import figures, the size of the pie is around $2.5-2.7 billion. Stakeholders agree that good sound policies have been introduced to encourage domestic production while introducing tariffs that make imports non-viable.

But, there is always a ‘but’. “There are rumours that a new GST on mobile phones will be imposed in the mini-budget,” says a source in the know. “If a new GST is implemented, the price will be higher affecting consumer buying power. As a vendor investing in the factory set up, this affects our feasibility.”

The age-old woe of lack of consistency of policy had him nervous. “If you are planning a new policy, it needs to be locked for a definite period in terms of duties and taxes. The more confident the investors are, the more likely that foreign direct investment will flow in,” he said, emphasising the importance of a consensual approach for policies.

China factor

Pakistan imported $1.12bn worth of cell phones from China last year, less than a drop in its ocean of exports of $126bn. However, according to a document of the ministry of industries and production, an average Chinese assembly line worker now costs around $700 per month. Higher labour costs and tensions with the US has mobile manufacturing shift to regional countries, of which Pakistan hopes to one day be a front runner.

About 65-70pc of the population is still using feature phones but smartphone penetration may cross 50pc with the induction of new Chinese brands and competitive pricing

One such player is realme. In a written interview posted on a social media platform, Country Manager for Pakistan Harvey says Pakistan is an extremely important market for realme, being one of the top four countries in South Asian region in terms of sales. “We have gone on to sell more than two million handsets since its entry two years ago,” he says, claiming to be the first for any brand.

“Exporting to different markets from Pakistan is on the cards in the next five years,” he adds.

Transitioning

“There is a whole transition process going on in Pakistan right now. From the policy point of view, it is good, it is giving more room for localisation,” says Shahrukh Rohilla, Director Sales of Xiaomi Technology which will be starting domestic operations from February 2022, in partnership with AirLink.

The conversion from feature phones with keypads to smartphones is happening fast, says Mr Rohilla, estimating that the smartphone market is growing annually by 10-12 per cent. “About 65-70pc of the population is still using feature phones but we expect smartphone penetration to cross 50pc with the induction of new Chinese brands and competitive pricing.”

The youth bulge plays a vital role in the transition to smartphones and the pricing of products. “We are targeting the age groups of 15 to 35 mostly,” says Mr Rohilla. The general offering in domestic mobile manufacturing targets the low-end to high-mid consumers that can afford to purchase phones in the range of Rs20,000-80,000.

Depending on the success of Xiaomi manufacturing of mobiles, the next project in the pipeline is IoT (Internet of Things) devices such as smart TVs, he adds.

The cell phone market in Pakistan is growing. According to GSMA, connection penetration is predicted to be 90pc by 2025 and about 74pc of the population will carry smartphones; the 5G rollout is expected to be carried out in 2023.

In the first seven months of this year, Pakistan manufactured 12.27m mobile phones compared to imports of 8.29m — domestic manufacturing exceeded imports for the first time ever. As a similar surprise, local stakeholders are on the whole positive about the policies on the ground, as long as they remain consistent. On the heels of a strong mobile manufacturing sector can enter IoT devices such as smartwatches, gaming consoles, voice-controlled devices and so on.

Pakistan has an opportunity here to become part of a global industry that is worth over half a trillion dollars. In the past, successful import substitution has not been its strong point. The debate over the auto sector is a case in point. So far, its progress has been swift and effective. If it is not derailed by inconsistent policymaking, Pakistan can have a strong tech-oriented sector that can birth similar industries.

Published in Dawn, The Business and Finance Weekly, December 27th, 2021

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