Automobile Industry

Economic Review, August 1999 | Go to article overview

Automobile Industry


The country's automobile industry is expecting an initial Foreign Direct Investment (FDI) of $200 million as at least four automakers are quering up to launch their products from Pakistan within the next one year. According to the sources at the Board of Investment (BoI), Daewoo and Hyundai of South Korea, Daihatsu of Japan and Oka of Tataristan are working out their plans to introduce their cars in a year's time. Not far behind is the Fiat of Italy. The company has been given the formal approval but the progress is believed to be relatively slow on the project as compared with other enterprises keen to enter the Pakistani market as soon possible.

At the present, four local car assemblers - Toyota, Suzuki, Honda and Nissan - are producing cars ranging from 800cc to 1800cc. However, it is the ever-rising demand of small cars in Pakistan, which has become a source of attraction for other companies. The entry of new automakers in Pakistani market will provide a sign of relief to the potential consumers, who are but a victim of high pricing structure of passenger cars in Pakistan. There have been a four times increase in car prices during July 1998 and January 1999 although there wasn't any increase in levies and utility charges during the period, says a report. Last year, according to a report, the industry produced 43,246 cars, which was 57.7 per cent of the annual 80,000 vehicle manufacturing capacity of the industry. According to the BoI sources the entry of new automakers will boost competitiveness and help bring down the high prices, particularly those of small cars.

Daihatsu, part of the Toyota group, is tying up expansion arrangement as it plans to produce cars at the existing Toyota plant. The launching is expected within a year. Oka of Tataristan has already signed a MoU with the Sindh Engineering to enter into a joint venture for introducing their product -- a 750cc 3-door car. According to the sources, Committee, headed by the Secretary Industries, is giving final shape to the agreement, which is likely to be signed with the Oka car-maker during the next couple of weeks. The agreement will work out a time schedule, which will ensure its production to begin within a year. Hyundai of South Korea is currently in a process of negotiations with its local partner Dewan Salman and plans to produce its car in Sindh. Again, there is every likelihood that the new product will be launched during the next year. Similarly, Daewoo is also planning to begin assembly of its 800cc "Matiz" in Pakistan during the year. The progress is stated to be slow on the Fiat. During the visit of Prime Minister Nawaz Sharif to Italy, last year the Fiat automakers were given the "OK" signal. The Fiat is coming in through a joint venture with a local Raja Group. Although the progress is slow, Fiat has shown firm commitme nt towards making investment in Pakistan. All these four automakers together will fetch an initial investment of $200 million in country's automobile industry next year, the source said, while adding it will create a massive job opportunities in this sector.

Deletion Programme

Local auto-vendors have expressed strong reservations about what they see as "incursion" by Small and Medium Enterprise Authority (Smeda) in deletion programme and duty changes made in automobile sector on its recommendations. The Finance Minister Ishaq Dar in his budget speech announced numerous measures regarding auto industry which included import at zero duty of completely knocked down kits and Completely Built-up Units (CBU of vehicles under the Prime Minister's Transport Scheme. He also announced the waiver of 10 per cent regulatory duty on the commercial import of auto-parts thus putting CKD imported by the industry and commercial auto-parts in the same duty bracket. This might tempt the carmakers to import parts manufactured by local auto-vendors. Engineering Development Board under the Ministry of Commerce and Industry controls and monitors the deletion programme in locally manufactured vehicles. …

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