Analysis

A Bright Future Ahead for Pakistan’s Automotive Industry

The automotive industry is one of Pakistan’s fastest growing industries mostly dominated by Japanese automakers. Pakistan is considered one of the fastest growing auto industries in South Asia, with 207,777 vehicles were sold during 2015-16.

The auto industry is largely dominated by Japanese automakers: Toyota, Suzuki and Honda. These three auto giants have a strong and long presence in Pakistan with large assembly plants in country’s financial capital, Karachi.

Automobile development policy (2016-21)

The Ministry of Finance announced new Automobile policy for the next five years (2016-21) on 21st of March 2016.

The policy will offer tax relieve to new automakers in order to assist them establish manufacturing centers in the country and effectively engage and compete with existing manufacturers. The existing three automakers won’t be entitled to the privileges that are being provided to new investors.

The new policy will ensure greater localization. The new entrants will be responsible to meet the growing demand for heavy commercial vehicles, if the fail to achieve the targets, they would be penalized.

A new policy provides a major incentive: the 10% reduction of custom duty on non-localized parts for the next five years against the current 32.5%, for the new investors to pursue the development of affordable heavy commercial vehicles for local consumers.

The government has offered duty-free import of heavy machinery and other equipments for establishing manufacturing centers.

Renault to begin operation in 2018   

Renault, a French car manufacturing firm, is planned to start operation in 2018. The federal government is willing to welcome new players; Earlier this year, Prime Minister Nawaz Sharif, approved a new automobile manufacturing policy in order to ensure smooth and efficient growth of automobile sector.

Renault told the Reuters earlier this year that Pakistan, along with other potential locations, is under consideration for new investment in auto sector, but added that consideration was at initial stage.

Nissan’s spokesperson has shown similar interest, “Pakistan is certainly a market of interest for us at present”, he said.

An Investment in Auto sector by National Logistics Cell (NLC)

The National Logistics Cell (NLC) has decided to invest, initially Rs 500 million to Rs 700 million, in auto sector in collaboration with a German company, MAN Truck & Bus, in order to meet the growing demand of commercial vehicles following the remarkable inception of China-Pakistan Economic Corridor (CPEC).

In the initial phase, trucks will be produced to meet the demands of Pakistan military while in the next round heavy commercial vehicles will be provided to CPEC authorities, keeping in view the mounting demands of vehicles under the CPEC.

According to early estimates, around 700 to 1,000 vehicles will be manufactured annually. However, the production capacity may be increased for growing demands with government approval.

Foreign collaborations and considerable investment in auto sector can exceptionally revive the industry. It can lead the country in transforming transportation system and producing jobs opportunities for working-class Pakistanis.

Image: Reuters 

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