In March 2020, the government came up with a smartphone manufacturing mobile policy. In that policy, the tax differential was kept at Rs1,720 for phones with prices ranging $30-100 (effective difference 11-15%) between locally assembled (CKD) and imported units (CBU). Similarly, certain advantage was kept for higher phone prices in the range of $100-200 and $200-350.
Some assemblers were of the view that 4 percent WHT from manufacturing to retail was reducing the gap as importers were not paying these taxes. Others thought that this wasn’t a deal breaker. Earlier this week, ECC took a decision to remove that 4 percent WHT. Now those who were not happy are over the moon and in full praise of EDB and the government. The other proposal was to remove the GST on locally manufacturing phone above the price of $200. This may entice big companies to set up plants in Pakistan.
The policy was yielding results even before the recent steps. There are about 16-18 cell phone manufacturers operating in Pakistan and a few others are coming. These plants are providing jobs to about 25,000 people – mostly young boys and girls. The industry experts are of the opinion that 50,000 more jobs will be created in the segment in the next few years. Some say that 70 percent of jobs would be for women.
One auto parts manufacturer in Karachi delved into the smartphone assembling in early days and is producing around 500,000 units a month for the local market. He is confident that the capacity would double in a year and the production will reach million units a month.
Another player in Lahore is making a state-of-the-art mobile assembly facility which is going to be operational in January 2021. The aim is to reach 500,000 units a month by March-April; and by June-July, the facility will start expanding. The aim is to reach million units a month by the end of 2021. The assembler is the biggest importer of smartphones in Pakistan and is doing backward integration.
The mobile phone formal industry is growing fast. In yesteryears, around 800,000-900,000 units used to be imported a month in Pakistan through formal channels. After the induction of Device identification, Registration and Blocking System (DIRBS), illegal imports of phone is no longer possible. Due to this and lockdown, smartphone imports went up to 2-2.2 million in June 20. Overall, the monthly average import in Pakistan is standing around 1.3-1.5 million units a month in 2020.
Majority of the phones are in category of $200 or low, and all these would probably be assembled in Pakistan within a couple of years. Any company that would not decide to assemble in Pakistan could be wiped out in the cheap smartphone segment. That could be a worry for Samsung. The company operates in all segments. Its premium phones would keep on coming as imported units – but the segment is small. If the company doesn’t start assembling here, it risks losing market share. it is still mulling on the assembly idea.
Apart from Samsung, big Chinese brands such VIVO and OPPO are also weighing options of starting assembly in Pakistan, and VIVO could be one big player in a few years in the local market assembling. Once big companies come in and set up units in Pakistan, parts manufacturing may start taking place at home. There will be a huge spillover for the local assemblers.
The smartphone policy is envisaging in the stage 1 (2020-21) to start assembling units here – that is happening and credit goes to EDB and Ministry of Industries. In stage 2, the plan is to have charger, Bluetooth, handsfree, and mother board (PCB) assembly by 2022. Housing and other plastic parts manufacturing to start in 2023, and stage 4 is to make display and battery by 2025.
For all these steps, big Chinese and Korean players should come and assemble here. PM Imran Khan should take this initiative and talk at government-to-government level. The ground is being laid. The industry players are charged, the gaps in cellphone and data penetration still exist and the government needs to work on rolling the right infrastructure. The smartphone assembly could well be the first step of Pakistan venturing into the tech hardware.
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