The Chairman of the Engineering Development Board and now the Deputy Chairman of Planning Commission Dr Akram Sheikh thinks the growth of auto industry in the country has been a success story.
It was so mainly because of the consistent, transparent and continuity of policies. Key role was played by tariff rationalisation in consultation with all stakeholders vendors, investors, and the government departments. Tariff issue of each industry was examined in depth by over two dozen committees, including the private sector, in respect of revenue impact and development of the industry.
That's why in the last four years substantial tariff reductions resulted in double digit growth, in all capital goods industries and automobile sector is a shining example, showing 50 percent growth, while last year's growth was 40 percent.
In an interview with Business Recorder especially in respect of the progress of the automobile industry, the new Deputy Chairman of Planning Commission spoke about the phenomenal progress and future prospects.
Dr M. Akram Sheikh began by saying that engineering industry particularly the auto industry is regarded the mother industry, changing life styles of the people.
Moreover, the progress of Industrialised and newly industrialised countries is closely linked to exploitation of scientific and engineering potential of that country.
As a matter of fact, the UNDP has evolved a technical achievement index. Higher the index, higher the level of development of the country and higher the share in world market.
In the case of Pakistan, Dr Akram regretted that though the people of this region enjoyed an edge in skills level before partition, the potential was not exploited.
The industry was not given its due importance. Trading enjoyed an overwhelming edge over manufacturing. This sadly impeded country's growth potential. Though at the same level of development in early decades of Pakistan, several countries in the region like Korea, Indonesia, Malaysia, China etc are now way ahead of Pakistan.
It is regrettable that the country did not pay due attention to education, science and technology and engineering. Several years were lost in the debate whether to have steel mill of our own or depend on imports.
Continuing, Dr Akram Sheikh said that a long-term commitment, transparent and predictable policy framework for industrialisation was absent.
In this environment, the government continued to depend on revenues from customs duty and high tariffs, which ultimately proved retrogressive and irrational. So much so that raw material for capital goods industries in the country was placed at higher rate of duties, than the imported finished goods. The policy of encouraging trade rather than manufacturing continued for decades. This is also reflected in the share of manufacturing to GDP remaining stagnant around 17 percent.
Dr Akram stated it was only four years back the customs duties began to be truly rationalised to a large extent, which gave a fillip to industrial growth. However, further work needs to be done. It is hoped that in the next five years or so the process would be completed.
How anomalies in tariff structure continued for decades is evident from the following figures. According to CBR yearbook, the raw material for capital goods in 1992-93,were subject to custom duty of 44 percent and the capital goods at 32 percent.
It was in 99-2000, that the duty structure was even at 22 percent for both, raw materials and capital goods. In July-December 2002, the raw material duty rate was 14 percent and capital goods 15 percent.
The Engineering sector growth during July-December 2003, has been home appliances 42 percent, electrical goods 18 percent, Pakistan Steel Products 24 percent, steel pipes 20 percent over the last year's growth of 50 percent in home appliances, 20 percent of electrical goods, 22 percent of steel products. The automotive sector registered 40 percent growth last year while in the first half of the current year the growth rate is 50 percent.
The recent phenomenal growth of the auto industry and other industries has been experienced after the establishment of the Engineering Development Board.
The most important factor has been the consistent, transparent and predictable policy of the government. The policy was formulated with full participation of all stakeholders who are also associated with its implementation and monitoring.
As stated, about two dozen committees that included representatives of the concerned industry, examined the issue in depth and this exercise has been continuing for the last three to four years.
Because of trust and faith reposed in the private sector and the latter responding to government's commitment and transparency, positive results started to flow.
The auto industry, supported by a host of allied industries was contributing to the industrial growth. Hundreds of vendors supported the assemblers or original equipment manufacturers.
There are over 2000 vendors, and some 800 of them are well organised and having average to outstanding manufacturing facilities. And all of them are part of the country's documented economy. Because of high quality of the two to three dozen vendors, autoparts are being exported to European Union, USA and other countries.
The Deputy Chairman added that the last three years saw tremendous growth in production of cars, and motorcycles. While the OEMs produced 32,000 cars during 2001-2002, the number rose to about 100,000 in 2003-2004.
True, there are some difficulties in delivery of cars, but it will be appreciated that tripling of production is an outstanding achievement.
The assemblers and vendors have enhanced their capacity, upgraded the manufacturing facilities and engaged a large highly skilled labour force to meet the special requirements of the auto industry.
Similarly, the two wheelers also showed remarkable progress. Their production rose from 120000 in 2001 to 250000 in 2002 and is expected to reach 400,000 during the current financial year.
This improvement is the result of consistency in policy and increasing competition among the manufacturers in the sub-sector. The prices of the two wheelers not only remained under check, but also went down by about 15 percent.
If the process continues, further reduction in price could well be on the way, Dr Akram Sheikh surmised.
Output of other items in the sub-sector too has been very satisfactory. It may be noted that increasing localisation has been at much less a cost than the imported ones. The high level of indigenisation around 85 per cent also offset the appreciation in the value of yen.
Indigenisation also created a healthy impact on the job opportunities in the sector. This has resulted in over 100,000 direct jobs, while indirect beneficiary's number five times.
Along with it, there is substantial import substitution, estimated around one billion dollars, with annual foreign exchange saving of 700 million dollars.
Furthermore, an enabling environment is attracting more investment by additional entrepreneurs as some key players are of Europe and US are showing interest.
Dr Akram Sheikh added if the current pattern of GDP is maintained the demand for automobiles will continue to grow at an average of 15 percent. According to him, automobiles demand grew by over 50 percent in the last two years.
As for exports, there is encouraging position. Pakistani tractors and two wheelers are getting popular. Suzuki cars too are in the run. That's why the sponsors are planning to expand production capacity.
However, what concerns most the EDB chairman is we should "not allow anyone to rock the boat, and that the current policy need not be changed."
The auto industry has been a success story. Hopefully, the country will attract more investment by continuing the policy. He further observed that the automobile policy, in force for the last four years.
Speaking about the problems of under-invoicing, smuggling and mis-declaration, Dr Akram said the government is quite conscious of the position. Some measures were taken in consultation with the stakeholders and were announced in the budget 2003 -2004.
The CBR is making efforts to control this menace. Underinvoicing of steel was checked. More steps are expected shortly. He ascribed the encouraging developments to the participation of the stakeholders, the government departments and the role played by the finance ministry and the CBR under the overall patronage and leadership of Prime Minister Jamali and President Musharraf.
However there are some areas of concern, which will require further analysis so that the decision can be taken to encourage the present growth pattern. Eventually, the country will be in a position to export, as very modest beginning has been made in the case of two wheelers and trucks and light commercial vehicles.
Export of cars however is premature. It would take some time for the manufacturers to venture in this field.
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