Start manufacturing, stop assembling

In the year 1992 on my return from abroad, I wanted to book a Japanese car under ‘transfer of residence’. As I was familiar with the process, I went to a dealer on Jail Road in Lahore with the draft and certificate duly endorsed by the Pakistan consulate in New York. I was told that as the assembly of the vehicle had been started in the country it can no longer be imported.

Earlier, Pakistan had started the assembly of Suzuki cars now the other two (Toyota, Honda) had entered the market. Permission to enter the market is granted with an agreed deletion programme for local manufacturing of parts, leading all the way to manufacturing.

It has been over three decades, the market is flooded with Japanese automobiles, yet no local manufacturing is being done. A lot of foreign exchange goes to Japan with very limited local benefits. In the past under the restricted import of cars through gift or transfer of residence schemes no foreign exchange was involved, the importer was required to arrange the finances with no burden to the national reserves. Now China and South Korea have also entered the most lucrative market where waivers for deletion are easily granted.

Suzuki Mehran reached 78% deletion by parts before it was discontinued a few years back. Millat Tractors leads the pack with 90 to 95% indigenous manufacturing. According to the Chinese automakers who have entered the market recently; “the Japanese have taken us for a ride”.

How long can this luxury last for them? With the tightening supply of foreign exchange, the entire industry is in turmoil. Due to a weakening PKR the prices have skyrocketed, cars are now out of reach of the public resulting in shutdowns and layoffs.

A major re-evaluation and review of the open market policy is urgently required.

There must be a massive push towards indigenization of parts not just by numbers but also value. All the waivers must be withdrawn. Thirty years is a long time. In India almost all assemblers that started after us have crossed 90% deletion mark, resulting in internal price control with very little foreign currency impact. Considering the seriousness of the situation, SIFC (Special Investment Facilitation Council) should stop this massive outflow of the much-needed foreign exchange.

All assemblers who have been in the market for over ten years should be tasked to reach 90% deletion by value by the end of the year or pack-up and go home. It will send a clear message to the Chinese and South Korean automakers to move towards manufacturing.

It is always easier to plug the holes than to get foreign investments. Plugging the massive drains in the automobile sector will result in saving of the much-needed foreign exchange on one hand while creating local jobs on the other. For Pakistan it will be a win-win situation, employment together with lower prices of cars which will revive the sagging market as well together with better value for money.

When it comes to manufacturing of automobiles, Pakistan has missed several opportunities. In the decades of the seventies ‘Nishan Jeep’ was developed but the project was shelved as it was not considered manufacturable.

Then the ‘People’s Car’ was announced with great fanfare by the then Minister of Industries and Production Comrade J.A. Rahim. He introduced two novel ideas based on his long stints in France. One was the concept of ‘Agrovilles’ (Farmer’s Markets) where the farm output could be directly sold to the customers without the exploitation of the middleman.

One such project was launched in Chung Area on Multan Road, while the other was the development of an inexpensive sub-compact family car like the Renault-4. With his departure both projects were shelved, most progressive ministers (J. A. Rahim, Dr Mubashir Hassan, Mairaj Muhammad Khan) were removed from the cabinet.

Then there was another bold attempt to produce a local brand by Adam Motors led by Feroz Khan, an engineer by profession and a leading vendor of the auto industry. His approach was simple, instead of supplying parts to the Japanese assemblers Pakistan should fabricate its own car. With the support of the Planning Commission led by another engineer, Dr Akram Sheikh, and the nod from the then Prime Minister, Shaukat Aziz, there was a trial run to produce 500 cars under the brand name of ‘Adam Revo’.

After the initial launch the Government of Pakistan had offered to procure 8000 cars for its fleet, thus establishing the local product. When the time came for the big order, the competitors joined hands to oppose the deal with threats of plant shutdown. The PM caved in, and the entire programme was shelved. Occasionally, the cars are seen on the road as a testimony of Feroz Khan’s entrepreneurial ‘crusade’ for his motherland.

Every country must formulate policies in national interests with common good in focus. Unfortunately, in the land of the pure individual good prevails. Vested interests are entrenched. For short-term gains long-term benefits are compromised. Prime ministers without mandate lack the grit to face pressure. The shortcomings are blatant.

Pakistan imports 20 mtpy (Million Tons Per Year) of coal at a cost of around $ 2 billion while we have reserves of 175 billion tons at Thar where large-scale mining has already started. The tea import bill reaches close to $ 1 billion while trial production has been done in areas of Azad Kashmir and Swat around NTRI (National Tea Research Institute) in Shinkiari (Manshera).

While we continue to beg IMF for loans, a lot of low-hanging fruit can be easily harvested, saving billions of dollars in the import bill. The energy import bill runs into billions of dollars (around $12bn). Gasification of Thar Coal can cut it down by half.

SIFC (Special Investment Facilitation Council) has its work cut out at home before venturing outside. In February, the exports were around $ 2.2 billion while imports were twice this amount. Why? Pakistan does need productive investments to enhance exports, but it can also cut down the non-productive expenditures to narrow down the deficits. Belt tightening is required.

Copyright Business Recorder, 2024