Industry not consulted on policy initiatives: PAMA

RECORDER REPORT

ISLAMABAD/LAHORE: Pakistan Automotive Manufacturers Association (PAMA) has protested that Finance Minister Dr Hafeez Sheikh has not consulted local motorcycle manufacturers prior to finalizing recommendations for the Economic Coordination Committee (ECC) of the Cabinet.

“It is a matter of highest concern and great distress that the local manufacturers have never been consulted at this very important stage when the future of industry is being decided by the ECC,” said, Director General PAMA, Abdul Waheed Khan, in a letter to the Finance Minister, who is also the chairman of the ECC. 

He requested the Finance Minister to take notice of the fact that despite his clear instructions as Chairman Economic Coordination Committee, the industry has not been consulted on policy initiatives taken on the issue of “protection of motorcycle industry”.

According to the letter, DG PAMA said that in ECC’s meeting on August 16, it was decided to consult the local industry before finalizing the proposal for ECC, but nothing in this regard had been communicated to PAMA the only recognized representative body of auto manufacturers in the country and that includes the motorcycle manufacturers.

The number of OEMs approved by EDB in Pakistan is 100; out of these 84 are active in production and marketing. The total installed capacity (2011-12) was 2,500,000 while the volume of sales in the same year was 1,600,000. The capacity utilization in 2011-12 was 64 percent. The two-wheeler penetration in Pakistan is 12/1000 persons.

Pakistan is among the top 20 motorcycle manufacturing countries in the world producing quality two wheelers of international standards based on modern technology ranging between 70cc to 150cc.

All the local motorcycle manufacturing companies in Pakistan are making motorcycles with carburetor based engines as they are easier and cheaper to maintain as compared to EFI-based engines.

Another technology namely EFI, being used in some countries is not a new technology. It is nearly 20 years’ old.

The EFI has slightly better emissions but not only will it have a higher initial cost, it will be more costly to maintain, thus making it expensive for the local buyers’. It is pertinent to mention here that even EURO III emission standards, the highest emissions for motorcycles, are being met by carburetor-based motorcycles.

All major motorcycle manufacturers in the world, i.e., Honda, Yamaha and Suzuki, have models with carburetors. They have their own niche market and are especially popular in huge motorcycle markets such as India and Brazil.

There is another misperception that Pakistan is not making 100cc and 125cc bikes. In FY2011-12 around 300,000 bikes with 100cc and 125cc engines were manufactured in Pakistan with a 30% to 35% increase as compared to previous year. Around 32 motorcycle manufacturers are making above 70cc models.

The local bike makers are producing quality motorcycles on affordable prices to meet local demand. The locally-manufactured motorcycles are also being exported to different countries to earn more foreign exchange for the country.

The existing industry has experienced tremendous growth despite a number of challenges including power shortage, deteriorating law and order situation, rising inflation and increasing cost of doing business in Pakistan. They said the inconsistent government policies are another challenge that has badly affected local industry.

The recent government policy shift to offer hefty duty concessions on import of CBU is a great concern for the local industry. Any move in this regard will completely destroy the entire existing local industry.

The government should make concrete efforts towards attracting foreign investment but it should not ignore the fundamental concept of a level playing field for all existing and new players.

“We are not against any foreign investment but without endangering the existing industry. We request the government not to offer any duty concession to a single player. We believe this policy would make the country a trading state instead of becoming a manufacturing hub in the region,” said DG PAMA.

The large-scale manufacturing is a long term business and the government should formulate long-term policies in consultation with market players to boost industrialization in the country.

The recent U-turn of government to allow huge duty incentives on CBU import would destroy the existing motor bike manufacturing industry.

It is a discriminatory step as the decision is being taken to appease only one blue-eyed putting the entire industry on stake.

The government, on the one hand, is trying to attract new entrants to manufacture bikes in Pakistan and on the other it is decreasing the already lowest duty in the region of 65% on CBU import to 35%, which will effectively prohibit the existing and new investors to invest in manufacturing.

All the 100 new players have entered the market on existing terms and they were not given any such incentives. The existing industry had done tremendous job and healthy growth was witnessed despite various challenges. Apart from these challenges, the inconsistent government policies are severely affecting investor confidence and industry performance.

Many countries including China and India, have imposed heavy duties on CBU import to protect their local industry. On the contrary, Pakistan is considering offering huge duty concessions to new entrants, putting the existing industry at stake.

Any such concession to a single market player would create a serious imbalance in the industry and existing industry would be affected severely.

The export quality motorcycles/engines up to 125cc are being produced in the country and Pak Suzuki is producing 150cc motorcycles in Pakistan.

No new entrant should be allowed on concessionary rates below 150cc category. Scooters in the category of 100cc and above may be allowed on concessionary rates.

Concession for all OEMs on specific components only, used for new technology like EFI, EURO II emissions and Auto Transmissions, etc., may be allowed on concessionary rates. Decreasing CBU rates will shift the industry from manufacturing to importing economy.

There is no barrier for the New Entrant in Pakistan. The entry of 80-odd new entrants is proof of that. Presently more than 100 players are in this sector.

Existing players like Ravi have technical collaboration with Piaggio of Italy, Plum Qingqi entered with 100 percent foreign equity in this market under the existing policy. Both Honda and Suzuki have given new models without any additional incentives.

Import figures of motorcycles were copied from Economic Survey of Pakistan in NTC report, according to the letter.

“Import of parts and CKD when recorded in the main HS Code 87.11 (for motorcycles) instead of the heading for import of CKD that is 8711.2010 or respective heading for import of parts, erroneously gets recorded into import of CBU. Hence, the erroneous import figure of CBU. Hence, no need to import as there is no demand/ supply issues in motorcycle industry,” commented one of the stakeholders.

The DG pointed out that the government recent policy shift to offer hefty duty concessions on import of CBU is a great concern for local industry. Any move in this regard will completely destroy the entire existing local industry, he added. The government should make all its efforts to attract foreign investment but it should not ignore the fundamental concept of a level playing field for all existing and new players, he said and added PAMA is not against any foreign investment but without endangering the existing industry, it requests the government not to offer any duty concession to a single player.