Economic Coordination Committee (ECC) of Cabinet is a policymaking body. Its members' job is to debate issues thoroughly after they are able to forge consensus among all stakeholders. Finance Minister Muhammad Ishaq Dar has, therefore, done well in bringing about a consensus prior to presentation and approval of Automotive Industry Development Policy (AIDP) for the next five years. But the proof of the pudding is always in the eating and the future will determine if the new policy will help attract new investment to the automobile and auto-parts industry as the auto assembly is said to be the backbone of engineering industry in a country.
The existing auto assemblers want a level playing field; and certainty their existing as well as new investments will be remunerative for them, ie, the pay back on any new investment made. While the Board of Investment (BoI) would like to lower the barrier for fresh investment among auto assemblers of the world and at the same time get the closed units to become functional again while commercial importers want a better deal on used and imported vehicles. Thus there are conflicting interests of all the stake-holders. Auto industry wants maintenance of high tariff walls, correct valuation of imported parts and stop the importation 'by weight' of auto-parts. On the other hand, spare parts importers would like to have lowered import duty and continued import of parts by weight. Commercial importers of used vehicles want a reduction not only in customs duty on imported vehicles but they also want the enhancement of age-limit on the import of used vehicles. On the other hand, new investors desire lower duty on parts used and CKD vehicles, in the initial years, as well as suitable CBU tariff plus special incentives and long-term policy consistency. The consumers want improvement in quality, price as well as choice plus affordable financing. Thus, it is not an easy task to pick and choose from conflicting claims. But no one has said that running a government is easy and forums have been created to discuss and give policy advice to ECC. Engineering Development Board offers one neutral platform for agreement to arrive at after taking into consideration disagreements among the various stakeholders. The last deletion programme was announced upto 2004. From 2007 onwards, the auto-sector had Tariff Based System (TBS) and Automobile Industries Development Programme (AIDP) for 2007-2012 was duly announced. But due to a weak implementation mechanism as well as variety of reasons the programme failed to achieve the growth target envisaged in this sector.
Therefore, the policy objective of new AIDP (2015-2020) is meant to facilitate higher volumes, more investment, enhance competition and better quality and strike a delicate balance between industrial growth and tariffs to ensure sustainability of all stake-holders while protecting consumers' interests. Does the five-year (2015-16 to 2019-2020) AIDP, approved by ECC, last Friday do that? Since 2012, the policy framework for auto sector is being debated and ad hocism has prevailed. In August, 2014, ECC directed that the policy views of all stakeholders be elicited. In August 2015, ECC constituted a secretaries' committee comprising industry and commerce as well as Chairman FBR to deliberate on new auto industry policy. There was a difference on new entrant policy with reference to introduction of new models/varieties by existing assemblers and their auto-parts manufacturers. ECC, therefore, formed a ministerial committee to arrive at a consensus. Engineering Development Board suggested to Ministry of Industries and Production to remove quantitative restrictions, do away with binding provision of localisation and also be realistic and have no kind of binding export plan. Therefore, boldness in framing a fresh AIDP was needed. Has new plan gone that far? It would depend once the plan is studied in detail. However, the plan makes it clear that Pakistan needs to prefer manufacturing to trading. Will it ultimately attract the European manufacturers? We think not. It is not possible unless Renault decides to compete in small car categories besides making Nissan brand vehicles. Car market unlike the one for two-wheelers is relatively small in this country. The new policy is said to reduce existing duties on imports of parts by five percent. Duty on localised parts on the other hand has been reduced by 15 percent. South Korean and Chinese manufacturers would need to be successfully persuaded to invest heavily if perceived or real cartelization in the existing marketing is to be dismantled. We need to remember that in case of Pakistan 'perception is worse than the reality'. New investors will be keen to invest if existing investors are happy; they must not be allowed to turn hostile in order to protect and preserve foreign investment prospects.
We now finally have a policy framework after 2012. For four years we have had an ad hoc regime. So some kind of certainty will now prevail. Assemblers will only invest in local parts which are voluminous. Investment in localisation of parts holds the key to future. Future is about supply chain and greater production line efficiency. Assemblers have to work with their suppliers. Leanness equals cost cuttings realised through automation and robotics. A combination of human collaboration and enabling technology needs to be in place to cause a vast positive impact on future business and economic growth. A large number of parts cannot be produced in Pakistan; hence the need for their import. A reduction in duties on CBU vehicles is not helpful for domestic production and governmental policy needs to create jobs for the young populace. Collecting enhanced customs duty may be beneficial in the short-term but would not be helpful in the long-run.