Import of used cars has resulted in the loss of 1,43,000 skilled jobs in Pakistan that has led to discouragement for new players and investment in auto sector. Former Chairman PAAPAM Aamir Allawala while briefing journalists at a workshop said that the potential investment of $46 billion through China Pakistan Economic Corridor (CPEC) was a big opportunity for auto sector. "In 2015, used car imports stood at 45,013 vehicles, making the loss of Rs 67 billion to national exchequer," he added.
He said that Pakistan's used car policy was the single biggest reason behind lack of confidence in OEMs and APMs to make long term investments let alone the possibility of new investment in the sector. "This is the reason global automobile OEMs are now moving their investments to Iran and African continents," he added. The biggest obstacle to long term investments in the auto sector is the import of used cars as Pakistan is the only auto producing country to allow used car imports.
"If we don't act now, we may lose the opportunity to use auto sector as a launching pad for GDP growth. The government must decide if it will continue to ignore the malpractices in these schemes as it will decide the future of Pakistan is an automobile producing country," he said. This illegal activity has created the black economy of Rs 67 billion in 2015 as foreign exchange for vehicles was paid through Hawala channel. He said that automobile market trend was improving in Pakistan and the next target for the country's auto sector (2016 to 2020) was to achieve the production benchmark of 0.5 million units per annum.
"The positive impact analysis of CPEC shows growth in infrastructure development, stimulation of economic growth, enhancement in consumer buying power, and growth in demand for automobiles," said Aamir. He said that Pakistan has the 6th largest population on the planet and 50 percent of the total population was below 30 years in age. "There are 90 million young potential consumers," said Aamir.
He cited the example of motorcycle industry whose demand surged over 10 years. "There is 22 times growth from 87000 units in 1999 to 2100,000 units in 2015-16 in the motorcycle industry," said Aamir. He added that the auto sector was top contributor to the government in terms of taxes as 34 percent of a vehicle's price is paid as taxes. "It has also created employment for three million skilled manpower." said Aamir. Aamir said that over Rs 92 billion investment had been made by the auto and vendor industry, while PAAPAM members supply local parts worth Rs 30b only to Toyota in Pakistan.
The number of auto parts manufacturers (APMs) is 2000 in the country and quantum of local parts usage is up to 70 percent of total parts, which are certified by Japanese standards. It is to be noted that the phase 1 was from 1991 to 2015 during which total market size (including imports) was 70,000, and in the phase 2 (2001-2007) the size went up to 2,50,000 units.
In the phase 3 (2008 to 2013) the market size shrunk a bit with the market size of over 2,00,000 units, and in the phase 4 (2014 to 2015) the market size once again went up to register over 2,80,000 units. He pointed out that the biggest dent to industry was influx of imported used cars. He said a new job in the APM (Auto Parts Manufacturers) plants is created or lost with a revenue change of approx Rs 150, 000, hence the import of used cars has resulted in the loss of 143,000 skilled jobs in Pakistan.
While giving recommendations, Aamir said Minivans and SUVs older than three years must not be allowed to be imported under Gift, Personal Baggage & Transfer of Residence schemes in order to bring it in line with the current policy for used cars imports. Similarly, FBR should withdraw the 50 percent duty rebate being allowed on import of second hand hybrid vehicles and it should also revise the fixed duties under SRO-677.