The Engineering Development Board (EDB) is all set to launch a Mobile Device Manufacturing Policy, which is envisioned to bring local and foreign investment into mobile phone production and localization through joint venture partnerships. A major goal is employment generation, increased digitization and technology transfer. One Pakistani company has already had a head start in the area. BR Research sat down with Aamir Allawala, the CEO of Transsion Tecno to talk about the potential of mobile manufacturing in Pakistan. Transsion Tech is a joint partnership between Transsion Holdings China and Tecno Pack Pakistan. Allawala has been in the business of automotive component manufacturing, part of the larger Techno group of companies which was founded in 1971. He has also served as the Chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM). Excerpts follow.

BR Research: Start by telling us about this new venture for mobile handset manufacturing in Pakistan.

Aamir Allawala: This project, I would say, marks the beginning of CPEC Phase II and it is a clear signal that Pakistan is open for big foreign investment. In the smartphone industry, this is the first Chinese investment in Pakistan. I would first like to give you a little bit of a background about us. Our company Tecno Pack has been in business since 1971. We have been manufacturing automobile parts (for cars, tractors and motorcycles) over the past few decades, and we did a recent Joint Venture project with Suzuki Japan with an investment of Rs2.87 billion. We employ about 2100 workers at our 5 manufacturing plants. Over the years, we have ventured into electronics manufacturing as well. We found this opportunity for mobile manufacturing, saw the wide gap that exists in the market, and immediately grabbed it. This brought our new partnership with Transsion Holding which is a Chinese manufacturer of mobiles phones, one of the top in the world in terms of volumes with sales of over 124 million in 2018. Apart from China, it has factories in India, Bangladesh, Ethiopia and with this new investment, Pakistan.

BRR: What is the total investment, your equity and the current assembling capacity of mobile phones?

AA: The total investment is Rs480 million and we have a 60:40 arrangement with Transsion China. Currently we are operating three production lines with a capacity to assemble 3 million smartphones every year. In terms of human resource, we have on board 750 skilled workers, 70 engineers and 9 Chinese experts.

BRR: How big is the mobile phone market in Pakistan and what is the potential here?

AA: There are 164 million mobile subscribers. The handset market size is about 40 million units with 27 million units currently being imported and 13 million (which are mostly 2G) manufactured locally in the country. These are feature phones and we believe the future is smart. If we had to put a number to it, the potential handset market size should be over 60 million units annually. This would make us one of the top 10 handset markets in the world.

This is a big space. We need a new plan for Pakistan where we are not just importing and consuming, but also contributing to the production and creating jobs. The first step to do that is to get into industrial assembly. We can train more skilled workers and build an industry foundation by adopting phase-wise localization. As localization grows, technology transfer happens and industry expands. Mobile phone manufacturing can be that industry.

We have examples from countries where the mobile phone industry has transformed the whole economy Look at Samsung in Vietnam. In 2014, Samsung set up its first factory in Vietnam and today, Samsung has an investment of over $17 billion in the country. It contributes 28 percent in Vietnam's GDP, it has more than 100,000 employees and in terms of mobile phones, nearly $37 billion of exports are made by Samsung from Vietnam. When other countries saw Vietnam's growth, they have raised their hands to participate.

India is bidding to become the next China. In mobile phones, within three years of announcing a mobile manufacturing policy, they have 268 factories producing mobile phones and accessories with 61 brands in production including Samsung, Apple, Oppo, Vivo etc. They have now become the second largest mobile producer in the world after China. Last year India produced 225 million units and 95 percent of mobile phones sold in India are made in India.

Then there is Bangladesh. It started final product assembly--which is the first step-- in 2017. Brands include Samsung, Oppo, Vivo, Infinix etc. and it is now assembling mobile phone motherboards as well.

BRR: Your current goal is to tap the existing market in Pakistan, is that correct? What is your expansion plan to make that happen?

AA: The domestic market is huge and this is only the beginning. Our expansion plan is already in place. The new investment for Phase-II is Rs 336 million, which will allow us to assemble 13 million smartphones in Pakistan every year on 13 production lines. Once this capacity takes off, we can provide skilled jobs to over 4500 people, which would include 300 engineers. We have made the preparations and are good to go.

BRR: In terms of assembly and localization, what are your targets?

AA: At the moment, we are doing final product assembly. At this level, the local value we will add is 8 percent. This is where all the parts are brought in and we assemble them at our factory. In Phase-II, we will be providing product packaging, chargers and hands-free device. Subsequently, in Phase-III, we would localize plastic and material components, in Phase-IV, we can start the assembly of motherboards within the mobile phones. These motherboards have micro-components whose assembly requires technology and technical skills. In Phase V, we can localize batteries and displays. The combined localization we can reach is 49 percent of the value for a smartphone, which we can see materialize in the next four years.

Transsion has promised us that they will bring their suppliers of raw materials here so we can actually develop the entire smartphone value chain in the country, not just the assembly of final product.

BRR: Is the regulatory environment in the country conducive to mobile assembly and localization--especially now that the new mobile phone policy is being put in place?

AA: One positive development has been the implementation of Device Identification, Registration and Blocking System (DIRBS) recently, which has made the illegal grey market of smartphones completely impossible. The PTA has also given licenses to 26 companies for local manufacturing.- of which 10-12 are currently operating. These have been positive steps but this is a nascent industry that requires incentives under a policy. There should be a reasonable differential between the import of assembled phones i.e. Completely Built Unit (CBU) and the import of parts and components. The draft of the smartphone policy introduced by the EDB includes some important incentives. The Completely Knocked Down (CKD) kits imported by local manufacturers are exempted from regulatory duties as well as custom duties. We strongly believe that there also should be a sales tax exemption on these kits (for phones value up to $200), which is missing. This will allow a reasonable differential between imported CBU phones and CKD kits, which would enable domestic manufacturing.

The policy is important and we appreciate the efforts made by the government because ultimately, the goal here is to grow exports. This can be driven by favorable government policies. The opportunities here are tremendous. China is right now looking to relocate its mobile phone industry to a third country and Pakistan could strategically place itself as a potential site. Last year, China exported $141 billion worth of mobile phones. If we can tap 25 percent of that value, mobile phones can become Pakistan's biggest export item, surpassing textiles.