Automobile Industry In Pakistan

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Automobile Industry Mirza Rohail Baig 1 February, 2009 Pakistan is an emerging market for automobiles and automotive parts offers immense business and investment opportunities. The total contribution of Auto industry to GDP in 2007 is 2. 8% which is likely to increase up to 5. 6% in the next 5 years. Total gross sales of automobiles in Pakistan were Rs. 214 billion in 2006-07 or $2. 67 billion. The industry paid Rs. 63 billion cumulative taxes in 2007-08 that the government has levied on automobiles.

There are 500 auto-parts manufacturers in the country that supply parts to original equipment manufacturers (PAMA members). Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years, as compared to 6. 7 percent during 2001-02. Vehicles’ manufacturers directly employ over 192,000 people with a total investment of over $ 1. 5 billion. Currently, there are around 82 vehicles’ assemblers in the industry producing passengers cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy is geared up to make an investment of $ 4. 9 billion in the next five years thus, making a target of half a million cars per annum achievable. Government of Pakistan had undertaken two major initiatives in the form of National Trade Corridor Improvement Program (NTCIP) and Auto Industry Development Program (AIDP) for the development of the automotive industry in Pakistan. Engineering Development Board (EDB) is actively implementing the AIDP to increase the GDP contribution of the automotive sector to 5. 6%, boost car production capacity to half a million units as well as attract an investment of US$ 3 billion and reach an auto export target of US$ 650 million.

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The Auto parts manufacturing is $ 0. 96 billion per annum. The demand for auto parts is highest in the motor cycle industry which is 60%, then is for cars which constitutes to 22% and the rest 18% is consumed by trucks, buses & tractors. This demand is met by Imports which caters 22% while the remaining 78% is supplied by the local manufacturers. Due to the increase in demand for sophisticated machinery, the government has allowed duty free import of raw material, sub components, components assemblies for manufacturers & assemblers. Total import bill of machinery stands at $2. 95 billion in the current fiscal year of 2007-08 which is 12. 77% higher than that of the preceding year. The impressive growth in the machine tools and automation sector is directly proportional to the growth of the automotive industry which has become the fastest growing industry of Pakistan and contributes $3. 6 billion annually to the country’s GDP. The aftermarket for spares has also witnessed immense expansion over the same period, with imported parts playing an important role in meeting local demand. The spare parts market is given further impetus by a total vehicle population of approximately 5. million. Pakistan has the second highest number of CNG-powered vehicles in the world with more than 1. 55 million cars and passenger buses, constituting 24% of total vehicles in Pakistan with improved fuel efficiency and conforming to the latest environment regulations. Decline in Sales and Revenue Unfortunately, the recent downward trend in auto sales (cars + LCVs) continued as auto sales stood at 27,034 units for July-September 2008, showing a decline of 44 percent year-on-year, the data released by Pakistan Automobiles Manufacturers Association (PAMA).

Automobile grew from 2001-2007, the industry and the government of Pakistan fixed a target of over half million units’ production by the year 2011-12 that now seems out of reach. The industry slightly fell short to achieve the targeted productions in 2006-07 when 1,95,688 cars were manufactured against a target of 2,26,620 units. However, there was some growth in production that year. In 2007-08 the production declined to 1,87,634 units against a projected target of 2,66,543 units. In the current fiscal year they said the production is expected to decline to 1,50,107 units that are half the projected target of 3,13,486 units.

Despite an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining demand. The industry paid Rs. 63 billion cumulative taxes that the government has levied on automobiles. This year, despite additional duty the sector would hardly contribute Rs50 billion in the national exchequer. The number of cars per 1000 persons in Pakistan is eight compared to 10 in China, 12 in India, 25 in Sri Lanka 641 in Malaysia and 765 in the United States. The share of automobiles in Pakistan’s GDP is 2. 8 per cent and its share in the manufacturing sector is 16 per cent.

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