The automobile industry is one of the leading driving economic forces in the world. About 18 million well-paying jobs directly and millions indirectly are being provided by this sector. The world’s total production of 4 wheelers is nearing 100 million per annum. The total number of motorcycles produced globally in 2020 is estimated to be at the level of 49 million units. Oil, gas, and now electricity is also heavily dependent on wheels that consume 50 percent of the global oil.
The Pakistan automobile industry is quite proportionate with the global GDP contribution, with about 3 percent of the total $297b GDP. It’s also bringing millions of lucrative jobs to the table. A very encouraging sign is that Pakistan has entered the export market as well. Our major tractor producing unit alone exported 2,000 tractors in the last fiscal year worth $20 million of foreign exchange for the country. Spare parts export is also graphing up in the country.
Many new players have entered the 220 million population market, but keeping the cost of inputs limited is still a challenge for this industry. Inflation has reduced the inventory-carrying capacity and size of the executable contract of the manufacturer. The stoppage of a sales tax refund by the government is also a negative contributory effect on this sector.
Until we can reduce the trade gap, we cannot be in a driving position to control the input cost. The import reduction and export augmentation is the only solution that has been realised by our parts’ producers. Although Pakistan’s auto part industry is meeting this challenge very effectively to replace imported items with localisation to bring the import bill down; a lot still has to be done. Pakistan has got a tremendous infrastructure to cater for OEMs and after-sale market needs.
Coming to exports of auto parts, we warmly welcome the 5 percent relief on additional custom duty the government has already introduced coupled with some other incentives which will positively impact the industry. It’s also a very encouraging and appreciable step of the Engineering Development Board (EDB) to hold the three roadshows in potential areas of the globe. But still, we have to enhance our global market share. We desperately need to enhance the size of our export basket by introducing non-traditional markets and commodities. Auto parts and accessories are among the commodities that have great potential for exports. The only thing is to double the initiative to harness our available resources to expand our export base.
Africa, Latin America, Russia and Central Estates are the fertile areas for Pakistani auto products. The logistic barriers, banking issues, trust deficit, and fear of the unknown may be bridged up by creating a corporate presence in these markets. A mini consortium of the exporters may be helpful to attain economies of scale and penetration in the market. The automobile industry in Africa is flourishing with reasonable growth. Nigeria, Kenya, and Ghana have declared tax holidays of up to 10 years and duty exemptions for car assemblers. Ghana, Morocco, South Africa, and Kenya are going to be big players in the auto industry, especially Ghana. This is the right time to create space for our vending industry in these markets. Morocco has special trade agreements with the European Union and the USA to lead the Sahara region in the automobile industry, followed by Egypt. Africa is only occupying 1 percent of the global new car sales. The sub-Saharan region, where there is a potential for up to 3-4 million cars from the existing number of around 425,000, is expected to offer high returns to players who are willing to enter the region seriously. Another interesting market is the Latin American market that also demands a physical corporate presence, like the African market. Brazil, Argentine, Columbia, and Mexico are the potential leaders of the region. But nothing is possible without the active support of the government. We have to compete with regional countries like India, Thailand, Malaysia, Vietnam, and China that offer up to 15 percent export rebate on the export of auto parts and engineering goods.
Roadshows, trade delegations, capacity building programmes, export awareness programmes, overseas warehousing, digital marketing, compliance certifications, warehousing support in target regions, and displays should be subsidised by the TDAP. It is positive to see that TDAP is fully aware of this and is taking the desired initiatives. A low-mark up is necessary for export-oriented activities. The conditions of the export refinance scheme part two should be softened. Rebates are the base of the exports the world over, the same should be available for our exporters. Fiscal policymakers should realise that an increase in the cost of inputs and Covid-19 have reduced the size of the contracts, and the producers need the government’s support to achieve GDP targets.