InternationalVolume 14 Issue # 01

A sectoral growth story

A Chinese company has entered into a joint venture with its Pakistani partner for the indigenisation of the local automobile industry with an investment of $100 million. China has selected Pakistan as the base country for right-hand drive vehicles (RHD) which will be exported to RHD countries. The aim of the joint venture is to bring value and cutting-edge technology to every segment of the market in Pakistan, with an emphasis on SUVs, MPVs, and LCVs, followed by passenger cars and electric vehicles.

The joint venture will create thousands of jobs in the industry and promote Pakistani vendor base through technology transfer. The plant, with a capacity of 30,000 units in double shifts, would be established in Karachi and begin production in December 2018.The company would start with a few thousand units a year and would reach full production capacity within three years’ time. The company is in the process of selecting dealers by ensuring services and spare parts availability in all major cities of Pakistan.

According to an estimate, Pakistan’s passenger cars manufacturing capacity would go up to 450,000 units by 2022. Pakistan has huge potential in terms of motorisation index since it is ranked 160th in the world with only 18 vehicles per 1,000 inhabitants. The auto sector in Pakistan has been long dominated by a few Japanese companies but the market seems to be opening up now thanks to the incentives given in the auto policy to attract new investors into the field.

According to a recent report, French carmaker Renault has announced its plans to enter the Pakistani market in a big way. The company in its media statement said that it has signed agreements with Al-Futtaim, a Dubai-based firm, for exclusive assembly at a new state-of-the-art plant in Karachi and distribution of Renault vehicles in Pakistan. The two partners expect the plant will be built this year. Car sales are planned to start in 2019. It is said that Renault aims to become a major player in Pakistan, bringing its latest products and cutting-edge technology to set new benchmarks of safety and quality.

Needless to say, Pakistan offers a huge opportunity to carmakers as demand for cars and commercial vehicles is growing at an annual rate of more than 10 per cent. According to an estimate, with a population of more than 200 million, a rapidly growing economy and a vibrant middle-class are likely to push the market size from fewer than 300,000 units at present to more than half-a-million by 2020. The road network being built across the country under the multibillion-dollar China-Pakistan Economic Corridor (CPEC) will provide additional major impetus to auto sales over the next several years. With car penetration in the country as low as 13 vehicles per 1,000 people, Pakistan is one of the last remaining populous countries to go through rapid growth in motorisation.

Pakistan is said by many carmakers to be one of the most dynamic and promising markets in Asia. That is the reason why tax and other fiscal incentives offered in the new Automotive Development Policy are attracting new brands. Two Korean brands — Kia and Hyundai — have already partnered with Younus Group and Nishat Group to set up their plants for starting local assembly of their cars by 2020. Volkswagen is also interested in investing in business ventures in Pakistan in a market starved for a wider range of good-quality cars, while Chinese brands also plan to bring in cheaper cars to help middle-class households progress to four-wheelers from two-wheelers.

It is easy to see that as the new automakers extend their footprint into Pakistan, growing competition will force the existing ones to invest more money in technology, introduce new models, improve their quality and safety benchmarks, and rethink strategy for maintaining their present market share. According to media reports, the existing Japanese manufacturers are focusing on localisation, investing in plant and machinery, improving efficiencies by reducing production line bottlenecks, and introducing new models and upgrading the existing variants to compete with new players when they start production in the coming days. Besides, the existing assemblers are also improving safety features in their cars to attract buyers. Indus Motors, for example, is now providing safety airbags in all its Toyota vehicles even though it is not mandatory under government laws. They are adding new features they had never thought of offering in this market before.

The success of the auto policy has made it clear that given the right policy incentives, there are large numbers of foreign investors keen to come to Pakistan and compete in a promising landscape that offers sound opportunities for growth. If things go smoothly, by 2020 there could be up to nine more companies in the Pakistani market, vastly expanding the choices available to consumers, unleashing genuine price competition, and taking a huge leap towards eliminating the menace of premium charges for timely delivery. Now that new international car companies are entering the market, it is important that the government keep a close watch on the market to ensure more emphasis on the indigenous manufacturers of cars as opposed to imports.