Pakistan is faced with the problem of a worsening trade deficit – imports far in excess of exports. The import bill stood at over $7.5 billion in November this year. In view of this, the government is trying to identify items whose import can be slashed or banned. CBU (Completely Built Up) car imports have been banned, while other luxury items face the axe.
In the last few years, mobile phone imports have increased rapidly. Therefore, experts advised the government to start the manufacturing of mobile phones in Pakistan. Last year, the government approved the first-ever Mobile Device Manufacturing Policy (MDMP), paving the way for local assembly and manufacturing of mobile phones.
The Engineering Development Board (EDB), an attached department of the Ministry of Industries and Production, prepared the draft policy to develop and promote mobile phone manufacturing in Pakistan as part of the Electronic Products Manufacturing Initiative (Make in Pakistan). The policy, which was prepared after consultations with local representatives of multinational manufacturers and their market players, was approved by the Economic Coordination Committee (ECC) in May, 2020.
The local mobile phone market is said to have the potential of 40 million handsets, which is now near realization, following the successful launch of the Device Identification, Registration and Blocking System (DIRBS), which helped curb the smuggling of mobile phones in the country. Experts agree that the government’s new policy does have the potential to boost local production, as it would lead to localization, indigenisation of mobile phones’ parts in a phased manner.
The prominent features of the policy include the removal of regulatory duty for completely knocked down (CKD) and semi-knocked down (SKD) manufacturing by the Pakistan Telecommunication Authority (PTA)-approved manufacturers under the Input/Output Co-Efficient Organisation (IOCO). The policy also includes the removal of fixed income tax on the CKD/SKD manufacturing of mobile devices up to $350. The cabinet also approved the removal of fixed sales tax on the CKD/SKD manufacturing of mobile devices.
Under the new policy, the Pakistan Telecommunication Authority (PTA) allowed the activation of handsets manufactured in the country under the important authorisation of the IOCO in the CKD/SKD kit. Moreover, the activation of completely built units (CBU) through notified routes after the payment of all levied duties and taxes as fixed by the government from time to time was also allowed. Under the new policy, a research and development allowance of 3 per cent was given to local manufacturers for exports of mobile devices. Besides, locally assembled or manufactured phones would be exempted from 4 per cent withholding tax on domestic sales. The local industry would ensure the localisation of parts and components as per the roadmap included in the draft policy.
The new policy has encouraged investment in local mobile phone manufacturing. As of now, a total of 16 local companies are manufacturing mobile phone devices in the country. Most of them are gradually shifting towards new evolving technologies. The PTA’s strong monitoring has also curbed the smuggling of mobile phones as non-compliant devices are non-functional in the country. That is why the import bill has risen significantly in the last one year. The yearly bill was on average $771 million during FY17-19 and that has increased to $2.1 billion in FY21. This is due to the conversion of $1 billion from informal to formal imports.
According to an estimate, the average price of a smart phone imported in Pakistan is $115 over the last 12 months. Over 80 percent of Pakistan’s phone market (by value) is for $200 and below phones. A majority of these phones are now assembled in Pakistan. In terms of the smart phone policy, there are duty incentives for cheaper phones (in dollar value) to boost assembly in Pakistan. The duties on expensive phones have been increased to convert the usage towards less pricey phones. These steps are already reducing the share of expensive phones in the local market.
According to industry sources, Pakistan imported — in the form of semi knocked down (SKDs) and CBUs — about 16.3 million phones in the past 12 months (Nov20-Oct21) for $1,874 million. The average value of a phone is computed at $115. The low price of phones is constant across all brands – barring the iPhone. The average price of an imported Samsung phone is $180-$209. But the iPhone is expensive with an average price of $776. However, not all phones being imported are new. There are second-hand sets as well.
It is encouraging to note that the local manufacturing and assembly of mobile phones is gathering momentum. Almost all well-known brands now assemble their phones in Pakistan. During October 21, 80 percent of the phones imported were in the SKD form i.e., out of 957,008 phones imported in Pakistan in October, 76,217 units were in the form of SKD kits. The assembly of phones has created a large number of jobs in Pakistan.
As per industry experts, the local production of mobile phones should graduate from the assembly stage to manufacturing at the earliest possible in order to cut our import bill. To this end, it is important to convert SKD to CKDs as soon as possible. At the same time, the authorities concerned must work out a detailed plan to discourage imports and incentivize local manufacturing.