The auto industry in Pakistan certainly welcomes new investment in the all sectors but without endangering the existing industry and level playing field.
The auto industry has enough competitors as compared to demand but still for sake of growth and to benefit the consumer the new players are good omen but on existing terms and condition.
Abdul Waheed Khan, Director General Pakistan Automotive Manufacturers’ Association (PAMA), has appealed to the Federal Minister of Finance not to allow any new investment by putting at risk the investment already there in far greater size, as the local investors have already expanded their capacities to manufacture 2.5 million motorcycles.
“We are not opposing any new investment but we would certainly oppose it if it disrupts the equation by unfair grant of relief in duty and taxes to any new entrant”, he said, adding that the existing sector represents substantial investment by Pakistani, Chinese, Japanese and European stakeholders.
While drawing his attention towards the media reports of allowing Yamaha in the guise of new entrant with low duties to enter in the local market, the DG in his letter to the Finance Minister on Thursday requested him to intervene in the legitimate interest of the industry.
He suggested that the Board of Investment should encourage new investment that does not negate the fundamental concept of a level playing field.
The DG said that the basis on which the decision has reportedly been taken by the government to reduce duty apparently to facilitate Yamaha is the most reprehensible because it is misleading and deceptive to falsely make out a case for Yamaha simply by condemning the existing industry with allegations such as ‘lacking competition’ and having ‘infinite protection’.
He reminded the minister that Yamaha proposal earlier considered by the CCoI in its meeting held on January 24th 2012 wherein the Board of Investment faced embarrassment because of bringing a company specific case rather than a case for the industry as a whole. With that observation the matter was referred to Deputy Chairman Planning Commission to see it as part of tariff rationalization exercise. From there the Yamaha proposal somehow went to the NTC; and now resurfaced with name change from Yamaha to “Policy Change for New Entrants.”
“We understand that our Board of Investment in years found only Yamaha as a potential investor and is deviously pursuing the case at the cost of sacrificing huge revenues”.
He informed the minister that the localization level in locally produced motorcycles is over 90%, which has made it feasible to considerably reduce prices of motorcycles to a most competitive level when a large number of new players entered in the recent past.
‘An analysis shows that with the help of stable government policies market mechanism alone has enabled the sector to grow in an unprecedented manner, and the equilibrium in the growth of motorcycle sector has so far been kept by the policy whereby the existing players are surviving,’ he added.
The progressive thrust of growth in the motorcycle sector has so far been maintained by a policy which allows incentives for localizations but at the same time permits introduction of new technologies by allowing import of components against a different tariff. The fine balance between new technologies and cost effective standard products that are favoured by the market has been maintained successfully allowing this segment to grow at an average rate of over 31 per cent over the last 10 years. However, this proposed policy shift, just to favour a single entrant YAMAHA, will allow 100% import of parts at 5% rate of duty, meaning that the favoured “NEW ENTRANT” will need to invest next to nothing to gain excess to this market. Motorcycle manufacturing in future will simply be an assembly operation. New models after every five years will require no local investment, or technology transfer.
This policy shift will create distortions in the market creating an investment and business environment that will be discriminatory against billions of rupees investment already made in the country. The existing players will be required to pay duties at a much higher rate and as a result will be rendered uncompetitive. Further, there seems to be no debate or consideration of the revenue loss this policy shift will create.
