INP-WealthPk
Auto sector in Pakistan Grows Fastest in South Asia
March 08, 2022
By Muhammad Asad Tahir
ISLAMABAD, Mar 08 (INP-WealthPK): Automobile industry contributes 2.8 percent to the gross domestic product (GDP) of Pakistan and Rs30 billion rupees to the national exchequer in terms of duties and taxes.
The automobile sector in Pakistan is growing the fastest in South Asia, according to the Board of Investment (BOI). A BOI report shows automobile sales and production grew by 172.5% and 171%, respectively, between 2014 and 2018. From July 2020 to March 2021, the Pakistani automobile sector posted double-digit growth of 23.4 percent. As reported by the State Bank of Pakistan (SBP), growth is sharply better as compared to the same period of last year, following a reduction of 37.7 percent.
Improvement in sales can be seen in all areas, with tractor sales rising 57.5 percent, cars 24.7 percent, motorcycles 20.3 percent, and light commercial vehicles (LCVs) 30.2 percent. Under the automotive development policy, 2016-2021, many new auto-assemblers invested in Pakistan's automobiles market.
There were 13 listed automobile companies in 2018. Secretary of Auto Industry Development Committee (AIDC) Engr. Asim Ayaz told WealthPK that 10 new companies (two-wheeler and four-wheeler) have entered Pakistan's automotive market.
“The main focus of these companies is to bring a new shape/type of vehicles in the market and bring diversity so that the situation of perfect competition can be created,” said Engr. Asim Ayaz.
He said the current government is keen to bring assemblers of electric vehicles (EVs) to Pakistan to minimize its cost to achieve the target of 30% EVs on the road by 2030. The current adoption rate of EVs in Pakistan is just 2% because of the high prices.
Asim Ayaz also told WealthPK that the policy is formulated to incentivize the exporters of automobiles to increase the local industry's capacity.
The incentives are provided under the Auto Industry Development and Export Policy (AIDEP 2021-26). According to the AIDEP 2021-2026, all taxes have been removed [additional conveyance duties (0%), accelerated sales tax (0%), withholding tax 0% and federal excise duty (0%), service tax reduced to 12.5%] on locally manufactured cars. All these measures are taken to bring prices of locally manufactured cars down.
Pakistan's automotive industry is growing well, but still some challenges must be addressed to make it more productive. On March 1, 2022, the car and bike assemblers announced increase in the prices due to the rupee's devaluation. The stability of the rupee is one of the main components to stabilize the price of automobiles. Changes in the exchange rate affect the cost of manufacturing, leading to higher prices. The government must provide foreign currency risk cover to the assemblers to boost their confidence.
Moreover, Pakistan must differentiate between the local assemblers and importers of vehicles to provide direct incentives to the local manufacturers. This move will encourage more companies to start assembling in Pakistan which eventually proves beneficial for the country. Lastly, Pakistan must work together with all new and existing manufacturers to maximize the benefits of this industry.
