News: CSF report on motorcycle industry
Newspaper: Business Recorder
Date of Publication: Friday, April 06, 2007
Web site: http://brecorder.com/index.php?id=547293&currPageNo=
1&query=&search=&term=&supDate=

EDITORIAL (April 06 2007): A report prepared by the Competitive Support Fund (CSF) on motorcycle industry in Pakistan, has identified the prevalent tariff structure and high taxes (amounting to over Rs 17,000 for a locally manufactured motorcycle of Rs 35,000-50,000!) as the major factors that have adversely impacted the industry's competitiveness.

The report has proposed refund of $85 custom duty paid on the import of raw materials used in manufacturing a motorcycle as well as refund of $30 freight subsidy per unit. The report by CSF - a joint venture of the Finance Ministry and USAID - presents an in-depth analysis of the problems being encountered by Pakistan's motorcycle industry, and explores prospects of its growth so as to impart to it a competitive edge in the global market.

It suggests enhancing the industry's total production capacity from 750,000 to 1.7 million motorcycles annually, and increase in exports to 100,000 units. The measures proposed in the report are aimed at making the local Original Equipment Manufacturers (OEMs) competitive in the international market, where Pakistan is currently facing stiff competition from regional players like China, India, Thailand and Vietnam, which have used various tariff and non-tariff incentives to promote their exports.

Further, the CSF analysis recommends proposes bringing down the high production cost of local components and parts by establishing raw material manufacturing facilities at Karachi and Lahore, and extending financial assistance to vendors for acquiring advanced technology from abroad.

The implementation of the measures outlined in the CSF report, it is claimed, will lead to the creation of 500,000 additional jobs, increase in sales tax collection to Rs 20.25 billion, Custom duty to Rs 13.60 billion and new registration charges of Rs 5.4 billion.

The government's emphasis on diversification of the country's export base has prompted renewed focus on the engineering sector, while large-scale manufacturing units in this sector still lack adequate export strategies. This is in sharp contrast to the modus operandi adopted by other players in the global market.

While Japan, Korea and Malaysia have relied on their large-scale companies to spearhead the export push, in Pakistan the task has been left largely to the SMEs sector. Nonetheless, Pakistan's motorcycle industry has registered since 2001 a healthy annual growth rate of approximately 30 percent. There are 43 motorcycle assembling units in the country, which are licensed by the Engineering Development Board (EDB).

Out of these, three are Japanese assemblers, ie Honda, Yamaha and Suzuki, while the remaining 40 assemblers are Chinese. The assemblers purchase parts, sub-assemblies and assemblies from over 200 large, medium and small vendors based in Karachi and Lahore.

The rapid increase in motorcycle production has been due to a surge in demand because of the affordability factor, in terms of cost and fuel consumption. Further, the industry has generated employment, with over 200,000 people working in it, directly or indirectly.

The production of motorcycles which remained more or less static in the late 1990s has undergone fast growth, thanks largely to the inefficiency of the public transport system, particularly in the country's congested urban centres. Analysts believe that Pakistan's automobile industry has the potential to achieve higher growth in view of the growing demand from local consumers and foreign markets.

There is a need for Pakistani manufacturers to observe strict quality control to achieve parity with global market players. A balance between production levels of vendors and assemblers should also be maintained, backed up by stable policies. Fickle policies towards industry have been a major factor that has affected productivity in Pakistan's manufacturing sector.

Secondly, the cost of production in domestic manufacturing has increased rapidly as a result of increase in tariffs on utilities and the mark-up on lending. As the CSF report also says, the present tariff structure and high taxation have eroded the competitiveness of Pakistan's motorcycle industry.

These factors have also increased the prices of other domestically manufactured goods. It is, therefore, necessary for the government to rationalise tariffs and taxes, particularly in the manufacturing sector, to attain a competitive edge in the global market.