ISLAMABAD: Pakistan government is wooing foreign car makers like Renault-Nissan with generous import duties, but convincing them to set up factories will be an uphill challenge given political and security fears.
Pakistan wants to shake up its Japanese-dominated car market and loosen the grip of Toyota, Honda and Suzuki, whose locally assembled cars are sold at relatively high prices but lag behind imported vehicles in terms of quality and specifications.
To do that, analysts say, the government must convince manufacturers that the country has turned the corner after economic slowdown and militant attacks.
With the economy growing at its fastest pace in eight years, the local currency stable against the dollar and interest rates at their lowest in 42 years, officials believe the country is once again on the radar of investors seeking to tap into a market of nearly 200 million people.
Officials are touting a new auto policy, skewed in favour of new entrants, that includes offering foreign car manufacturers lower duties as an incentive to set up plants in Pakistan or revive shuttered ones.
“We expect that there will be one or two foreign investors coming to Pakistan,” said Miftah Ismail, Chairman of Board of Investment (BoI), who has been talking to carmakers about setting up assembly plants for the local market.
Ismail said he had held talks with Japan’s Nissan and alliance partner Renault for some time, and last month met Fiat executives in Italy for the first time. Previous discussions also involved Germany’s Volkswagen. “I hope some people will bite,” he said.
A source close to Renault said Pakistan was under consideration for new production investment, along with other potential locations, but added discussions were at a very early stage. In an e-mailed statement, the company said it had “no news to announce at this time”.
Nissan chief spokesman Jonathan Adashek said: “Pakistan is certainly a market of interest for us at present,” but added no final decision had been made.
Pakistan’s market is considered not too big as 180,000 cars were sold in the 2014-15 fiscal year.
“The Pakistan market is not big enough,” said Mumshad Ali, Chairman of the Pakistan Association of Automotive Parts.
He added the government’s new policies were probably not bold enough to tempt new manufacturers, nor did they address ways to increase demand, such as lowering sales tax.
The local manufacturing partners of Toyota and Honda did not respond to requests for comment.
Ali said existing manufacturers felt aggrieved that the government was favouring new investors and believed they should be similarly encouraged to build new plants and expand existing facilities.
Suzuki’s investment offer
Suzuki on Friday said it was prepared to invest $460 million in Pakistan, including setting up a new plant, if the government provided the right incentives.
It called for changes to the new auto policy, which it said “may damage the tremendous investment potential in the Pakistan automobile sector”.
BoI’s Ismail said new entrants would be able to import machinery for plants duty free. Customs duty for importing car parts has been set at 10%, while existing players will have to pay 30%.
“We want greater competition and we expect with greater competition consumers will be offered better choices,” he said.
Published in The Express Tribune, May 7th, 2016.