Home appliances sector taps opportunity

Increasingly uses local components as global shipping costs soar

LAHORE:

Despite battering the economy and putting a handful of industries on the verge of closure, the Covid-19 pandemic has also presented opportunities to domestic businesses to fill the gap created by disruption in the global supply chain.

The home appliances industry of Pakistan is taking advantage of the situation and is working to accelerate the localisation of components that were previously imported.

The localisation process is gaining momentum after shipping costs skyrocketed in the wake of the Covid-19 outbreak. According to industry stakeholders, shipping cost from China soared ninefold.

“If an electronics company in Pakistan was paying $5 million in shipping cost prior to the Covid-19 outbreak, it now has to pay $45 million,” said Pakistan Electronics Manufacturers Association (Pema) President Farooq Naseem.

In an interview with The Express Tribune, Naseem stated that the localisation of components became viable following a hefty increase in shipping cost from China.

Prominent electronic companies have turned this challenge into an opportunity and have drawn up a large-scale localisation plan.

Naseem added that other than raw material, his enterprise was ordering only a few components from abroad and making efforts to use as much local components as possible.

The association president cherished that the electronics and home appliances sector was currently booming because a large proportion of the population was adopting lifestyles in line with modern urban patterns.

“Refrigerators, air conditioners, smart TVs or LEDs, washing machines and microwave ovens are now part of nearly every urban household,” he said.

Citing data, the Pema president said that Pakistan was annually producing 2 million refrigerators, 1 million televisions, 1 million air conditioners, 350,000 water dispensers, 500,000 ovens and over 2 million washing machines.

The official added that the massive influx of smuggled goods had earlier dampened growth in the production of home appliances and electronics goods.

“The industry was badly hit due to smuggling under the Afghan Transit Trade,” he said. “Owing to this, some renowned global electronic companies left Pakistan.”

For the past 10 years, the stakeholders have been requesting the government to rationalise tax policies in line with the ground realities.

Lamenting that the government had failed to curb smuggling, he noted that until the structure was made competitive, legitimate companies could not flourish.

Naseem pointed out that the segment had been progressing for the past three to four years in the post-Afghan Transit Trade scenario. Moreover, the conditions imposed by the Financial Action Task Force (FATF) have made illegal transactions difficult, which bodes well for the sector.

He appreciation former Federal Board of Revenue chairman Shabbar Zaidi for placing electronic products under Schedule Three of the Sales Tax Act, which led to the display of prices of products on boxes and discouraged smuggling.

“Secondly, it proved to be a vital source of increase in sales tax revenue for the government,” he said.

To further streamline things for the industry, a lot of work needs to be done. The business of home appliances, excluding mobile phones, contributes Rs350 billion to the national exchequer annually.

Citing that the size of the formal sector had inflated to 80-90%, he expressed concern that the government could reverse some reforms introduced recently.

“We demand consistency in policies because the industry cannot afford loopholes in the system,” he stressed. “The government should boost transparency to enable the industries to flourish.”

He recommended the government to take concrete steps to counter tax evasion in markets and promote the use of formal channels. “The culture of tax payment should be promoted and smuggling should be classified as an anti-state activity.”

Published in The Express Tribune, December 30^th, 2021.

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