Mobile phone assembly units may shut down

Raw material for industry depleting due to restrictions on LC opening

KARACHI:

Operations at major mobile phone assembly plants are on the verge of halt as the letters of credit (LCs) for import of completely knocked down (CKD) units are not being opened due to the shortage of dollars since May 20 and the industry is facing the depletion of raw material inventory.

The State Bank of Pakistan (SBP) through its tweet clarified that it had not stopped import payments and commercial banks had sufficient dollar liquidity to make the payments. Indeed, import payments of around $4.7 billion have been executed through the inter-bank market during the current month so far.

There is a growing anxiety among the manufacturers and businessmen over the crisis due to LC restrictions, allegedly caused by the scarcity of dollar in the market.

“Banks are not opening LCs for mobile phone CKD units due to shortage of dollars since May 20,” Tecno Pack Electronics CEO Aamir Allawala told The Express Tribune.

“Now, the industry has used all its raw material and 80% of the industry is closed unfortunately,” he said. “Jobs of almost 50,000 people working in the industry are at risk.”

Consequently, “the supply of locally manufactured low-cost mobile phones will stop,” said ICT expert Parvez Iftikhar. Thus, only those who can afford costly imported phones, by paying high duties and taxes, will be able to buy mobile phones.

“We will have to say goodbye to our dream of becoming an exporter of mobile phones,” he said.

“It is an emerging industry of nearly two years,” SI Global CEO Noman Ahmed Said commented. “Failure to open LCs for CKD import may have a negative impact on jobs as well as foreign investment.”

Manufacturing companies like Samsung, ITEL and Techno have announced layoffs and automobile manufacturing companies like Proton, Toyota and KIA are also opting for a similar move.

“It will render over 50,000 people jobless at a time when the cost of living has gone up due to high inflation,” Said maintained.

“The government needs to maintain a balance instead of immediate cut down of any industry; this will cause more dent to the economy and will certainly increase unemployment and uncertainty in the market,” startup funding specialist Kapeel Kumar said. “The SBP may take other measures as substitute,” he added.

AHL Head of Research Tahir Abbas was hopeful that the government was trying to prioritise imports based on necessity, as imports had declined to 1.3 times compared to 2.3 times four months ago.

However, the situation will improve with the revival of IMF programme, loan rollover by China amounting to $2.4 billion along with the expected Sukuk launch by the government, which will further support the country’s foreign exchange reserves.

“Some companies are in talks with the government, asking it to allow LCs for import of low-end feature phones and smart phones to save jobs,” Said revealed.

The technology sector is performing well but with recent developments and challenges, this may hamper the trail blaze. If supported, this sector can generate not only revenue but foreign exchange, which can support the country and help in bridging the gap in balance of payments.

“Desperate times and call for desperate measures,” said Taurus Securities Head of Research Mustafa Mustansir. “We have very limited options in the current scenario. And things should be expected to get even worse if the IMF loan delay continues.”

“It is only because of this political and economic mess that several industries are on the brink, and not just the mobile phone industry,” said Mustansir.

“Salaried people are already struggling to make ends meet with low income,” he said. “The government needs to take solid steps to get the IMF’s nod fast.”

Published in The Express Tribune, June 22^nd, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.