The investment in localisation in Pakistan's automotive sector has reached around $5 billion, since its inception in the 1990s, however, the industry in general and local vendors in particular think that the absence of primary industries like steel and chemicals are now the only hurdles, else the country may become a major automotive hub in the region and a primary exporter to many countries.
The localisation efforts over the years have transformed the auto industry, which is much less reliant on imports. The industry, contributing 2.8% to the nation's gross domestic product (GDP), has seen the localisation rate for cars and light commercial vehicles rise to 55% by 2024, said Ali Asghar Jamali, Chief Executive Officer of Indus Motor Company and Abdul Waheed Khan, Director General of Pakistan Automotive Manufacturers Association (PAMA), while talking to a select group of journalists.
Jamali said that localisation had played a pivotal role in strengthening the automotive sector and the emergence of over 300 local vendors led to continued investment by the original equipment manufacturers (OEMs) and vendors, fostering the growth of allied industries such as lean manufacturing and just-in-time logistics.
"These advancements have not only enhanced production efficiency but also contributed to a skilled workforce, which is in great demand in international markets, particularly the Middle East, leading to increased remittances," he said.
Government policies have also played a crucial role in encouraging localisation. In that regard, he mentioned the introduction of first auto policy in 2007 that brought incentives for domestic production, encouraged supply chain development and ensured technology transfer. As a result, the industry has progressively increased the production of parts, with significant improvements in manufacturing capabilities.
Jamali shared that the success of localisation could be reflected in vehicle pricing. In 1993, the most popular sedan with 20% localisation cost customers $20,185, while in 2024, with localisation reaching 64%, the price was reduced to $15,996 (excluding foreign exchange fluctuations). This demonstrates how local production can effectively control costs and benefit consumers.
Despite these advancements, several challenges hinder the complete localisation of Pakistan's automotive industry. PAMA DG said that one of the biggest obstacles was the lack of raw material production within the country.
Essential materials such as steel, plastic, rubber, aluminium and glass components must be imported, increasing production costs and dependency on foreign suppliers. This puts Pakistan at a disadvantage compared to automotive hubs like India, Thailand and Indonesia, which have well-developed raw material industries.
Abdul Waheed Khan mentioned that another major challenge was the high customs duty on completely knocked down (CKD) units. In Pakistan, duties range from 32% to 46% for the existing players, whereas in India, a market with over four million vehicles, the duty is flat 15%. This disparity makes it difficult for Pakistani manufacturers to compete in both domestic and international markets.
He highlighted that while Pakistan had made some progress in exporting vehicles and parts, the lack of government support by providing duty rebates and facilitating exports hindered further growth. Establishing an efficient export framework, including timely incentives for local manufacturers, could significantly boost Pakistan's potential as an automotive export hub, he said.
The emergence of hybrid electric vehicles (HEVs) presents a new opportunity for the industry as global demand for fuel-efficient and environmentally friendly vehicles is growing.
Khan emphasised that Pakistani manufacturers must invest in advanced localisation efforts to remain competitive. To fully capitalise on this, the government must prioritise localisation in the next auto policy, encouraging investment in research and development (R&D) work and providing tax breaks and other incentives to manufacturers.
Moreover, the PAMA DG said that addressing infrastructure gaps was critical. Developing a robust steel and resin industry will reduce dependence on imports and make the local supply chain more self-sufficient. He suggested that the establishment of local testing and certification facilities would further enhance the credibility of Pakistani auto parts in international markets, making exports more viable.
Pakistan's automotive industry has made significant strides in localisation, driving economic growth, job creation and technological advancement. However, Jamali said that to fully realise its potential, the government must address the key challenges of raw material availability, high import duties and limited market access for Pakistani automotive products.
"By fostering a more supportive policy environment, investing in local manufacturing infrastructure and encouraging exports, Pakistan can transform its automotive sector into a globally competitive industry. The combined efforts of OEMs, local vendors and the government can make localisation a cornerstone of economic self-sufficiency and innovation in Pakistan's industrial landscape," Jamali added.
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