Mobile industry stagnant at 10%-15% localisation

Prime says imported kits face zero duty while local components face 20% to 30%

KARACHI:

Pakistan's mobile phone manufacturing industry has failed to achieve meaningful localisation despite attracting international brands and establishing dozens of assembly plants, with domestic value addition remaining at just 10% to 15%, industry sources say. An unfavourable tariff structure has made imported components cheaper than locally manufactured parts, limiting investment in the domestic supply chain.

The Policy Research Institute of Market Economy (PRIME), in a brief titled "Protecting Assembly, Distorting Markets," said the Mobile Device Manufacturing Policy 2020 succeeded in attracting assemblers but fell short of its broader objective of developing a competitive manufacturing ecosystem.

Tecno Pack Electronics CEO Aamir Allawala said the policy was designed to bring mobile phone assembly to Pakistan initially, followed by the localisation of components such as motherboards and displays to support exports. The policy attracted global manufacturers, including Samsung, Xiaomi, OPPO, Vivo, Transsion and Nokia. According to the Pakistan Telecommunication Authority (PTA), more than 35 manufacturers established plants in the country, generating approximately 40,000 jobs.

However, the localisation drive has remained constrained by the government's failure to implement the policy's roadmap and a tariff regime that penalises domestic component production.

Under the existing structure, importing chargers, batteries, cables and motherboards as part of completely knocked-down (CKD) kits attracts zero customs duty. Meanwhile, raw materials and intermediate inputs used to manufacture these components locally face duties ranging from 20% to 30%.

This inverted tariff structure weakens the business case for local manufacturing, discouraging investment in components despite the industry's interest in expanding domestic production. PRIME Research Economist Maryam Ayub said tariff protection should translate into technology transfer and the development of local suppliers rather than perpetuating dependence on imported kits.

The brief said 31 companies had obtained manufacturing authorisations by February 2023, bringing in approximately $300 million in investment. Local plants produced 21.94 million handsets in 2022, compared with 1.53 million commercially imported phones.

Yet localisation reached only 10% against a target of 49% by June 2023. Customs data cited in the brief showed that Pakistan spent around Rs520 billion on mobile phone imports in FY26, including Rs420 billion on kits used for local assembly.

India, meanwhile, has developed a broader component manufacturing base through a more supportive tariff regime and incentives for manufacturers. Its mobile phone industry has achieved approximately 20% local value addition, with more than 400 companies producing various components.

Incentives under India's Production Linked Incentive scheme and export rebates have helped expand manufacturing capacity and exports. Mobile phone exports exceeded $30 billion last year, according to industry figures cited in the material. PRIME also highlighted the tax burden on imported handsets, arguing that high taxes widen the price gap between formally imported and smuggled devices. According to the brief, taxes account for 23.6% of the cost of a $30 phone and 50.26% of a $700 handset, adding Rs98,500 to a phone costing Rs196,000.

The PTA blocked approximately 100 million illegal devices in FY25, including nearly 72 million counterfeit phones and 27 million devices with cloned International Mobile Equipment Identity (IMEI) numbers, the brief said. To address these challenges, PRIME recommended replacing the 25% sales tax on imported phones priced above $500 with a uniform 18% rate. It also called for linking concessions to verifiable plant-level value addition, production and export performance, while monitoring formal imports, tax collection and registration violations.

The proposed Mobile and Electronic Devices Manufacturing Policy 2026-33 aims to place greater emphasis on component production, technology transfer and exports, with penalties for companies that miss localisation targets.

The policy's success, however, will depend on whether the government aligns tariffs with its localisation objectives and ensures that incentives produce measurable gains in domestic manufacturing rather than merely expanding assembly operations.