Bike assemblers await duty cuts in new trade policy

Local industry confident of competing with imported bikes.

KARACHI: Local motorcycle assemblers are anxiously waiting to see a reduction in import duty of motorcycles but they are less optimistic thinking that despite long deliberations, the government may not cut back on duty from the present 65% to 35% in the upcoming trade policy.

Motorcycle assemblers are confident that they can compete with imported motorcycles owing to their low prices and localised manufacturing for Pakistan. They think that government will continue framing protectionist policies for the local industry in the upcoming trade policy, too.

There are over 70 motorcycle assemblers in Pakistan mostly producing 70cc motorcycles. Pakistan is one of the few countries in region that are producing 70cc motorcycles that have over 85 percent share of the local market.

In case, the government reduces custom duty, the most likely company that may slightly lose it share will be Atlas Honda –the industry leader with over 50% market share in Pakistan. Atlas Honda is targeting to produce 1 million units annually.

The willingness of the local motorcycle assemblers to see reduction in duty is coming from smaller players not from all. The smaller firms think that reduction in duty will ease the import of new models and designs and hence, giving more choices to customers.

Chairman of the Association of Pakistan Motorcycle Assemblers (APMA) Muhammad Sabir Shaikh said that duty cuts will ease motorcycle imports and it will not hurt local motorcycle assemblers or manufacturers at all.

“I think more imports will help diversify local industry as local assemblers will assemble more models of different engine types,” he said, “even after the reduction in duty, Chinese bikes will not be able to compete with our local assemblers due to our competitive prices and local market knowhow.”

An official of a local motorcycle manufacturer said that the reduction in duty will affect both manufacturers and assemblers. Organised motorcycle manufacturers said that they pay heavy taxes to the government and believed that their businesses will certainly get hurt if the government reduces custom duty.

They also believed that Pakistan will not be able to export its motorcycles to India because of heavily protected local industry there. Organised sector feared that India will grab a major share of the market in Pakistan but Pakistan will not be able to export to India.

However, the small assemblers were happy to see trade with India opening up so that they can import and assemble India models in Pakistan.

Managing Director Emerging Economics Research Muzammil Aslam said that the government should end protectionist policies and reduce custom duty to give more choices to customers.

“I think the government should immediately reduce custom duty because the motorcycle is strong enough to compete with imported motorcycles,” said Aslam, “Local manufacturers claim that they have achieved over 90% deletion process (percentage of locally produced parts) so why are they hesitant to compete with imported motorcycles?”

Motorcycle industry in Pakistan has been expanding at a rapid pace. With over 70 players, the industry manufactured about 1.6 million motorcycles in 2011 – a record high. Ten years ago, that number was barely above 100,000. Industry experts believed that this figure may soon touch the 2 million mark as demand in Pakistan continues to increase.

Published in The Express Tribune, September 25^th, 2012.