role of auto sector in the growth of pak gdp
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THE ROLE OF AUTOMOBILE SECTOR IN THE
GROWTH OF PAKISTAN’S ECONOMY
PRESENTED BY
MUHAMMAD ATIQUE 28S-608
BILAL JAMIL 28S-601
PRESENTED TO
MR. GHULAM MUSTAFA
SAN INSTITUTE OF MANAGEMENT SCIENCES
AFFILIATED WITH RIPHAH INTERNATIONAL UNIVERSITY
ISLAMABAD (AUG, 2009)
ACCEPTANCE LETTER
It is to certify that I have gone through this project
submitted by;
MUHAMMAD ATIQUE 28S-608
Bilal Jamil 28S-601
In my judgment, this project is up to the standards.
_________________________
Subject Coordinator
SAN INSTITUTE OF MANAGEMENT SCIENCES AFFILIATED WITH
RIPHAH INTERNATIONAL UNIVERSITY ISLAMABAD (AUG, 2009)
TABLE OF CONTENTS
1. Introduction 1
1.1 A Review OF Pakistan’s Economy.......... 6
1.2 Statement............................... 13
1.3 Objectives of the Study................. 13
1.4 Significance of the Study............... 13
1.5 Research Questions...................... 14
1.6 Procedure of the Study.................. 14
2. Review of Related Literature 15
2.1 Automobile Segments in Pakistan......... 15
2.2 Automobile Manufacturers in Pakistan.... 16
2.3 History of Pakistan’s Auto Sector....... 16
2.4 Analysis of Automobile Sector........... 24
2.5 SWOT Analysis of Pakistan’s Auto Sector. 31
2.6 Pakistan’s Auto Sector at present....... 36
3. Data Collection and Analysis 38
3.1 Procedure of Data Collection.... ....... 38
3.1.1 Research Variables............... 38
3.2 Population.............................. 39
3.3 Sampling................................ 39
3.4 Data Analysis........................... 39
4. Analysis and Interpretation of Data 40
4.1 Graphical Presentation.................. 41
4.2 Frequencies............................. 42
4.2.1 Frequency Tables................. 46
4.2.2 Pie Charts....................... 47
4.2.3 Histogram........................ 48-49
4.3 Descriptive Analysis.................... 50
4.4 Regression Analysis..................... 51
5. SUMMARY, CONCLUSION AND RECOMMENDATIONS 40
5.1 Summary................................. 55
5.2 Conclusion.............................. 56
5.4 Recommendations......................... 59
REFERENCES
APPENDIX
1
CHAPTER I
INTRODUCTION
Auto market is one of the largest segments in world
trade. Changing models, improving fuel efficiency,
cutting costs and enhancing user comfort without
compromising quality are the most important challenges of
the auto industry in a fast global world. The automotive
industry rightly prides itself on being recognized as the
mother of all industries. In its folds it carries many
different kinds of vehicles to provide mobility to people
and goods. While they may appear to be simple machines,
their design and manufacturing, have much deeper roots in
all the known technologies. In-depth knowledge and
skillful application of mechanical, electrical,
electronics, chemical and a host of other technologies
culminate in achievement and improvement of the
manufacturing base of a country, by focusing on a single
product the automobile. This then provides an opportunity
to produce a large number of goods and services for
consumption of the entire international community. Use of
the word mother for automotive industry is therefore the
most appropriate description to define the nature and
importance of the industry.
In recent years, we have witnessed that the
industrialization of South East Asian countries greatly
depend on the development of their automotive industry.
Similarly, automotive industry acted as a catalyst in the
overall growth of the industry in Japan and Korea and the
consequent well being of their citizens.
This project report explains “The Role of Automobile
Sector in the Growth of Pakistan’s Economy”. Pakistan is
an emerging market for automobiles and automotive parts
offers immense business and investment opportunities. The
total contribution of Auto industry to GDP in 2007 is
2.8% which is likely to increase up to 5.6% in the next 5
years. Auto sector presently, contributes 20% to the
manufacturing sector which also is expected to increase
25% in the next 7 years. The Automobile industry has been
an active and growing field in Pakistan for a long time,
however not as much established to figure in the
prominent list of the top automotive industries. Pakistan
has a large range of motorbikes which are used throughout
the whole of the country for terms of transportation. In
the past, there have been talks about expanding the
industry however nothing has been heard till now. Cars
are imported to the country in large figures from Japan
and people buy mostly manual cars rather than automatic.
2
3
Pakistan - The regional business hub
Pakistan - the land of numerous unexplored
opportunities has recently earned a good name in the
international market for being a vibrant and progressive
developing country in the world. The Government of
Pakistan has adopted a liberal investment policy to
attract maximum foreign investment, where foreign
investors can hold up to 100% equity in several economic
sectors. As a result, the foreign direct investment in
the Country has increased substantially over the past few
years, thus differentiating Pakistan from many other
countries of the region. Also, the vital indicators of
Pakistan's economy have shown extraordinary improvement
such as enhanced GDP and GNP, increased foreign exchange
reserves, skyrocketing stock market performance, stable
Pakistani currency and improved balance of payments. Per
capita income has crossed US$ 925 in 2007.
Pakistan's economy is gaining more strength with
each passing year, underpinned by a buoyant private
sector. The world is witnessing the real GDP of Pakistan
maintaining a steady growth at one of the fastest rates
in the history of the Country and among the highest in
the economies of the world. The international trade is
increasing owing to revolutionary changes in tariff
structures, better international relations and growing
domestic demands, both at the industrial as well as
consumer levels. The foreign exchange reserves are
maintained at a respectable level. Major investments are
underway in Engineering & Automobile manufacturing
sector, ports and communication infrastructure,
telecommunication, information technologies, developing
newer sources of energy and power generation to meet the
increasing demands. The current pace of development in
Pakistan is no miracle but is the result of a dedicated
and continuous effort by the Government of Pakistan
through implementing policies for deregulation,
liberalization and privatization.
Pakistan’s automotive industry is continuing in a
slump which began in the previous financial year and
according to BMI’s recently published Pakistan
Automotives Report, the industry’s performance this year
will be even worse. In FY08, which ended in June 2008,
total vehicle sales fell by 6.2%. The down turn has been
carried over into FY09, with sales for the first half of
the year (July to December 2008) down by 48%year-on-year
(y-o-y) to 52,927 units for cars and light commercial
vehicles (LCVs), while compared with November, sales for
December were down 55%. These results concur with BMI’s
forecast for a drop in sales of cars and LCVs to around
4
112,000 units in FY09. We expect the total market to
contract by over32%, with the worst damage done in the
car and bus segments, which we forecast to fall by 45%
each. Measures are being considered to arrest the
industry’s decline. Pakistan’s Economic Co-ordination
Committee (ECC) is to consider a tax cut of 10% for
domestic carmakers, which has been suggested by the
Ministry of Industries and Production. However, the plan
is not without its opposition, as the Federal Board of
Revenue is reportedly against supporting individual
sectors as this would prompt other industries to seek
help. Moreover, with just five carmakers producing
locally, the automotive industry is relatively small. On
the other hand, the industry is also largely self-
sufficient as the majority of its output is sold within
Pakistan; this reduces the country’s reliance on imports
and raises issues such as the protection of local jobs
and the industry’s contribution to the overall economy.
The poor state of the industry is reflected in BMI’s
Business Environment Rating for the automotive industry
in Asia Pacific, where Pakistan is in last place on a
score of 42.4 out of a possible 100. The market is held
back by low production growth potential and an average
rating for sales growth. However, as a signatory to the
Trade Related Intellectual Property Rights Agreement
5
(TRIPS) under the auspices of the World Trade
Organization, the country’s regulatory environment scores
well. A number of free trade agreements also contribute
to this criterion, although forming FTAs with non-Asian
countries would improve this rating further. Despite low
marks for bureaucracy and corruption, the market does
score well for its long-term economic risk and policy
continuity.
With just a handful of manufacturers, Pakistan’s
competitive landscape remains narrow. Japanese car
manufacturers control most of the country’s passenger car
production and sales. Figures for FY08 show that Suzuki-
brand models represented 62% of total Pakistani passenger
car production and 51.7% of sales. Toyota is gaining,
however, as its Corolla became the country’s best-selling
model in the first half of FY09.
1.1 A short review of Pakistan’s economy
The economy of Pakistan is the 26th largest economy
in the world in terms of purchasing power, and the 47th
largest in absolute dollar terms. Pakistan's economy
mainly encompasses textiles, chemicals, food processing,
agriculture and other industries. In 2005, it was the
third fastest growing economy in Asia.
6
The economy has suffered in the past from decades of
internal political disputes, a fast growing population,
mixed levels of foreign investment, and a costly, ongoing
confrontation with neighboring India. However, IMF-
approved government policies, bolstered by foreign
investment and renewed access to global markets, have
generated solid macroeconomic recovery the last decade.
Substantial macroeconomic reforms since 2000, most
notably at privatizing the banking sector have helped the
economy.
GDP growth, spurred by gains in the industrial and
service sectors, remained in the 6-8% range in 2004-06.
Due to Economic Reforms of the Year 2000 by the Musharraf
government. In 2005, the World Bank named Pakistan the
top reformer in its region and in the top 10 reformers
globally. Pakistan's then Prime Minister Shaukat Aziz
stated Pakistan grew at a rate of 8.4% making it the 2nd
Fastest Growing Economy in the World, after China, in the
same year. However, this assertion is disputed by figures
from other authorized sources.
Inflation remains the biggest threat to the economy,
jumping to more than 9% in 2005 before easing to 7.9% in
2006. In 2008, following the surge in global petrol
prices inflation in Pakistan has reached as high as
25.0%. The central bank is pursuing tighter monetary
7
policy while trying to preserve growth. Foreign exchange
reserves are bolstered by steady worker remittances, but
a growing current account deficit - driven by a widening
trade gap as import growth outstrips export expansion -
could draw down reserves and dampen GDP growth in the
medium term.
Since the beginning of 2008, Pakistan's economic
outlook has taken stagnation. Security concerns stemming
from the nation's role in the War on Terror have created
great instability and led to a decline in FDI from a
height of approximately $8bn to $3.5bn for the current
fiscal year. Concurrently, the insurgency has forced
massive capital flight from Pakistan to the Gulf.
Combined with high global commodity prices, the dual
impact has shocked Pakistan's economy, with gaping trade
deficits, high inflation and a crash in the value of the
Rupee, which has fallen from 60-1 USD to over 80-1 USD in
a few months.
8
9
Economic Comparison of Pakistan 1999 ~ 2008
Indicator 1999 2007 2008
GDP $ 75 billion $ 160 billion $ 170 billion
GDP Purchasing Power
Parity (PPP) $ 270 billion $ 475.5 billion $ 504.3 billion
GDP per Capita Income $ 450 $ 925 $1085
Revenue collection Rs. 305 billion Rs. 708 billion Rs. 990 billion
Foreign reserves $ 700 million $ 16.4 billion $ 10 billion
Exports $ 7.5 billion $ 18.5 billion $ 19.22 billion
Textile Exports $ 5.5 billion $ 11.2 billion -
KHI stock exchange (100-
Index)
$ 5 billion at 700
points
$ 75 billion at
14,000 points
$ 56 billion at
9,000 points
Foreign Direct Investment $ 1 billion $ 8.4 billion $ 5.19 billion
Debt servicing 65% of GDP 26% of GDP -
Poverty level 34% 24% -
Literacy rate 45% 53% -
Development programs Rs. 80 billion Rs. 520 billion Rs. 549.7 billion
10
Aviation
•
nity and personal services
•
Exports
Major economic sectors
Pakistan’s major economic sectors are as follows;
1. Agriculture
2. Industry
• Automobile Industry
• CNG Industry
• Cement Industry
• IT Industry
• Textile Industry
3. Service
• Communication
•
Wholesale and retail trade
• Finance and Insurance
• Ownership and dwellings
• Public administration and defense
• Social, commu
Electricity
Pakistan's exports increased 100% from $7.5 billion
in 1999 to stand at $18 billion in the financial year
2007-2008. Pakistan exports rice, furniture, cotton,
for producing and exporting cements in Asia and Mid-East.
Imports
iron, steel,
toys, electronics, and other consumer items.
fiber, cement, tiles, marble, textiles, clothing, leather
goods, sports goods (renowned for footballs/soccer
balls), surgical instruments, electrical appliances,
software, carpets, and rugs, ice cream, livestock meat,
chicken, powdered milk, wheat, seafood (especially
shrimp/prawns), vegetables, processed food items,
Pakistani assembled Suzuki (to Afghanistan and other
countries), defense equipment (submarines, tanks,
radars), salt, marble, onyx, engineering goods, and many
other items. Pakistan now is being very well recognized
Pakistan's imports stood at $30.54 billion in the
financial year 2006-2007, up by 8.22 percent from last
year's imports of $28.58 billion. Pakistan's single
largest import category is petroleum and petroleum
products. Other imports include: industrial machinery,
construction machinery, trucks, automobiles, computers,
computer parts, medicines, pharmaceutical products, food
items, civilian aircraft, defense equipment,
11
Structure of Production
Share of Va Se in Grious ctors DP
Sector 20 2001-02 2002-03 2003-04 2004-0500-01
Goods (1+2+3+4+5) 48.2 47.3 47.1 47.4 47.6
1. Agriculture 25.1 24.4 24.2 23.3 23.1
2. Mining 1.3 1.4 1.5 1.5 1.4
3. Manufacturing 15.9 16.1 16.4 17.6 18.3
Construction 2.4 2.4 2.4 2.1 2.0
5. Energy Distribution 3.4 3.0 2.5 2.9 2.7
Services (6+7+8+9+10+11) 51.8 52.7 52.9 52.6 52.4
6. Transportation & Comm. 11.7 11.5 11.5 11.4 11.1
7. Trade 18.1 18.0 18.2 18.5 19.1
8. Finance & Insurance 3.1 3.6 3.3 3.3 3.7
9. Ownership of Dwellings 3.2 3.2 3.2 3.1 2.9
blic Admin. & Defense 6.3 6.5 6.7 6.5 6
4.
10. Pu .0
11. Other Services 9.4 9.9 10.0 9.9 9.6
Note: GDP is estimated at constant factor cost. Figures are in percentage.
Source: Economic Survey of Pakistan 2005
12
1.2
was aimed at to explore the role of
Pakistan’s Automobile sector in the growth of Pakistan’s
Fo
I. To explore the effects of Automobile manufacturing
II. To describe the share of Auto sector in GDP
III. To explore the reasons behind the downfall in this
IV. To describe the strategies to be adapted for the
r
1.
I. It will help us to know the importance of Auto
II. It will help our Govt. to keep this sector in the
continuous growth
III. It will help the Govt. to revise there policies
s development of Auto sector
Statement
“The study
economy (GDP).”
1.3 Objectives of the study
llowing were the objectives of the study:
on GDP
sector
continuous growth of this secto
4 Significance of the study
sector in the growth of country’s economy
regarding the continuou
13
1.
of
III. se hurdles?
IV. What should be the role of the Govt. in the growth
1.6
gathering the secondary data, we organized,
analyzed and interpreted the data and concluded the
results.
5 Research questions
I. What is the role of Auto sector in the growth
country’s economy?
II. Why this sector is facing hurdles in its growth?
How to remove tho
of this sector?
Procedure of the study
The population of the study was Automobile Industry
of Pakistan. Data was gathered of last 14 years (1995 ~
2008). After
14
15
e region. Literature review provides an excellent
starting point for researchers to do research in a new
ight Commercial Vehicles (LCVs)
ers
• Tractors
• Tru
ry operates under franchise and technical
cooperation agreements with Japanese, European and Korean
manufacturers.
CHAPTER 2
REVIEW OF RELATED LITERATURE
This chapter deals with the literature review
related to the Automobile Industry of Pakistan. It
includes past and present situations of automobile sector
in th
way.
2.1 Automobile segments in Pakistan
In Pakistan, there are following automobile segments:
• Cars and L
• Two and Three Wheel
cks, Buses etc
The indust
urers in Pakistan
•
• Adam Motors Ltd.
• Dewan Farooque Motors
•
•
• Ghani Automobile Industries
• Hinopak Motors
•
•
• Indus Motors Company
• Suzuki
• Nexus Automotive
to sector
Be
India. At that time Pakistan hardly had any industrial
2.2 Automobile manufact
Al-Ghazi Tractors Ltd.
Ghandhara Industries
Ghandhara Nissan
Honda Atlas Cars (Pak) Ltd.
Atlas Honda Ltd
• Pak Suzuki Motor
2.3 History of Pakistan’s au
ginning of auto sector
Pakistan is basically an agrarian economy since its
independence. In 1947, agriculture contributed more than
62% towards GDP whereas contribution of manufacturing
sector toward GDP was only 7%. Pakistan inherited only 5%
of the large scale industrial facilities of British
16
growth that sequentially laid the foundation of industry.
62 % growth of the
manufacturing sector from 1949-1955.
base and was without any institutional, financial or
energy resources. Besides, basic infrastructural
facilities, technical skill and other pre-requisites for
development were also lacking. There were neither any
automobile assembly plants nor were any industrial
capabilities available for this sector. However, the
development of this industrial sector started soon after
the independence. Peace in the country and development
planning by government resulted in increased economic
First serious effort by government to develop the
industry and engineering sector in particularly was
observed in 1950 when a six-year plan (First Development
Plan) was drafted to guide government investment in
developing the infrastructure. For auto industry, to
overcome the initial difficulties, the government,
besides developing infrastructural facilities established
the Pakistan Industrial Development Corporation (PIDC) in
1950. The main objective of PIDC was to play the
pioneering role of establishing such industries which the
private enterprise was unable to undertake either because
they were technologically complex, needed large capital
or were less profitable. These steps results in growth of
the industrial sector resulting 56.
17
The first phase of automotive assembling in Pakistan
started in 1950 with Bed Ford truck followed by Ford
Prefect, Ford Cortina and Dodge Dart. The indigenized
parts in these vehicles did not exceed 20% with only
exception of Bed Ford trucks with a deletion level of
80%. By the end of 70s practically all automobile
assembling in Pakistan ceased.
The 2nd phase of Automobile assembly started in 1983
with the introduction of FX 800cc Suzuki Car. In 1989
Pak. Suzuki changed the Model of FX 800cc with Mehran
800cc. Pak Suzuki thereafter In 1992 Introduced Khyber
1000cc and 1300cc Margalla but the indigenization levels
from 1983 to 1995 were not significant (i.e. Mehran 30%,
Khyber 20%, and Margalla, 15%).
In 1993, Indus Motor Company Ltd. Karachi introduced
Toyota Corolla. Honda Atlas cars (Pak) Ltd. Lahore
introduced Honda Civic having 1300cc engine capacity in
1994. Indus Motor, Dewan Farooq Motors and Pak Suzuki
introduced smaller Cars i.e. Cuore, Cultus and Santro of
engine capacities 850cc, 1000cc respectively in 2000.
This was known as era of competitiveness. Up to
1995, the deletion cell of Ministry of Industries and
Production (MOIP) was formulating and monitoring the
deletion programs. The industry specific deletion
18
programs were formulated to specify local content
requirements for cars, motorcycles. Buses, trucks and
tractors etc.
The deletion policy finalized in 1996 has the following
features:
• Industry Specific Deletion program
• No roll back from achieved Deletion Levels
• Even handled Tariff Protection at all levels of
processing
The deletion levels were finalized by the sub-committees
for cars, LCVs, motorcycles and tractors etc.,
constituted by indigenization committee of EDB on the
basis of technology levels prevalent in the engineering
industry of Pakistan. The Industry specific deletion
program (ISDP) books were published and distributed
amongst the stakeholders, which resulted in a significant
improvement in indigenization.
Period of progressive manufacturing
Potentials of industry and high demand of the
products attracted new entrants whereas the existing
players started producing in mass quantities. This mass
production that started in 1964 resulted in the first
ever period of progressive manufacturing in the history
19
of Pakistan. The idea of progressive manufacturing was
first mooted by the Ghandhara Industries and Mack Trucks.
The idea was to start local manufacturing with simple and
non-functional parts and to add more and more complicated
parts in small steps. According to the planning then done
100% local manufacturing was to be achieved in 7 - 10
years. Unfortunately, this period does not last long as
the projects undertaken proved to be over ambitious that
eventually fail.
Clearly the concept of progressive manufacturing has
not added much to technology, self-reliance or economy.
For example, as against the targets set of manufacturing
100% of local contents in maximum 10 years actually
achieved deletion in 18 years is 45.78% for trucks &
buses, 43.17% for trucks & buses engines, 16.50% for 4x4
jeeps and zero percent for cars. Furthermore, no new
units for manufacturing passenger cars, 4x4 vehicles,
LCVs, buses and trucks were established under this
concept, but still few new units for producing tractors,
jeeps and specialized vehicle were established. New units
established were Atlas Honda, Khawaja Autos, Rana
Tractors, Jaffar Industries, and Bela Engineers. A more
market oriented approach was observed by Honda
motorcycles and Vespa scooters during this period, as
they introduced light motorcycles for the first time in a
20
market dominated by heavy motor bikes like BSA, Triumph
and Lamberetta scooters.
Nationalization of Industries
Following the progressive manufacturing period,
nationalization of industries under Economic Reforms
order had a profound impact on automobile industry in
Pakistan. In early 1972 under Martial Law Regulation, the
Government took over the control of 32 industrial units,
including eight automobile plants, under the officially
appointed Board of Industrial Management with the
Minister for Production as its Chairman. Out of the units
taken over by the Government were included iron and
steel, heavy engineering, heavy chemicals, assembly and
manufacturers of motor vehicles.
Initially, the management of these industries was
taken over by the government, but in August 1973, the
President promulgated the Economic Reforms (Amendment)
Ordinance after which the Federal Government acquired
majority ownership of shares of these industrial units.
After nationalization, these units were renamed, their
functions were redefined and Pakistan Automobile
Corporation (PACO) was created in 1973 as a holding
corporation under the administrative control of the
Federal Ministry of Production.
21
22
Formation of PACO
In order to manage the automobile units and to
advise the Government (in developing policy guidelines
for growth and development of auto industry), Pakistan
Automobile Corporation (PACO) was formed in 1973 under
the administrative control of the Federal Ministry of
Production. It was a major public industrial conglomerate
of 15 companies including four joint ventures. For the
first time in Pakistan emphasis was given to develop the
nationalized units under took local manufacturing
facilities and the development of parts in an organized
manner and the system of standardization, regulations and
monitoring was established. This requires the industry to
assemble from Complete Knock Down (CKD) and then go on to
manufacture components and to achieve a local content of
75% over a five year period. A number of small and large
industrial units that were mostly functioning in the
unorganized sector were canalized into a more formal
pattern of production management under the PACO control.
The direction for achieving quality standards as laid
down by the "Principals" was also established. The MOI
was entrusted the responsibility of allowing any waiver
for non-performance, and was applicable if CBR also
concurred.
23
Privatization of Industries
The policy of de-nationalizing public sector units
was adopted once the change in government took place.
Privatization brings in foreign companies. This results
in a number of joint ventures. Due to these ventures,
Pakistan auto industry enters into assembly/progressive
manufacture of passenger cars, commercial vehicles and
motorcycles. Once the new management of cars and
motorcycle assemblers took over the control they entered
into joint ventures with foreign companies mostly
Japanese, for further development. Most important joint
venture that took place was of Atlas with Honda and Indus
Motor with Toyota.
The process of privatization is still on and
fortunately every government has adopted the policy of
privatization and opening of the markets for foreign
investors. Although, process is on but still many object
that this process is not crystal clear and has many short
comings.
2.4 Analysis of automobile sector
24
The automobile sector has been registering high
growth for the last four or five years due to the
country's business friendly policies along with lower
tariff rates, persistent growth in GDP, and per capita
income. Globally considered as the mother of all
industries, the auto industry in Pakistan is fast
evolving as a robust industry. Some sub-sectors of this
fast growing industry, like motorcycle production, have
already achieved economies of scale.
The tremendous rise in automobile production has
resulted from increased domestic demand, giving a healthy
impetus to the industrial output and generating over
150,000 direct employment opportunities besides
contributing substantially in duties and tax revenues to
the national exchequer. Since 2001-02, the automobile
market has grown by over 40 per cent per annum and if an
average growth of 30 per cent is maintained during the
coming years, the country's auto market will cross the
milestone of 500,000 units by the year 2010. During the
financial year 2005-06, the sale of locally assembly cars
posted an impressive growth of 22 per cent, rising to
155,514 units as against 127,309 units during the
previous year. To ease the pressure on rising demand and
to curb the evolving culture of premium on the factory
price, some 40,000 vehicles were also imported during the
said period.
The increase in demand for automobiles can be traced
to rising income levels, creation of new job
opportunities and liberal auto financing by financial
institutions. As a result, on an average, some 13,000
vehicles are assembled and marketed every month. The
country has also started importing vehicles. The result
is a quantum jump in car registrations, primarily due to
bank leases. In the capital city of Islamabad alone, some
2000 vehicles are registered every month. While all this
is leading the motorization of the country, it can't be
ignored that this influx of new vehicles has made the
existing road infrastructure insufficient, giving rise to
the need to improve and widen the national roads network.
And yet, this will lead to the creation of more jobs
thereby accelerating the pace of economic activities in
the country.
Meanwhile, auto financing and other such schemes
have given rise to lucrative consumer banking. Though the
main objective of consumer financing is to solve some of
the immediate or short-term problems of the customers, it
is resulting, at the macro level, in giving a push to
large-scale manufacturing, creating new jobs and
25
positively impacting the GDP growth. When the government
undertook restructuring of the economy, it was expected
that bulk of excess liquidity available in the market
post 9/11 would go towards the development of the
corporate sector. However, this did not happen, while the
banks faced a dilemma of excess liquidity. Therefore,
they started diverting their funds towards the more
lucrative consumer financing.
One hopes that the cycle of rise in demand and
supply in the auto sector would have a healthy effect on
the national economy as a whole, ensuring continuity in
its growth. It has already led to the growth of a strong
auto-parts manufacturing/ vending industry, which is not
only meeting the demand of the local assemblers in a
sizeable number of auto-parts, but also competing in the
international market for a share in the global auto-parts
market.
Pakistan Association of Automotive Parts Accessories
Manufacturers (PAAPAM) was formed in 1988 to represent
and to provide technical and management cooperation to
its members. PAAPAM, with its almost a decade old
history, has attained a level of an indispensable and
extremely effective link between the policy-making
echelons at government and the whole entity of its member
firms. The Association achieved recognition form the
26
Government of the Pakistan in 1999 and today is
represented in many Government and semi government as
well as Private Institutions by its members. PAAPAM is
the member of the Federal of Pakistan Chamber of Commerce
& Industry (FPCCI). With a registered membership base of
over top line tier one 278 members and general
manufacturers base of over 1200 companies, PAAPAM has
under its wings manufacturing companies making parts for
Pakistan, Cars, Motorcycle, Tractors, Trucks and Buses
assemblers. Investments in place now exceed US$ 1.5
billion.
Buyer power
In Pakistan automobile market, the buyer power is
limited. It is only effective with no powerful lobbying
group. This has tended to lead the government to favor
other side then consider their aspect on issues. The
recent changes in liberalization were made after a lot of
protests by people and that too after a period of 3 years
of consisting paying almost premiums of 10% prior to
import liberalization. Now with more choice with models,
premium affecting the buyers is limited to certain models
out of which maximum premium is of Rs. 60,000 is on
Corolla XLI. In our analysis the major reason for lack of
buyer power is lack of consumer groups in our country. As
27
our country is still progressing, hopefully in the future
with the development of consumer groups in the country
will lead to similar formations in the automobile sector.
Supplier power
The power of manufacturing companies is immense in
our country. All companies have their CKD kits imported
from abroad through their parent companies. This
situation offers little room for local suppliers. Another
aspect which might have been useful to supplier is the
deletion program. The government has not been able to
implement it due to lobbying power of the manufacturing
companies. As a result suppliers tend to toe the line of
the manufacturers. This scenario is present in all
segments of the auto industry in Pakistan.
Factors stopping growth
• Heavily reliance on imported Completely Knocked Down
(CKD) Kits.
• Ineffective implementation and monitoring of the
deletion program has resulted in lesser deletion in the
car industry as compared to 84 per cent in Tractors and
an average 50 per cent in Bus and Truck manufacturing.
28
• Tariffs of 35% for import of CKD by the OEMs and
commercial importers have eliminated the attraction for
deletion.
• Lack of spare parts market for vendors as they are
bound to sell parts to the assemblers only.
• Delays in inspection and approval of parts by the
parent company. A part developed locally has to be sent
to Japan or Korea for approval.
• Small size of the market resulting in under capacity
utilization. The vending industry, which comprises 400
units, is operating at just 30 per cent of its
capacity.
• Indifferent attitude of the assemblers i.e. a component
developed for one assembler is not accepted by others.
Major policies after year 2005
1. Tariff Based Systems (TBS)
2. Auto Industry Development Program (AIDP)
July 1st 2006, the deletion programs for the
Automotive Sector have been replaced by the Tariff Based
System (TBS). The deletion programs have gradually been
phased out under the WTO regime to become TRIMs
compliant. The TBS is the outcome of a long drawn
consultative dialogue between all stakeholders including
29
Expand the consumer base to create economies of scale
Imports in CKD condition would be allowed only to
assemblers having adequate assembly facilities and
concerned Federal Government
• 2004 have been
• igenized would be allowed at CKD rate of
Custom Duty.
OEMs and Vendors, belonging to different sub-sectors of
the Automobile Industry.
The TBS had been developed with the following overriding
objectives;
• Preservation & promotion of technologies that have been
developed in the country
• Protection to the present job structure in the auto
sector
• Promote job creation
• Protect the existing & planned investment by the OEMs &
Vendors
• Promote new investment
•
The basic framework of Tariff Based System is as under;
•
registered as such by the
Agency.
Parts / components indigenized by June
placed at higher rate of Customs Duty.
Parts not ind
30
•
• SRO 693 (I) / 2006 dated July 1. 2006 (For OEMs)
)
alysis of Pakistan’s auto sector
Dem
n
the economically active workforce in the next few years
Res
ths but
Introduction of Statutory Regulatory Order (SRO);
SRO 656 (I) / 2006 dated June 22. 2006 (For OEMs)
• SRO 655(1) / 2006 dated June 22, 2006 (For Vendors
2.5 SWOT an
Strengths
and for cars
In Pakistan context there are 9 cars in 1000 persons
which is one of the lowest in the emerging economies
which itself speaks of high potential of growth in the
auto sector and more so in the car production. Rising per
capita income with changing demographic distribution and
an anticipated influx of 30 to 40 million young people i
provides a stimulus to the industry to expand and grow.
ale of local assembled cars
Resale of locally assembled cars is better due to
availability of spare parts and after sales services and
warranty. Used imported cars have been selling below
their cost at the show rooms for the last six mon
31
32
n ed to buy because of their low
re-sale value and problems in parts availability.
Initially when the import of cars was liberalized,
the quality of local assembled cars was unsatisfactory.
Therefore, the people of high-income level group started
buying imported cars and the sales of the local assembled
cars started decreasing. In that situation, local
assemblers started enhancing the quality of their
e can say that the quality of local cars is
becoming the strength of the auto industry.
Weaknesses
The World Trade Organization (WTO) has rejected
Pakistan's request for the extension of the deletion
program, which enabled it to lay down the condition of
the local content requirement (LCR). Under LCR, the
automobile and other engineering industry was required to
use locally manufactured parts and accessories in terms
of government's deletion policy. WTO's decision for not
extending its deletion program / LCR condition has varied
p Pakistan's vendor industry, automobile
assemblers, car users and the government as well.
co sumers are not inclin
Quality of local cars
vehicles so w
WTO—Deletion program
im act on
Inp
to produce at lower cost. Increasing cost of energy and
2012, auto industry
consumption of electricity will cross 500 - 600 MW from
o as of now.
Pro
CKD and CBU is liberalized, the protection level to
Lac
meet the precision manufacturing and the available labor
of coordination and linkages with the Govt. / Semi Govt.
Supporting Bodies and Technical Training Institutes.
ut cost
In Pakistan as the inflation is increasing so as the
input costs and for manufacturers it is becoming harder
its unreliable and inconsistent supply adds-up the cost
of manufacturing and wastage of resources. It is
estimated that by the year
ar und 250 - 300 MW,
tection level
Before the TBS was introduced the auto industry was
well protected by the government but now as the import of
industry by the government is decreased.
k of skilled manpower for modern machinery
In Pakistan conventional machines are not able to
is not familiar with modern technology it caused by lack
33
Sca
of iron and steel. Therefore, the manufacturers are
es in producing cars with low prices.
Import German technology and skills
EDB wanted to build a Pakistan-German automotive
productivity, developing and marketing of value-added
For
required to attract players from Germany as well as from
other countries to start business with the Pakistani
unterpart.
rcity of raw material especially steel
Through previous years, the world prices are rising
and causing costly inputs and Pakistan has faced scarcity
facing difficulti
Opportunities
supply network, providing opportunities to Pakistani
automotive vendor enterprises to get the benefit from
German know-how and technology to improve quality,
products.
eign investment and setup production facilities
China National Heavy Duty Truck Corporation
(CNHDTCJ) one of the largest heavy duty truck
manufacturers in China, has shown interest for investment
in the automobile sector of Pakistan. The study is
co
34
35
Smu
ort
of used parts is still continuing at a large scale.
u ping of auto parts.
Com
f
cars, which is already liberalized. Further, it is said
a cut about 15% of duties till 2011.
Tar
policies to
keep the tariff’s figures within the range that can play
vital role in the growth of this sector.
Threats
ggling of auto parts
The auto industry is generally faced by multiplicity
of taxes; the presumptive tax regime has led to increase
in prices of imported inputs and the finished goods.
Component manufacturers arc struggling to compete with
under-invoicing, miss declaration and smuggling. Imp
Sm ggling, under-invoicing and dum
petition from imported cars
Auto industry is facing a threat from the import o
th t government will
iff structure
Tariff structure is a big threat for automobile
industry. So the government should develop
a
2.6
e local manufacturers at
present, however, as production remains almost 50% lower
than
Pakistan’s auto-sector at present
Pakistan's Auto Sector continues to under-perform as
end-FY09 (ending June 30) approaches, but as BMI points
out, some segments are showing signs of recovery.
Although passenger car sales for the first 10 months of
the fiscal year are still significantly, lower than the
same period in FY08. Sales for the last three months
achieved month-on-month (m-o-m) growth. However, year-to-
date sales have been impacted by a particularly bad
December, when only 2689 cars were sold. In order to
further support sales, the Federal Board of Revenue (FBR)
has forwarded a proposal to the government recommending
that it allows imports of cars over 10 years old. It is
suggested that brands with local production facilities
have a monopoly, as imports of used cars are restricted
to those of three years old or under. It adds that this
gives the manufacturers the opportunity to hike prices,
which is adversely influencing the market. There appears
to be little advantage for th
the same period of FY08.
Given the poor prospects in the short term, Pakistan
brings up the rear in BMI's Business Environment Ratings
for the Asia Pacific auto industry on 42.4 out of a
36
bureaucracy and
corruption, the market does score well for its long-term
economic risk and policy continuity.
r car sales, dominates the motorcycle
segment with a market share of 70% in FY08, which rose to
.5% for 10M FY09.
possible 100. Low production growth potential and an
average rating for sales growth hold the market back.
However, as a signatory to the Trade Related Intellectual
Property Rights Agreement (TRIPS) under the auspices of
the WTO, the country's regulatory environment scored
well. A number of free trade agreements also contribute
to this criterion, although forming free trade agreements
(FTAs) with non-Asian countries would improve this rating
further. Despite low marks for
Japanese manufacturers still control most of
Pakistan's passenger car production and sales. Figures
for FY08 show that Suzuki Motor-brand models represented
62% of total passenger car production and 51.7% of sales.
The Suzuki Mehran also won back its place as Pakistan's
best-selling model after losing out to the Toyota Corolla
in the previous financial year. The Corolla struck back
in the first 10 months of FY09, however, selling 20,626
units compared to 11,142 for the Mehran. Honda Motor,
which ranks third fo
72
37
38
the role of Auto Industry in
the growth of Pakistan’s economy. For our research, we
3.1
years (1995 ~ 2008)
from Pakistan Automotive Manufacturing Association (PAMA)
sites.
3.1.
In our research, we have defined two variables, one
1. Automobile Manufacturing – Independent Variable
2. Gross Domestic Product – Dependent Variable
CHAPTER 3
DATA COLLECTION & ANALYSIS
This chapter deals with the methodology and
procedures for the collection of data. This descriptive
research aimed to find out
collected secondary data.
Procedure of secondary data collection
We collected secondary data through internet
resources. We collected annual automobile manufacturing
and annual GDP figures of last 14
& State Bank of Pakistan’s web
1 Research Variables
is dependent and the other one is independent.
3.2
f people or units under
investigation. The population consisted of the whole
r of Pakistan.
3.3
the researcher will need to take into account his/her
ple is last 14 years (1995 ~ 2008).
3.4
After collection of data, it was analyzed and
terpreted by using SPSS software.
Population
Population is the group o
automobile secto
Sampling
sample is a representative unit of the population
you are attempting to say something about, and of course
affordability. Our sam
Data analysis
in
39
40
of the
effects of automobile sector on the growth of annual GDP
Pakistan in the last 14 years from 1995 ~ 2008.
CHAPTER IV
ANALYSIS AND INTERPRETATION OF DATA
This chapter is concerned with the analysis and
interpretation of data. Presentation and analysis of data
is the hub and heart of a research work. It needs immense
care and precision to interpret and present the data
gathered from hard toils, the researcher have used.
Analysis are performed through SPSS software and these
analysis are presented in tabular form in this chapter.
Interpretation is also given below of each table. These
analysis provide researchers with a clear picture
of
4.1
e graph type,
which can present your data effectively. Here we have
Graphical presentation
Graphical presentation is a unique way to present
your data. You need to select the appropriat
selected scatter graph to present our data.
Manufacturing10000008000006000004000002000000
GD
P
8000000
6000000
4000000
2000000
Note: GDP figures are in Millions and Mfg. figures are in Lakhs.
The resulting scatter plot shows that the
relationship between variable is nonlinear. As you can
see that in the start (1995 ~ 2002) there were ups &
downs in GDP figures while manufacturing sector didn’t
show any considerable growth. But from 2002 to onward the
relationship of both the variables is showing tremendous
growth. But in the end GDP is falling down while
manufacturing is still increasing.
41
Here is the above graph has been showed in the line
format;
Dot/Lines show Means
200000 400000 600000 800000
Manufacturing
2000000
4000000
6000000
GD
P
4.2 Frequencies
Frequencies simply refer to the number of times
various sub-categories of a certain phenomenon occurs,
from which the percentage and cumulative percentage of
their occurrence can easily be calculated. The
Frequencies procedure produces frequency tables that
display both the number and percentage of cases for each
observed value of a variable.
42
There are many summary measures available for scale
variables. Some are as follows;
Measures of central tendency
It is often useful to describe a series of
observations in a data parsimoniously, in a meaningful
way, which would enable individuals to get an idea of or
“a feel” for the basic characteristics of the data. There
are three measures of central tendency: the mean, the
median and the mode.
Measures of dispersion
These statistics measure the amount of variation or
spread in the data. The three measurements of dispersion
connected with the mean are the range, the variance and
the standard deviation.
43
Our results are as follows;
Statistics
14 140 0
390550.57 4691643238181.50 4846500
57936a 1014000a
283382.636 204812057936 1014000
888067 7667000
ValidMissing
N
MeanMedianModeStd. DeviationMinimumMaximum
Manufacturing GDP
Multiple modes exist. The smallest value is showna.
The Mean: The mean or the average is the measure of
central tendency that offers the general picture of the
data without unnecessarily inundating one with each of
the observations in a data set. Annual average production
of automobile is 3,90,550 and annual average GDP is
46,91,643.
The Median: The median is the central item in a group of
observations when they are arrayed in either an ascending
or a descending order. The median of manufacturing is
2,38,181.50 and of GDP is 48,46,500.
The Mode: In some cases, a set of observations would not
lend itself to a meaningful representation through either
the mean or the median, but can be signified by the most
frequently occurring phenomenon, which is called the
mode. The mode of manufacturing is 57,936a and of GDP is
10,14,000a.
44
Standard Deviation: The standard deviation offers an
index of the spread of a distribution or the variability
in the data. It can also be defined as how much value has
been increased or decreased by the mean. It is a very
commonly used measure of dispersion and is simply the
square root of the variance. The standard deviation of
manufacturing is 283382.63 and of GDP is 20,48,120.
45
Minimum & Maximum: The minimum production of automobile
is 57,936 and the maximum is 8,88,067. Same as the
minimum value of GDP is 10,14,000 and the maximum is
76,67,000.
4.2.1 Frequency tables
46
Frequency tables are shown below;
Manufacturing
1 7.1 7.1 7.11 7.1 7.1 14.31 7.1 7.1 21.41 7.1 7.1 28.61 7.1 7.1 35.71 7.1 7.1 42.91 7.1 7.1 50.01 7.1 7.1 57.11 7.1 7.1 64.31 7.1 7.1 71.41 7.1 7.1 78.61 7.1 7.1 85.71 7.1 7.1 92.91 7.1 7.1 100.0
14 100.0 100.0
57936153388153572162964163738189720196294280069456610616360656771725754766465888067Total
ValidFrequency Percent Valid Percent
CumulativePercent
GDP
1 7.1 7.1 7.11 7.1 7.1 14.31 7.1 7.1 21.41 7.1 7.1 28.61 7.1 7.1 35.71 7.1 7.1 42.91 7.1 7.1 50.01 7.1 7.1 57.11 7.1 7.1 64.31 7.1 7.1 71.41 7.1 7.1 78.61 7.1 7.1 85.71 7.1 7.1 92.91 7.1 7.1 100.0
14 100.0 100.0
10140001982000255000032240003660000426000048460004847000496300060000006381000692000073690007667000Total
ValidFrequency Percent Valid Percent
CumulativePercent
4.2.2 Pie charts
47
Here the frequencies have been presented in the form of
Pie Chart;
88806776646572575465677161636045661028006919629418972016373816296415357215338857936
Manufacturing
76670007369000692000063810006000000496300048470004846000426000036600003224000255000019820001014000
GDP
4.2.3 Histogram
48
Here data has been presented in the form of Histogram.
Manufacturing10000008000006000004000002000000
Freq
uenc
y
6
4
2
0
Manufacturing
Mean =390550.57 Std. Dev. =283382.636
N =14
The above showed histogram is normal but skewed to
the right side. Though during this period there is some
increase in manufacturing but growth of this sector is
still declining. This is known as “Decreasing Return”.
GDP8000000600000040000002000000
Freq
uenc
y4
3
2
1
0
GDP
Mean =4691642.86 Std. Dev. =2048119.648
N =14
The above showed histogram is normal and equal
skewed to both the sides. There are two multi-collinear
points, that’s why the histogram didn’t show a column.
During this period of 14 years GDP growth is normal.
49
4.3 Descriptive analysis
50
Descriptive analysis of our data are as follows;
Descriptive Statistics
14 830131 57936 888067 390550.57 283382.636 8E+01014 6653000 1014000 7667000 4691643 2048119.648 4E+01214
ManufacturingGDPValid N (listwise)
N Range Minimum Maximum Mean Std. Deviation Variance
“N” represents the number of years, from which the data
has been gathered.
Range refers to the extreme values in a set of
observations. Manufacturing range figure is 8,30,131
and of GDP is 66,53,000.
The minimum production of automobile is 57,936 and the
maximum is 8,88,067. Same as the minimum value of GDP
is 10,14,000 and the maximum is 76,67,000.
The mean or Annual average production of automobile is
3,90,550 and annual average GDP is 46,91,643.
Standard Deviation is that, how much value has been
increased or decreased with by the mean. The standard
deviation of manufacturing is 283382.63 and of GDP is
20,48,120.
Variance is the absolute change in the values by the
mean. Manufacturing variance is 8E+010 and GDP variance
is 4E+012.
4.4 Regression Analysis
51
The goal of regression analysis is to determine the
values of parameters for a function that cause the
function to best fit a set of data observations that you
provide. In regression analysis we examine the effect of
one variable (Independent) on the other one (Dependent).
The resulting scatter plot shows a nonlinear
relationship between both the variables. As you can see
that in the start the automobile sector was in crises and
GDP figures were in ups & downs state but in the middle
the sector showed reasonable growth. And at the end the
automobile sector is still growing while GDP has fallen
down. An appropriate model for this kind of pattern is
the asymptotic regression model.
The asymptotic regression model has form
y=b1+b2eb3x. When b1>0, b2<0, and b3<0, it gives
Mistcherlich's model of the "law of diminishing returns".
This model initially increases quickly with increasing
values of x, but then the gains slow and finally taper
off just below the value b1.
Choosing starting values
The Nonlinear Regression procedure requires that you
supply starting values for the parameters in the model.
This seems a daunting task at first, but becomes easier
with some familiarity with the model.
b1 represents the upper asymptote for GDP. Looking at
the chart, even the largest sales values fall just
short of 80, so that's a reasonable starting value.
b2 is the difference between the value of y when x=0
and the upper asymptote. A reasonable starting value is
the minimum value of y minus b1. Looking at the chart,
say that's about 7-80=-73.
b3 can be roughly initially estimated by the negative
of the slope between two "well separated" points on the
plot. Looking at the chart there are a few points about
x=2, y=10, and about x=6, y=36. The slope between these
points is 5.13262074
=−−
thus a rough initial estimate for
b3 is -13.5.
Our results are as follows;
Parameter Estimates
4691643 595068.1 3381906.890 6001378.824-73.000 .000 -73.000 -73.000-13.500 .000 -13.500 -13.500
Parameterb1b2b3
Estimate Std. Error Lower Bound Upper Bound95% Confidence Interval
The parameter estimates table summarizes the model-
estimated value of each parameter. Parameters in a
52
nonlinear regression model usually do not have the same
interpretation as linear regression coefficients, and
often vary from model to model.
b1 (Intercept) = 4691643 shows that, this level of GDP
does not depend on automobile manufacturing. If
automobile manufacturing will be zero in some period,
then GDP standard will be like this.
Std. Error = 595068.1 is small with respect to the
value of the estimate. So it suggests that we can be
confident in the estimate.
Confidence interval shows the variation of the points
from the line of interception.
Lower bound shows that how much points are below the
intercept line.
Upper bound shows that how much points are over the
intercept line.
b2 (Coefficient of GDP) is the difference between
maximum possible GDP and GDP when there is no
manufacturing. Its standard error is “zero” and
confidence interval is equal to the value of the
estimate, so there is no uncertainty.
b3 (Exponent of GDP) controls the rate at which the
maximum is reached, the so-called "rate constant". Like
b2, there is no uncertainty in the estimate.
53
ANOVA a
3.1E+014 3 1.0E+0145.5E+013 11 5.0E+0123.6E+014 145.5E+013 13
SourceRegressionResidualUncorrected TotalCorrected Total
Sum ofSquares df
MeanSquares
Dependent variable: GDPR squared = 1 - (Residual Sum of Squares) /(Corrected Sum of Squares) = .000.
a.
The ANOVA table provides a breakdown of the sum of
squares, a measure of variability in the dependent
variable, for this model.
The Regression row displays information about the
variation accounted for by your model.
The Residual row displays information about the
variation that is not accounted for by your model.
The Uncorrected Total represents the entire variability
in the dependent variable.
Corrected Total is adjusted to only reflect variability
about "average" GDP.
“df” represents the “degree of freedom” which means
that “ the x number of values are free to vary”. 1%
means 1° of freedom.
54
CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
The topic of the research was “The role of
Automobile Manufacturing sector in the growth of
Pakistan’s economy”. The major objectives of the research
were to explore the major reasons behind the downfall in
this sector. Its significance is for Pakistan’s Govt. to
adopt such policies that can contribute in the growth of
this sector. In the second chapter, the researcher
reviewed the related literature regarding the automobile
sector of Pakistan. In this connection different related
terms have been defined and discussed in detail. In the
third chapter data collection procedure has been
described, research variables, population and sample have
been defined. In the forth chapter, the data was analyzed
with the help of SPSS software, in terms of frequencies
and percentages. Descriptive and regression analysis have
been added in the report with their explanation. In the
fifth chapter, the conclusion was drawn and
recommendations were given on the basis of results and
conclusion.
55
5.2 Conclusion
56
Based on the results of the study, the following
conclusion is drawn:
In the light of our research we can say that the
automobile sector is a very important element as far as
the country’s economical growth is concerned. The local
automobile industry has experienced impediment and
decline in its different segments as compared to earlier
where the industry observed tremendous high growth in
terms of production and sales. After a significant growth
spurt in 2002-2006, the auto sector in Pakistan is
feeling the pain of economic slow-down. The industry is
continuing in a slump which began in the previous
financial year. Pakistan is an emerging market for
automobiles and automotive parts offers immense business
and investment opportunities. The total contribution of
Auto industry to GDP in 2007 was 2.8%. Automobile grew
from 2001-2007, the industry and the government of
Pakistan fixed a target of over half million units’
production by the year 2011-12 that now seems out of
reach.
The most recent statistical data issued by Pakistan
Automotive Manufacturers Association explains that the
arrival of the imported vehicles and rising interest
rates situation has decelerated the over manufacturing
all sales figures of the automobile industry which is
considered as a large scale-manufacturing sector of
economy. The vast import of used cars has affected demand
of locally manufactured automobiles. The only way forward
for the assemblers is either by expansion in their
production capacity along with brand extension or through
inclusion of updated and better quality vehicles in their
trading portfolio. However in today’s fast globalizing
world changing models, improving fuel efficiency, cutting
costs and enhancing user comfort without compromising on
quality are the most important challenges of the
industry. Following international trends, the auto
industry in Pakistan is also quickly evolving and may
soon begin materialize the dream of achieving economies
of scale.
On the contrary the Pakistani auto market has grown
up around 30 percent in the last 10 years. Almost all
major automobile units in Pakistan either are running on
double shifts or planning to go into double shifts to
meet the growing demand. This phenomenal growth in demand
is amazing especially in the face of increased financial
charges by the leasing or bank financing. It may be
mentioned that over 70 percent of the cars enrooted
either through leasing or bank financing in Pakistan.
57
However, Government of Pakistan had undertaken two
major initiatives in the form of National Trade Corridor
Improvement Program (NTCIP) and Auto Industry Development
Program (AIDP) for the development of the automotive
industry in Pakistan. Engineering Development Board (EDB)
is actively implementing the AIDP to increase the GDP
contribution of the automotive sector. Automotive
engineering is a driving force of large scale
manufacturing, contributing US$ 3.6 billion to the
national economy and engaging over 192,000 people in
direct employment.
58
5.3 Recommendations
59
From the conclusion of the study the researcher
feels obliged to give the following suggestions and
recommendations.
A consistent policy should be declared by the
Government every 7-10 years in order to make the local
manufacturer more focused and more certain.
The current deletion policy should be maintained and
officially announced to lessen the uncertainty created
by the WTO agreement.
The duty on parts should be increased from 35 percent
to 45 per cent to create a gap between CKD which is
also 35 per cent.
Deletion level should be increased specially of high
tech and major engineering parts.
Market expansion measures should be taken which will
definitely benefit the industry, government and general
public in terms of employment and price.
Volume of production should be increased in order to
achieve the economies of scale.
Localization should be increased and investments should
be made to increase localization.
Financing options such as leasing and car finance
scheme in collaboration with banks and financial
institutions should be extended on a wider basis so as
to increase the purchasing capacity of the buyers.
The car manufacturers should also encourage the use of
CNG as an alternative to fuel in order to stimulate the
demand of the cars despite the rise in fuel prices.
The government should also keep a close watch on new
entrants so as to prevent Foreign Firms from dumping
there vehicles to the Pakistan market.
In short, Pakistan is geographically an ideally
located region for the foreign manufacturers to invest in
this market, aiming to supply to the domestic and
regional markets i.e. Middle East, African and CIS
states. In this regard, the Govt. of Pakistan should
formulate conducive and investment friendly policies for
foreign investors and it will also encourage local
manufacturers to implement joint ventures with their
foreign counterparts. The Govt. should define such
policies which can efficiently contribute towards the
economical growth of the country.
60
61
REFERENCES
Economy of Pakistan (2009) Retrieved July, 2009 from
http://Wikipedia, the free encyclopedia/Economy of
Pakistan
History of Automobile Industry in Pakistan Retrieved
July, 2009 from http://PakWheels.com
Automotive Market Research Reports - Pakistan Autos
Report Q3 2009 Retrieved July, 2009 from
http://just-auto.com
PAMA - Pakistan Automotive Manufacturers Association /
Production & Sales.mht Retrieved July, 2009
62
APPENDIX
Annual Automobile Mfg. & GDP Figures
Sr. No Year Automobile Mfg.
(Ind-Var)
GDP (Rs)
(Dep-Var)
1
1995
57,936
49,63,000
2 1996 1,62,964 48,47,000
3 1997 1,53,572 10,14,000
4 1998 1,63,738 25,50,000
5 1999 1,53,388 36,60,000
6 2000 1,89,720 42,60,000
7 2001 1,96,294 19,82,000
8 2002 2,80,069 32,24,000
9 2003 4,56,610 48,46,000
10 2004 6,16,360 73,69,000
11 2005 7,66,465 76,67,000
12 2006 7,25,754 69,20,000
13 2007 8,88,067 63,81,000
14 2008 6,56,771 60,00,000
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