Automobile Sector’s Breakdown
Automotive manufacturers not functioning at full capacity, finally give up.
Pakistan imports USD 6 Billion worth of different kinds of plastics.
In order to spark growth in promising industries, governments usually provide certain incentives through tax holidays and lax import restrictions. One such industry in Pakistan, is the automobile industry, an infant industry (for the past 30 years). The automotive industry relies heavily on imported raw materials, or in other cases imported cars altogether. For instance, Pakistan imports USD 6 Billion worth of different kinds of plastics. The impacts of this production model are far-reaching, extending from local value addition to the balance of payments crisis.
The production and sales of automobiles averaged around 180,000 cars for the past 5 years. These cars are either imported as completely knocked-down units or completely assembled units. All raw materials including technology are imported from abroad since major manufacturers don’t intend to transfer manufacturing to Pakistan. Considering that the automobile industry is one of the biggest large-scale manufacturing industries, there is a huge impact on our current account due to the required inputs.
Recently, Pakistan announced import bans. Unsurprisingly, the policy struck at the core of production networks, for instance, in the automobile sector. This has resulted in various car manufacturers shutting down production, resulting in further contraction of the aggregate demand in the country. In a developed country, this would’ve worked how the IMF intends for it to work. But in Pakistan’s case, where investment opportunities are scarce, this may lead to long-term mistrust in Pakistan by foreign investors.
The manufacturing policies in the country, in addition to a lack of focus on research and development and the recent import restrictions, may cost Pakistan a potential boom in its exports. There are many arguments for a local approach to manufacturing automobiles, but Pakistan’s cluttered policies often get in the way of progress.
GRAPHICS
⚫ Pakistan’s exports depreciated by 15.4% in January
⚫ The trend in IT exports remains stable
⚫ Conventional industries like textile & construction were hit hardest by the rise in cost of production
⚫ Electricity cost has been hiked up in the range of Rs. 3.3-15.5 per unit for residents and exporters
⚫ Whereas the core price of house rent inflated by 5.4% from January 21 to January 22
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