Envisioning Conducive Environment for automobiles

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Ghulam Ali

Pakistan is passing through critical economic transition and visionary policies can help save the country towards green pastures. The national economic interests must be retained and kept supreme in the larger interest of the masses. The current government policies favouring used car imports in Pakistan constitute severe risks to the local automotive industry, threaten millions of jobs, block economic growth, and disrupt the industry’s potential to thrive. To safeguard the local industry and promote sustainable economic development, there is an urgent need to reform policy to discourage or restrict used car imports by strengthening a supportive environment for domestic automobile manufacturing.

This is right time to consult the stakeholders and come up with viable solutions. One of the core reasons behind the threat to domestic industry is the invasion of imported vehicles that directly competes with domestically manufactured cars, leading to a decline in demand for locally produced automobiles causing trade imbalance and weakening the overall economic outlook. During fiscal year (FY) 2022, the local parts purchase value was to the tune of Rs 250 billions. Now the local industry is purchasing an average of over Rs 270 million per day of locally produced parts. Under the previous policy, the government received a fixed amount of dollars in taxes regardless of the original market prices of cars, which resulted in economic loss. There is declining trend of buyers now as manufacturers have shut down their plants and workers are laid off. The unemployment trends are on the rise. The trend to import used cars bears significant economic implications, particularly for local vendors, facing an estimated loss of a staggering RS 36 billion, pushing them towards closure of their businesses. This is the time to intervene and get negative trends arrested and contained.

The rise in using imported cars resulted in a significant threat to innovation within the local automotive industry. For the sustainable economic growth, Pakistan needs to look on its ground realities and introduce such policies which are conducive for the country. With reduced demand for manufactured domestic vehicles, there is less incentive for companies to invest in research and development initiatives aimed at improving product quality, performance, and safety.

According to the 2024 report, there is an increase in the importation of commercial vehicles, SUVs, vans, and luxury cars totaling almost 6,600 units. As a result, Pakistan’s automotive sector risks falling behind international competitors in terms of product innovation and technological sophistication, which could have long-term implications for its global competitiveness and relevance. The local industry must be given incentives and protected.

The accessibility of locally manufactured vehicles is compromised by the surge in used car imports and the associated policy environment. In February 2024 alone, 3,213 used vehicles were imported, compared to 396 units during the same period last year. High taxes, duties, and import tariffs imposed on domestically produced automobiles inflate their retail prices, placing them out of reach for the majority of consumers, particularly those from lower-income

segments. This affordability gap sustain a cycle of inequality, where access to reliable

transportation, a fundamental necessity for economic participation and social mobility remains

elusive for a large number of population. The small consumers and low-income groups should

also have a voice and right to enjoy suitable and economical transportation.

According to a report and as per verified data there are millions of used and poor-quality cars,

vans, and minibuses are being exported from rich countries to the developing world,

contributing significantly to air pollution and climate change. The climate catastrophe is a

growing challenge and no country can afford to ignore it. Regulation is therefore an important

part of achieving local and global targets on climate change, air quality and road safety. It is

important to know that already used imported vehicles mostly have Poor quality, which no

longer meet the environment and safety standards of the exporting country. Moreover, it is no

longer considered roadworthy in the exporting country and a big cause of road accidents.

Missing key environment and safety technologies (often illegally removed) is another idea of

not importing used cars. The development strategy and environmental safety are key concerns

in coming years.

Reintroducing regulatory duty on used car imports can be the solution that can reduce adverse

effects on the local automotive industry by regularising the recreation ground and encouraging

domestic production and consumption. A suggestion about reducing import duties on auto

parts, opening trade with India to access cheaper components, and stopping the misuse of used

car imports to address the growing volume in Pakistan can be helpful. Pakistan should diversify

its local manufacturing sector and create some viable solutions.

Industry stakeholders should be engaged in policymaking to ensure that decisions align with

the interests of the nation, promote industry growth, and safeguard employment opportunities.

A stable policy framework is essential to provide certainty and predictability for businesses in

the local automotive sector, fostering long-term growth, investment, and competitiveness,

protecting the interests of local manufacturers and supporting a healthy automotive ecosystem.

Pakistan can come up with some solid solutions and get financing from climate finance fund

too. Sustainable growth with supportive policies can serve the local automotive industry and

can blossom along with its contribution to the economy and create additional employment

opportunities. Moreover, by stimulating innovation and competitiveness, the industry can

position itself as a key player in the global automotive market, thriving economic growth and

prosperity.

In conclusion, the surge in used car imports and the importation of used parts present significant

challenges to the local automotive industry in Pakistan. This is the time to rise. These practices

not only weaken the competitiveness of domestic manufacturers but also cause risks to

economic stability, job security, and environmental sustainability. Addressing these challenges

requires a collaborative effort involving government interposition, industry collaboration, and

investment in local manufacturing capabilities and innovation. Reintroducing regulatory duties

on used car imports, establishing a stable policy framework, and addressing imbalance in

treatment between domestic and imported vehicles are essential steps to defend the interests of

local manufacturers, promoting economic growth, and ensuring a sustainable future for the

automotive sector. Keeping in view regional trends and challenges, this is need of the hour to

prioritize our national economic agenda and address the needs of the local industry and

stimulating a supportive policy environment where Pakistan can unlock the full potential of its

automotive sector. This will be an ideal and win win situation and will help achieve innovation,

creating jobs, and contributing to overall economic development of the country. The timely

decisions will save the national economy and help create conducive environment.

The Writer is Islamabad based research analyst and can be contacted at.

[email protected]