Comments on: Can We Settle the Localization Debate With This?

By: Khurram

Khurram — Mon, 18 Oct 2021 03:49:13 +0000

This piece is really very good, well-supported and researched but I believe it has ignored one aspect, the aspect has already been partly pointed out in comment section by Mr. Zohaib. This aspect being circumstances surrounding the parts makers, well, quality education and creativity or should I be more specific, resourceful application of theory in real world is also missing from our automotive industry. So, unless, our people learn to do their job with love and respect for work, I think no kind of law can turn around our automotive industry. For a closer to subject reference we should remember that laws regarding one-way are pretty clear, yet, we can see educated people breaking them, why? They have no respect for the outcome of their actions.

By: Ali Khan

Ali Khan — Sun, 17 Oct 2021 07:09:54 +0000

In reply to M.Zohaib.

Very insightful comments.
What I also think will benefit the country is if the government pushes the local parts vendors to enhance their production to enter the international parts suppliers market. That will be a good addition to our export portfolio and help to increase our export income.
But to do that the government must give them a lot of support at this time. They have been, for the past three decades almost, locked with the old three local companies. They have not been given any benefits. That needs to drastically change.
Most importantly, at this stage, the high tax these companies pay on the raw materials they import must be cut substantially. The only reason that these parts vendors import that raw material is because it is not produced in Pakistan. These companies are using the raw material to make parts that are locally made and are not just assembled. Why is the government placing high tax on raw material that is NOT being produced in the country? Because of the high tax on such materials, the government is hurting its own indigenous industry. Localize the raw material production first, then tax the imported stuff.
The government must stop listening to the local assemblers in making any decisions on the whole auto industry. We can already see their “expert advise” have only made things much worse.
Give the local parts vendors what support they need to enter the international expert market. They are independent companies and do not need, nor should they need, the permission of the local assemblers’ cartel to make parts for international export.

By: Ali Khan

Ali Khan — Sun, 17 Oct 2021 06:40:05 +0000

A very hard hitting piece by Usman Bhai as usual.
What really gets me is that these same companies are operating differently in different countries. Where they know the rules are being set by competent policy makers who will hold them accountable, they play nice and by the rules. Where they know they can get away with anything because of lack of rules and lack of interest by the policy makers in setting up competent rules, the sky is the limit for them. They do what they want. No questions asked.
The government must look into this and implement a similar system here. This will be a definitive tracking system of how many local parts are used in a vehicle assembled here. This will also give the government a clear picture of what is localized and what is imported and maybe it might push the government to demand, and help, the vendors in achieving higher localization of the more expensive parts used in vehicle assembly.
The government should and must audit these local assemblers (who actively gaslight everyone by calling themselves manufactures) and on top of that the government must look into those departments in the government who are in charge of monitoring these companies. Why are the rules so lax and why are the rules so lacking in this country and why cant the government seem to manage or get a handle on this industry at all?
Just like the article states, instead of this being a boost to our economy, this industry has become such a burden that SBP had to tighten its rules of finance because of what they were doing; no matter how much they shift the blame to the used car imports.

By: M.Zohaib

M.Zohaib — Sat, 16 Oct 2021 14:57:15 +0000

Yes, they should. Localization levels are just based on number of basic engineering parts sourced from local vendors, not what value it represents.
High complex engineering parts representing less quantity parts but high value items are still imported.
Either this is because vendors do not have upgraded facilities to manufacture that part locally due to lack of technology investment for mass production due to lower than required volume. This reduces scope of local vendors for localization.
Local vendors themselves due to their circumstances also import raw materials and subcomponents assemblies from their own foreign suppliers from which they have technical assistance agreements.
Another aspect is the automobile assemblers then source unavailable parts through their own recommended suppliers within their group or outside to ensure group product quality.
These may or may not be costlier depending upon the cost circumstances and pricing policy pf the foreign supplier applies.
Another aspect is that due to political problems we cannot benefit from importing parts on large scale from India which has benefits of economies of scale and lower costs and is nearby.
Import duties are as high as 40-45% depending upon hs code categories of parts which also hit the end consumer. This is because government itself is beneficiary of these.
Foreign exchange fluctuations are then pervasive across the cost structure, unfortunately.
Another aspect preventing full mass production is the economies of scale threshold.
In Musharraf’s time it was established that minimum economies of scale threshold justifying mass production for auto cars industry is 350,000 units per annum.
Due to cyclical macroeconomic instability and resultantly demand, this industry volume envisioned has still not been achieved.

Government should roll up its sleeves and conduct an independent study after considering all stakeholders as to what problems are