State Bank of Pakistan (SBP) is expecting new entrants of auto sector from South Korea and Europe as a result of the new Auto policy announced recently.
The Central Bank issued ‘The State of Pakistan’s Economy – Second Quarterly Report 2015 – 2016.’ It is hoped that the new auto policy which was long awaited will pave the way for the new auto manufacturers from Korea and Europe. The government has announced special incentives ranging from tax holidays, reduction of import duties on parts and components for the new entrant in the Automotive Development Policy (ADP) 2016-21 as announced a couple of weeks ago.
The central bank mentioned in its report that the auto sector continued to grow strongly during the first half of the ongoing Fiscal Year 2016. The sector has recorded a growth of 32.3 percent during H1-FY16, compared to 13.6 percent growth in corresponding period of the last year.
The manufacturers gained from a decline in global steel prices, stable exchange rate, and low funding cost. The international steel prices declined further by more than 17.7 percent during H1-FY16, while cost of borrowing (weighted average lending rate) declined further by 96 bps during H1-FY16.
At the same time, sales volume remained healthy due to continuation of concessional
Apna Rozgar Scheme launched by the Punjab government; continued appetite for passenger cars, with introduction of new models last year; and renewed focus of commercial banks on auto financing.
However, this gain is mainly achieved by Pak Suzuki which supplied 50,000 vehicles under the Scheme through Bank of Punjab financing.
But the Pak Suzuki has threatened to shift its investment from Pakistan in the backdrop of the new Automotive Development Policy (ADP) 2016-21 announced by the government of Pakistan as the Japanese manufacturer believes that the government did not cater to the existing auto manufacturers in the policy while major incentives are announced for the new entrants.
Shafiq Ahmed Shaikh, a spokesperson for Pak Suzuki, has reportedly warned the government of a possible shift of their future investments of around $400-500 million for a new plant to Iran from Pakistan. Asking the government to revisit the ADP 2016-21 he stated the government ignored the existing auto assemblers of Pakistan in the policy. “We may shelve our investment plans in Pakistan besides rolling out new models as the ADP has nothing to offer.”
The SBP declared in its report that during H1-FY16, banks extended PKR 13.3 billion for auto finance, compared to PKR 7.4 billion during same period last year.
Higher demand for automobiles allowed manufacturers to pass on the additional duty imposed on the import of CKDs/CBUs to end-consumers. In addition to passenger cars, demand for motorcycles and three wheelers also contributed to higher production in the auto sector.
While the expected completion of Apna Rozgar Scheme in February 2016 may ease automobile sales, the overall demand would benefit from an improved availability of auto finance and the likely rise in demand for commercial vehicles (particularly trucks) following the start of infrastructure projects in the pipeline.