Pakistani auto part makers fear plant closures as IMF-backed reforms take effect this month

Arab News

3 days ago

KARACHI: Pakistani automobile part makers fear closure of their manufacturing plants as the country moves to allow used car imports and slash tariffs to 15 percent later this month as part of reforms backed by the International Monetary Fund (IMF), a Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) member said on Thursday.
Prime Minister Shehbaz Sharif's government aims to expand Pakistan's debt-ridden economy by 4.2 percent this fiscal year, which began in July, with the support of the IMF that has set out certain conditions for the South Asian nation to keep receiving tranches of its $7 billion loan that are critical for the country's economic recovery.
Aamir Allawala, a leading PAAPAM member and a former chairman, said the IMF-backed policy measures, if implemented in their current form and without taking Pakistan's 'ground realities' into consideration, may shut 1,200 companies that have been manufacturing and supplying steel, plastic, rubber, copper, aluminum and auxiliary parts to 13 car assemblers, including local partners of Toyota, Honda, Suzuki, Hyundai, Kia Motors and Changan.
'There are some major decisions that the government has made which includes opening the import of used cars without any [vehicle] age limit,' Allawala, the CEO of Techno Auto Glass Ltd. that supplies windshields, window glass and other auto parts to Suzuki, Honda and Toyota, told reporters in Karachi on Thursday.
'Under the National Tariffs Policy, the [import] duties will be cut and that would change the automobile industry in a very strange manner,' he said, adding the new policy is expected to take effect by the end of August.
Arab News tried reaching out to Pakistani commerce ministry spokesperson Muhammad Ashraf, but he was not immediately available for a comment.
Liberalizing trade is one of the conditions set out by the IMF to help Islamabad achieve 4.2 percent economic growth.
'The new National Tariff Policy (FY25–30) should substantially streamline and reduce tariffs [customs and regulatory duties] and reduce non-tariff barriers and move away from the regime of special duties applied to imports for particular industries,' the Washington-based lender said in its country report in May.
'Trade barriers are particularly extensive in the automotive sector, and the next iteration of the automobile policy [covering fiscal years 26–31], on which consultations are still ongoing, should reduce tariffs and preferential support for local production.'
Allawala said his manufacturing plant, worth Rs4.3 billion ($15.2 million), at the Port Qasim industrial complex was running at 20 percent capacity and manufacturing 10,000 glasses a month, mainly because of what the company's chief operating officer Arsalan Allawala called a 'lack of demand.'
Besides the Techno glass manufacturing hub, Arab News visited similar facilities of Aisha Steel Mills, Agriauto Stamping Company, Rubatech Manufacturing Company, Jin Kwang Jaz and Thal Boshuku Pakistan.
While raw material manufacturer Aisha Steel Mills was hardly running its Rs22 billion ($78 million) plant, most of the other vendors were producing stamping, rubber, car seats and other accessories below capacity.
'We can produce sets for 54,000 cars a year but our current production stands at 18,000 sets due to lower demand,' said Muhammad Umer Razzaq, an official of Thal Boshuku that is a joint venture between Thal and Toyota Boshuku and Toyota Tsusho.
Faheem Kapadia, CEO of Agriauto Stamping, said while they had a capacity to supply four-wheeler auto parts for about 300,000 car units annually, his factory was catering to 130,000 vehicles only.
In recent years, Pakistan has faced high inflation, which peaked to a record 38 percent in May 2023, eroding purchasing power of the masses. Though the inflation rate has significantly declined, the World Bank last month said 45 percent of Pakistanis were now living below poverty line.
Pakistan's car sales have dropped by more than 50 percent to 111,402 units over the last three years till June, according to the Pakistan Automotive Manufacturers Association (PAMA) data.
'The economy's mismanagement, the kind of conditions we have, terrorism, political instability, the economic crash that happened twice, thrice resulted into the reduction of car volumes,' Allawala told Arab News, adding that up to 45 percent taxes on buying a new car can be another reason for low sales.
'It is a source of worry for us because the auto parts industry has invested billions of rupees, in fact hundreds of billions of rupees, in the auto parts manufacturing sector and there are a lot of jobs at stake.'
The government needed to be 'cognizant of the policy direction to make sure that such job losses in the sector are avoided,' he said, adding that PAAPAM directly employs 500,000 skilled workers while workers associated with Pakistan's overall automobile industry can be estimated at 2.5 million.
Sharif approved in May a 'gradual but significant' reduction in Pakistan's import tariffs that would see general customs duties capped at 15 percent, compared to current rates that sometimes exceed 100 percent.
'No car-manufacturing country in the world has allowed the import of used cars. They have a total control over the used cars' import be that India, Thailand, Malaysia, Indonesia, China or any other country which has its own automobile industry,' Allawala said.
India was maintaining 125 percent tariffs on car imports, Thailand 80 percent, Indonesia 60 percent and Vietnam 52 percent to protect their respective industries, according to the auto part maker.
'Pakistan is saying we are slashing the import duty to 15 percent,' Allawala exclaimed, saying PAAPAM had written a letter to the commerce ministry seeking a fact-finding mission to 'see the ground reality.'
'We wrote them about three, four days ago. They have not responded yet.'