Pakistan’s import bill for completely and semi-knocked down (CKD/SKD) kits for cars imported by local assemblers has crossed one billion dollars in just eight months of 2021-22 which is significantly higher than the record high bill of $1.12 billion for the entire of FY21.

The 8MFY22 ended with $1.102bn as compared to $557 million in the same period last fiscal.

The low levels of localisation by Chinese and Korean investors under Auto Policy 2016-2021 for five years as well as in the new models by existing assemblers have played a key role in boosting the import bill.

As per data of the Pakistan Bureau of Statistics (PBS), the new and old entrants brought CKD/SKD kits worth $4.987bn from 2016-2017 to July-February 2021-2022, thus nullifying claims of achieving higher localisation.

Sources said that the new entrants have started rolling out vehicles from their assembly lines with a mere five per cent locally made parts which is insufficient to reduce the burden on the foreign exchange.

New entrants are rolling out vehicles with mere five per cent locally made parts which is insufficient to reduce the burden on the foreign exchange rate

Assemblers are now in top gear as the eight months of FY22 ended with a whooping sales jump of 57.5pc in cars to 149,813 units. They are also excited over huge bookings in hands whose delivery time ranges between three months to 11 months. Jeeps and pickups sales have also surged by 51.5pc in 8MFY22 to 28,437 units.

Huge demand for cars has led to a massive jump in CKD/SKD imports to $1.120bn in FY21 from $478mn in FY20, up by 134pc thanks to low-interest rates and attractive auto financing by the banks till the third quarter of 2021

However, curbs on auto financing from the last quarter of 2021, persistent increase in car prices and long delays in delivery appear to have not hurt the buyers’ sentiments in the last eight months, while buyers are also satisfied over the rising resale value of the vehicles owing to months’ long delivery timings, soaring prices and on-money for vehicles for immediate delivery.

The import bill of CKD/SKD was $660m in FY17 which later swelled to $809m in FY18 and then remained at $818mn in FY19. The fiscal year 2019-2020 was a bad year for the entire country due to the flare-up in Covid-19 from March to June followed by the government’s decision to close down the industrial units in April 2020. As a result, the FY20 import bill of CKD/SKD was just $478m.

Stakeholders had been trumpeting 70pc localisation in Suzuki Mehran which ruled the roads for over 30 years without significant model change. After the end of the iconic Mehran journey in 2018, the claim of achieving higher localisation by stakeholders has now been confined to 55-60pc in various existing Japanese models and 35-45pc in new models.

It seems that no serious efforts have been made by the existing Japanese assemblers in the old and new models to improve the utilisation levels of locally made parts in vehicles.

A vendor, who asked not to be named, said the import bill of CKD/SKD would remain under pressure as the new entrants, who had approved their projects under the Auto Policy 2016-2021, would enjoy a honeymoon period for the next four to five years to keep rolling out vehicles with negligible local content. Besides, new models by the existing Japanese assemblers will also take time in improving local content in the vehicles.

He said vendors had asked the government not to allow vehicles’ assembly of higher engine power under tAuto Policy 2016-2021. The new entrants, instead of introducing small cars below 800cc, shifted their focus towards the assembly of high engine power sports utility vehicles (SUV) whose numbers are growing every day.

Chief Operating Officer, Balochistan Wheel Limited (BWL), Muhammad Irfan Ghani in a letter to the CEO Engineering Development Board (EDB) said the EDB is the custodian of the auto vending industry which encourages the localisation of auto parts.

The auto sector in Pakistan is now more than 50 years old but the assemblers have not done localisation seriously, he complained.

He said the pace of localisation of auto parts is too slow due to the discouraging attitudes and lengthy procedures adopted by the assemblers which form a monopoly for their foreign principals. They protect their own interests to use their CKD parts and have made localisation very difficult.

Mr Ghani said the country’s precious foreign exchange is being wasted due to non-localisation while many assemblers are not taking parts from the local vendors in some of their newly launched models.

The matter came up for discussion during the first meeting of the Auto Industry Development and Export Committee (AIDEC) held on March 8, 2022, which was attended by the auto stakeholders and officials of the relevant ministries. The AIDEC meeting had decided that the EDB would schedule a joint meeting between Baluchistan Wheels and Pak Suzuki to resolve the matter.

However, AIDEC committee members reiterated that the localisation of parts and components must be pursued in letter and spirit.

Former Chairman Pakistan Association of Parts and Accessories Manufacturers (Paapam), Abdul Rahman Aizaz attributed the rising import bill of CKD to the massive revival in sales of cars and SUVs from the depressed sales scenario of 2019-2020.

Under Auto Policy 2016-2021, most of the new entrants have focused on manufacturing SUVs, which too has resulted in the higher value of CKD imports. He said that sales volumes of new entrants and old players have shown phenomenal growth due to improving economic indicators.

Since the new entrants under Auto Policy 2016-21 can avail the concession on import of CKD for five years, localisation of parts in such vehicles, especially of SUVs, is in the catching-up phase, he added.

Mr Aizaz said that the unprecedented surge in international prices of various resins and metals, rupee devaluation against the dollar and multiple times higher freight charges have further enhanced the landed cost of almost all raw materials.

Published in Dawn, The Business and Finance Weekly, March 21st, 2022