International Car Makers keen for production in Pakistan: Financial Times

Shares
International Car Makers keen for production in Pakistan: Financial Times

ISLAMABAD: (APP) The national surge in sales has prompted three global carmakers to commit in the past few months to starting production in Pakistan, potentially doubling the number of foreign carmakers in the country, a news report publised in the Financial Times said.

Referring to Analysts, the report states, the surge has left Toyota, Honda and Suzuki struggling to meet demand with their customers sometimes forced to wait as long as five months before their cars are delivered.

Yong Sohn, general manager at the Hyundai group, says: "Population and growth-wise, Pakistan is very promising."

Another factor drawing carmakers to Pakistan is that security has begun to improve. The streets are now safe and people feel comfortable driving till late at night. Third, the government has drawn up policies aimed at attracting carmakers, such as cutting the duties applicable to parts shipped from abroad and making it easier to find a site to build a plant, the report added.

"The auto policy has given a lot of incentives to new foreign players, especially opening up new greenfield opportunities," says Zarak Khan, an analyst at Elixir Securities.

In the past, analysts say, manufacturers have been put off by the country's relative poverty, as well as political instability and concerns about security. But in the past few months, France's Renault and both Hyundai of South Korea and its affiliate Kia have announced they will soon start assemblies in Pakistan, in partnership with local companies. It marks a return for Kia and Hyundai, which left in the previous decade when their local partner suffered financial problems.

"The reason we didn't come back earlier is that we were trying to find the right partner to work with, which is very important in this part of the world," says Hyundai's Mr Sohn.

The report added that part of the reason for the rise in car sales is that Pakistanis are getting richer. Between 2010 and 2015, the amount each person earned per year rose from $4,370 to $5,320 as measured in gross national income per capita at purchasing power parity. That trend is expected to continue, partly helped by China's plans to invest more than $52bn in Pakistan's infrastructure under the "One Belt, One Road" project.

The new and returning entrants are being drawn in by several factors. The first is both the scale of the potential market in a country of 200m people, as well as the rate at which it is already growing. In 2012-13, carmakers sold 118,830 cars in Pakistan. By 2015-16, that had risen 52 per cent to 181,145.

Hyundai forecasts that, consequently, car sales in Pakistan will hit 300,000 a year by 2020.

Just as importantly, say analysts, has been the corresponding fall in interest rates.

Since September 2000, the rate at which banks can borrow from the Pakistan central bank has fallen from 13 per cent to 6.25 per cent. Saleem Memon, who sells finance packages for carsin central Karachi, says: "A few years ago, customers sometimes paid 16 or 17 per cent in annual interest rates. Now, if they are lucky, they can get a good deal for around 11 per cent."