AFTER a number of failed beginnings, the ECC has finally approved an auto policy that could kick-start a round of fresh investments in this vital sector which has seen a large boom in the past year.
The new policy aims to break the years’ long pattern of wrestling between the government and the auto giants, by providing incentives for fresh entrants to come into the market.
Since the late 1980s, Pakistan’s auto sector has been dominated by three assemblers, who have had to be pushed into making investments to localise the manufacture of components and spares, keep prices competitive, maintain output to keep pace with demand, and introduce new models on a regular basis.
The auto makers have their own point of view in all this, particularly of late when they claim, with merit to their case, that a large and growing cash economy has turned new cars into a speculative product, creating a secondary market of sorts where ‘own’ money dominates.
The government has done the right thing to emphasise on new entrants in the market above anything else. This is the best way to inject some fresh energy into the auto sector where booming sales are catching the eyes of other manufacturers.
The sector could use some healthy competition, and the policy pursued by previous government since the expiration of the last auto policy in 2012 to promote competition by encouraging imports of used cars, was counterproductive.
A stable horizon for the next five years in terms of tariffs applicable to the new entrants and imported cars will do more to encourage investment than ad hoc changes in the tariffs of used cars.
Ad hoc moves of the sort that have been used since 2012 have hurt investment and introduced distortions in the behaviour of auto makers.
The new policy gives them a stable environment, and even though they are likely to make a fuss about the preferential treatment that new entrants will be given, at least they will know that their comfort zone is about to be disrupted.
Hopefully, this will spur a little more energy in the sector, which is sitting on massive cash reserves ready to invest, as pointed out by the State Bank at the start of the week.
Now that a policy has been announced, and competition may well be on the horizon, they have every reason to invest rather than hoard their cash.
Published in Dawn, March 19th, 2016
