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 Pakistan wants to shake up its Japanese-dominated car market and
loosen the grip of Toyota, Honda, and Suzuki, whose locally
assembled cars are sold at relatively high prices but lag behind
imported vehicles in terms of quality and specifications.
To do that, analysts say, the government must convince manufacturers
that the country has turned a corner after a decade of economic
turbulence and a series of major attacks by Islamist militant groups
including the Taliban.
With the economy growing at its fastest pace in eight years, the
local currency stable against the dollar and interest rates at their
lowest in 42 years, Pakistani officials believe the country is once
again on the radar of investors seeking to tap into a market of
nearly 200 million people.
Officials are touting a new auto policy, skewed in favor of new
entrants, that includes offering foreign car manufacturers lower
duties as an incentive to set up plants in Pakistan or revive
shuttered ones.
"We expect that there will be one or two foreign investors coming
into Pakistan," said Miftah Ismail, chairman of Pakistan's Board of
Investment, who has been talking to car makers about setting up
assembly plants for the local market.
Ismail told Reuters he had held talks with Japan's Nissan <7201.T>
and alliance partner Renault <RENA.PA> for "some time", and last
month met Fiat <FCHA.MI> executives in Italy for the first time.
Previous discussions also involved Germany's Volkswagen.
"I hope some people will bite," he said.
A source close to Renault said Pakistan was under consideration for
new production investment, along with other potential locations, but
added that discussions were at a very early stage. In an e-mailed
statement, the company said it had "no news to announce at this
time".
Nissan chief spokesman Jonathan Adashek said: "Pakistan is certainly
a market of interest for us at present", but added no final decision
had been made.
STABILITY
Analysts say the odds are stacked against Pakistan finalizing deals,
despite the concessions on offer.
A major obstacle is the perennial concern about political stability
in a country where the military has staged several coups since
independence and attempted others.
The threat of militant attacks also remains high, despite the armed
forces' long-running campaign against groups including the Taliban
who are opposed to the government in Islamabad.
Foreign companies have been reluctant to invest large sums when the
long-term outlook is so uncertain.
"There is potential in Pakistan. There is no doubt about that," said
Puneet Gupta, associate director at consultant IHS Automotive.
"(But) we really don't feel Pakistan is in a relatively stable
condition, from a mid to long-term perspective."
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Another possible turn off for investors is the size of Pakistan's
car market, where 180,000 cars were sold in the 2014/2015 fiscal
year. That compares with more than 2 million passenger vehicles a
year in neighboring India.
"The Pakistan market is not big enough," said Mumshad Ali, chairman
of the Pakistan Association of Automotive Parts.
He added that the government's new policies were probably not bold
enough to tempt new manufacturers, nor did they address ways to
increase demand, such as lowering sales taxes.
The local manufacturing partners of Toyota and Honda did not respond
to requests for comment.
Ali said existing manufacturers felt aggrieved that the government
was favoring new investors, and believed they should be similarly
encouraged to build new plants and expand existing facilities.
Suzuki on Friday said it was prepared to invest $460 million in
Pakistan, including setting up a new plant, if the government
provided the right incentives.
It called for changes to the new auto policy, which it said "may
damage the tremendous investment potential in the Pakistan
automobile sector".
Ismail said new entrants would be able to import machinery for
plants duty free. Customs duty for importing car parts has been set
at 10 percent, while existing players will have to pay 30 percent.
"We want greater competition, and we expect with greater competition
consumers will be offered better choices," he said.
Some Pakistanis are frustrated by high prices and the quality of
locally produced cars, which tend not to have airbags, anti-lock
breaking systems (ABS) and other features considered standard
elsewhere.
The cheapest Pakistani car, the Suzuki Mehran, sells for 650,000
Pakistani rupee ($6,200), or about double the price of a comparable
model in India.
(Additional reporting by Aditi Shah in New Delhi, Agnieszka Flak in
Milan, Norihiko Shirouzu in Beijing, Naomi Tajitsu in Tokyo, Andreas
Cremer in Berlin, and Laurence Frost in Paris; Editing by Mike
Collett-White)
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