By Drazen Jorgic
ISLAMABAD (Reuters) – Pakistan is wooing foreign vehicle makers adore Renault and Nissan along with generous import duties, however convincing them to established factories will certainly be an uphill challenge provided fears regarding the country’s lasting political stability and security.
Pakistan desires to shake up its Japanese-dominated vehicle market and loosen the grip of Toyota, Honda, and Suzuki, whose locally assembled cars are sold at relatively higher prices however lag behind imported vehicles in terms of quality and specifications.
To do that, analysts say, the government ought to convince manufacturers that the country has actually turned a corner after a decade of economic turbulence and a collection of serious attacks by Islamist militant teams including the Taliban.
With the economy growing at its fastest rate in eight years, the regional currency steady versus 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 in to a market of nearly 200 million people.
Officials are touting a brand-new auto policy, skewed in favor of brand-new entrants, that involves offering foreign vehicle manufacturers lesser duties as an incentive to established plants in Pakistan or revive shuttered ones.
“We expect that there will certainly be a couple of foreign investors coming in to Pakistan,” said Miftah Ismail, chairman of Pakistan’s Board of Investment, that has actually been talking to vehicle makers regarding setting up assembly plants for the regional market.
Ismail told Reuters he had held talks along with Japan’s Nissan and France’s Renault for “some time”, and last month met Fiat executives in Italy for the initial time.
Previous discussions likewise involved Germany’s Volkswagen.
“I chance some people will certainly bite,” he said.
A source close to Renault said Pakistan was under consideration for brand-new production investment, along along with various other potential locations, however added that discussions were at a pretty early stage. In an e-mailed statement, the business said it had “no news to announce at this time”.
Nissan chief spokesman Jonathan Adashek said: “Pakistan is definitely a market of interest for us at present”, however added no last decision had been made.
Analysts say the odds are stacked versus Pakistan finalizing deals, despite the concessions on offer.
A serious obstacle is the perennial concern regarding political stability in a country where the military has actually staged several coups because independence and attempted others.
The threat of militant attacks likewise remains high, despite the armed forces’ long-operating campaign versus teams including the Taliban that are opposed to the government in Islamabad.
Foreign companies have actually been reluctant to invest large sums as soon as the lasting outlook is so uncertain.
“There is potential in Pakistan. There is no doubt regarding that,” said Puneet Gupta, associate director at consultant IHS Automotive. “(But) we actually don’t feel Pakistan is in a relatively steady condition, from a mid to lasting perspective.”
Another potential turn off for investors is the size of Pakistan’s vehicle market, where 180,000 cars were sold in the 2014/2015 fiscal year. That compares along with much more compared to 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 brand-new policies were probably not bold enough to draw brand-new manufacturers, nor did they treat means to boost demand, such as lowering sales taxes.
The regional manufacturing partners of Suzuki, Toyota and Honda did not respond to requests for comment.
But Ali said they felt aggrieved that the government was favoring brand-new investors and believed they ought to be similarly encouraged to build brand-new plants and expand existing factories.
Ismail said brand-new entrants would certainly have the ability to import machinery for plants duty free. Customs duty for importing vehicle Sections has actually been set at 10 percent, while existing gamers will certainly have actually to pay 30 percent.
“We want higher competition, and we expect along with higher competition consumers will certainly be offered much better choices,” he said.
Some Pakistanis are frustrated by higher prices and the quality of locally made cars, which tend not to have actually airbags, anti-lock breaking units (ABS) and various other features considered standard elsewhere.
The cheapest Pakistani car, the Suzuki Mehran, sells for 650,000 Pakistani rupee ($6,200), or regarding double the fee of a comparable model in India.
“regional cars are so bad,” said Ali Paracha, owner of a vehicle rental company. “The market has actually been in requirement of an overhaul for at least a decade or two.”
(Extra reporting by Aditi Shah in brand-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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