Harsh economic conditions in Pakistan forcing global auto majors to leave country

Depleting forex reserves has pushed down the value of Pakistani Rupee, compelling the government to curb its import bills. Auto majors are facing inventory shortage following restrictions on import of auto parts, forcing the companies to shut shops.

Karachi, Dec 28: To keep pace with the world economy, individual nations will have to keep their industrial growth going. Having thriving engineering and auto industries adds value to the economy and pushes the skill set of individual citizens to rise to the occasion. But Pakistan has none of it. Over the years, it invested all its time, money and energy on breeding and exporting terror, and the end result is a ruined economy, heavily indebted to and dependent on overambitious countries.

The situation has come to a pass now that foreign investors are closing their shops and leaving the country. Multinational auto majors Toyota and Suzuki are a few to name among them. After Toyota, Suzuki too has now announced that its production plants in the country will be closed completely in the first week of January due to inventory shortage, following a restriction on the import of auto parts.

Birth of Pak Suzuki

As industrialisation began in Pakistan after Partition, many multinational companies evinced interest in setting up their units there. Though belated, Japanese auto giant Suzuki entered the Pakistan market in a big way in 1982. A joint venture was formed between the government and Suzuki (Awami Auto Ltd) in which the Japanese initially held 25% share but its pie went up gradually and as of now, the company's share has gone up to more than 70%.

Bleeding forex reserves

However, due to its wrong orientation, Pakistan's economy slipped into an abyss. Its foreign reserves started depleting and touched nadir. As a result, the value of Pakistani Rupee (PKR) too went into a free fall. It has now gone down in the market by 20% with a trickle-down effect of its status in the world market. This has led to discredit of the sovereign bonds of the State of Pakistan.

As per latest reports, the price of the bonds are reduced by 30% to its all-time low. This is for the 23rd time that Pakistan is entering the programme of International Monetary Funds (IMF). Among various factors, this is the most important one that contributes to the rise of the dollar price in the open market. The price of the US dollar in Pakistan has now crossed PKR 200.

This has created havoc in the market. While the incumbent Finance Minister Ishaq Daar tried to put a check on the skyrocketing dollar price, the artificial curtail back fired. This has created a big hole in the pocket of the State exchequer as far as forex reserve is concerned. The reports of the State Bank of Pakistan (SBP) implicate a severe shortage of US dollars in the open market. The situation has compelled the government to curb its import bills.

Auto industry on verge of closure

Pak Suzuki Motor Co: As discussed above, the company has announced the closure of its assembling plants between January 2 and 6, citing shortage of inventory due to curbs on import of auto parts. According to reports in the Pak media, the company has been served with a notice by the central bank stating of a mechanism of prior approval of the articles that lies under the HSM code 870e category (including the complete knockdown kits) vide circular no. 9/2022 dated May 20, 2022.

Indus Motor Corp: In context to the prior circular from the central bank, the Toyota assembling plant under the nomenclature Indus Motor Corporation (IMC) is also facing the similar problem due to which the top management of the company has decided to shut down its units, citing its struggle with the delays pertaining to approvals of imports. During a briefing session last month, company's top officials mentioned the restrictions imposed by the central bank and the ongoing PKR depreciation as the major factors that have dented the auto sector of the country beyond repair.

Baluchistan Wheels Ltd: Pakistani auto sector is primarily dependent on imports of the knockdown kits but it has now been caught in the exchange rates crisis. As per SBP, after the battered PKR depreciation, restrictions have been imposed on opening letters of credit (LoCs) for imports. Following the development, the management of Balochistan Wheels too has announced its closure by the end of this month.

As per economic experts, the price of auto parts has gone up manifold which has led to a crash in the demand. The situation will continue to remain the same till the crisis of energy and foreign exchange reserves is dealt with a proper economic outlook and revived, they conclude.