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  1. 1. CIMA Motor 2009CIMA Motor 2009 Chongqing, ChinaChongqing, China Commercial Section Consulate General of Pakistan
  2. 2. Ecnomy Overview of Pakistan Motorcycle Industry in Pakistan Production Factors Cost Logistics Encouraging Policies for Investment in Motorcycle Industry
  3. 3. Ecnomy Overview of Pakistan
  4. 4. Ecnomy Overview of Pakistan  Pakistan is a country located in South Asia at a strategic and important location at the cross- roads of South Asia, the Middle East and Central Asia  It has 1,046 km coastline along the Arabian Sea and Gulf of Oman in the South, and is bordered by Afghanistan and Iran in the West, India in the East and China in the far northeast
  5. 5. Ecnomy Overview of Pakistan  Pakistan is the sixth most populous country in the world having population of 170 million  The Demographic Profile of Pakistan is such that 54% of population is below 19 years of age, 27% between 20-39 years of age, 13% between 40-59 years of age and 6% are 60 years and above  Thus, Pakistan is relatively a young country with vibrant people
  6. 6. Ecnomy Overview of Pakistan  Pakistan is one of the fastest growing economies of the world having touched a record GDP growth rate of 8.4% in 2005  Average growth rate during last four years has been 6.4%  Pakistan has over 170 million consumers with an ever growing middle class  Foreign Direct Investment (FDI) has risen sharply from a mere US$ 300 million in the 1990s to over US$ 5.15 billion in 2007- 2008  The leading sectors for FDI are communication, financial businesses, oil and gas exploration, power, trade and real estate and the main sources are China, USA, UK, Netherlands, UAE and others
  7. 7. Ecnomy Overview of Pakistan  Pakistan’s GDP (Nominal) has reached to US$ 167 billion in the year 2008 with per capita GDP of US$ 1,044  The components of GDP during 2007- 2008 were agriculture sector 21%, manufacturing sector 22% and services sector 57%  Indicate shift in the structure of Pakistan’s economy from mainly agriculture base to manufacturing and services
  8. 8. Ecnomy Overview of Pakistan Following are the important Economic Indicators of Rising Pakistan for the year 2007-2008:-  5.8% GDP growth  US$ 13 million increase in FDI during 2007- 2008 touching total FDI of US$ 5.15 billion  12% increase in exports during 2007-2008 (US$ 19.22 billion)  16.3% increase Net Revenue during 2007- 2008(Rs. 763.6 billion)
  9. 9. Ecnomy Overview of Pakistan  1.8% increase in Worker’s Remittances during 2007-2008 (US$ 6.5 billion)  1.5% growth in agriculture sector  Forex Reserves at US$ 15.2 billion  4.8% growth in large scale manufacturing sector  9.4% growth in service sector  5.4% growth in manufacturing sector  15.2% growth in construction sector  Stable exchange rate for the last 8 years
  10. 10. Ecnomy Overview of Pakistan  The wide-ranging reforms in Pakistan have resulted in a stronger economic outlook and accelerated growth specially in the manufacturing and financial services sectors  According to Doing Business Report 2008 of World Bank, Pakistan was amongst the top ten reformers in the world in 2006  Pakistan ranks 76th globally on the ease of doing business and is the 2nd best performer in South Asia after Maldives  Pakistan scores well on the indicators related to starting a business (59th out of 178) and protecting investors (19th out of 178)  For Chinese investors Pakistan offers best opportunities for investment including motorcycle giants
  11. 11. Motorcycle Industry in Pakistan Market Capacity & Outlook Market Competition Situation
  12. 12. Motorcycle Industry in Pakistan  Market Capacity & Outlook  The motorcycle industry worldwide witnessed tremendous growth in the last few years led by People’s Republic of China  This global surge in demand was also felt in Pakistan where the industry manufactured 877,377 units by end 2008  Pakistan is occupying the 7th position in production of motorcycles globally and its share in global market of motorcycles is 2%  The motorcycle industry of Pakistan is 45 years old when the local Atlas Group started assembling motorcycles in Karachi in 1964  Later on, Yamaha and Suzuki brands were introduced in Pakistan
  13. 13. Motorcycle Industry in Pakistan  The market was almost dominated by Japanese brands till 2002  43 Original Equipment Manufacturers (OEMs) operate in the motorcycle industry of Pakistan  These OEMs are supported by nearly 2,000 parts and component manufacturers employing 50,000 employees  Critical mass has been reached in Pakistan’s motorcycle industry and the prices of motorcycles in Pakistan have on the average come down by more than 30% in past 8 years
  14. 14. Motorcycle Industry in Pakistan  Since the entry of non-Japanese OEMs in Pakistan’s motorcycle market the production and sale of motorcycles has increased tremendously as depicted in the table below:- Production/Sale of Motorcycles in Pakistan Source: Engineering Development Board/PAMA Year Production/Sale in Units % Growth 2001-2002 120,627 11% 2002-2003 175,169 45% 2003-2004 371,007 112% 2004-2005 570,085 54% 2005-2006 751,669 32% 2006-2007 839,224 11.6% 2007-2008 877,377 4.5%
  15. 15. Motorcycle Industry in Pakistan  Prices of motorcycles have come down to the extent of 30% after the introduction of motorcycles made from imported Chinese parts & components  Market is likely to expand further if this declining trend in prices continues  Per capita income in Pakistan since last 8 years is increasing steadily at annual rate of 14% (From 492 US$ in 2001-2002 to 1085 US$ 2008) which is enhancing purchasing power of common man hence more sale of motorcycles in Pakistan  Industry experts in Pakistan are forecasting the demand for new motorcycles in the coming few years to increase to the extent of 1.7 million
  16. 16. Motorcycle Industry in Pakistan  Market Competition Situation (a) Major Motorcycle Enterprises & Locations  Currently there are 43 OEMs operating in Pakistan’s motorcycle industry  These include 3 Japanese OEMs and 40 other OEMs who manufacture motorcycles from mainly Chinese parts and components  The total installed capacity of all the OEMs is approximately 1.7 million units per year
  17. 17. Motorcycle Industry in Pakistan  Major Motorcycle Enterprises are as under:- 1) Atlas Honda 2) Dawood Yahmaha 3) Hero 4) Star 5) Pak Hero 6) Pak Suzuki 7) Sohrab 8) Metro 9) Others  Most of the motorcycle assemblers/OEMs are located in and around the cities of Karachi(Karachi, Hyderabad & Hub) and Lahore (Lahore, Gujrat & Gujranwala)
  18. 18. Motorcycle Industry in Pakistan (b) Current Supplying Capability/Market Share(2008) Atlas Honda 56% Dawood Yahmaha 9% Hero 5% Star 3% Pak Hero 5% Pak Suzuki 3% Sohrab 2% Metro 1% Others 16% Source: Provincial Excise & Taxation Departments of Sindh & Punjab
  19. 19. Motorcycle Industry in Pakistan  Despite rapid and significant entry of motorcycles made from parts and components imported from China the market is dominated by Japanese brand motorcycles to the extent of 68%  Besides, there is no Chinese brand as such popularized in Pakistan market of motorcycles  Local brands made from parts and components imported from China are gaining ground  Installed capacity of 1.7 million comprises of 45% units by Japanese origin OEMs and 55% units by Chinese origin OEMs
  20. 20. Motorcycle Industry in Pakistan  In both cases, 72% capacity is for 70CC models, 24% for 100CC models and 4% for 125CC models  In terms of sale, the 70CC motorcycle has almost 85% of the market. This is on account of fuel economy and trouble free maintenance  The Japanese brands though bit expensive yet their main strength is superior resale value and stronger after sales and service  Major strength of motorcycles made from parts and components imported from China is price as these are cheaper to the extent of Rs. 15,000 to 20,000 than Japanese brand
  21. 21. Motorcycle Industry in Pakistan (c) Current Foreign Investment:  The current foreign investment in motorcycle industry of Pakistan is negligible  Honda, Yamaha and Suzuki have joint ventures in Pakistan  China is lagging behind with almost no investment in this industry  Chinese motorcycle giant companies need to focus on the immense opportunity of investment in Pakistan’s motorcycle industry specially in new motorbikes driven by rechargeable batteries
  22. 22. Production Factors Cost Land Energy Human Resources
  23. 23. Production Factors Cost  (i) Land:  Availability of land (public or private) for establishment of manufacturing units in Pakistan is easy  According to World Bank – Doing Business Group study/research Pakistan’s ranking in South Asia regarding construction permission and registering of property for starting business is 2nd only, 1st being Maldives  Leasing of land for manufacturing purpose is not only cheaper but easy also  Besides, there are Special Economic Zones in various parts of the country including specific Pakistan -China Economic Zone also. For these Zones following is the policy package:-
  24. 24. Production Factors Cost Exemption of Custom duties and Taxes strictly on import of capital equipment (plant, machinery, equipment and accessories) for Zone development and projects in the Zone and not for raw materials Corporate Income Tax holiday for a period of five (5) years for Projects in the Zone from the date of starting commercial operations The normal incentives for exports as available to projects established any where in the country shall be applicable to exports from the projects in the Zone Free facilitation service, one window facility and guidance to investors by the Board of Investment
  25. 25. Production Factors Cost Establishment of Workers Training Centers in the Zone Dry port facility in the Zone to facilitate imports and exports Federal Government/agencies to provide gas, electricity and other utilities at the zero point of the Zones The facility for obtaining foreign private loans by all foreign investors, for financing the cost of imported plant and machinery required for setting up the project Foreign controlled manufacturing concerns treated at par with other local companies for obtaining financial facilities for their working capital requirements Foreign controller companies are allowed domestic borrowing to meet their working capital requirements
  26. 26. Production Factors Cost  (ii) Energy  At present Pakistan is facing shortage of electricity  By the end of December, 2009 this problem would be completely resolved as work on power plants including hydro-electric power generation is going on with full speed  This would ensure getting electricity connections quickly, reliable supply with no frequent outages and supply of electricity on cheaper rates  There is no problem as far as supply of gas is concerned. Supply of POL products is also available uninterrupted
  27. 27. Production Factors Cost  (ii) Human Resources:  Pakistan is low wage, labour surplus economy  Wages are low by international standards and they are almost equal as compared to prevalent wages in India and Bangladesh and even China  Skill level of Pakistan’s workers is adequate and availability is ensured  Productivity of Pakistan labour is as good as that of regional countries  Pakistan’s human development, basic education and worker skills indicators are tremendously good
  28. 28. Logistics
  29. 29. Logistics  A developed infrastructure is vital to the economic progress of country  The substantial investment in the development of physical infrastructure of Pakistan gives it a competitive edge and plays a key role in transforming the country into trade, economic and energy hub of Asia  The Government of Pakistan has planned 50 mega projects for provision of better quality highways, expressways & motorways throughout the country during the next few years  Some of the planned initiatives include; construction of major new motorways, modernization of trucking fleet with newer, more efficient, and environment friendly vehicles; promotion of industrial clusters along highways/motorways, establishment of warehouses by the private sector along the network
  30. 30. Logistics  (i) Road Transport  Road transport is a backbone of Pakistan’s transport system, accounting for 90 percent of national passenger traffic and 96 percent of freight movement  Over the past ten years, road traffic – both passenger and freight – has grown much faster than the country’s economic growth  North South Trade corridor is a major initiative with approximate cost of US$ 6 billion to reduce transportation time of good from ports to factories and vice-versa
  31. 31. Logistics  (ii) Road Network 10,849 km long National Highway and Motorway network contributes 4.2% of the total road network and carries 90% of Pakistan’s commercial traffic The Road density of Pakistan is 0.32 km/sq. with the target to double it in the next ten years road network grew at average rate of 3.3%
  32. 32. Logistics  (iii) Railways  Pakistan Railways has shown its good performance since 2000-01 in respect of passenger as well as freight traffic  During the last eight years (2000-2008), Pakistan Railways has been showing an increasing trend in both passenger and freight traffic, registering an average increase of 5.6 percent and 7.9 percent per annum, respectively  A positive growth of 6.7 percent and 7.0 percent has been recorded in passenger traffic and freight traffic respectively during 2007- 2008
  33. 33. Logistics  (iv) Airlines  The government has adopted a selective open skies policy with a number of countries on the principle of reciprocity and bilateralism  The progress of the airline sector could be mapped through momentous performance of PIA  Pakistan International Airlines carried a total number of 4.245 million passengers during July 2006 – March 2007 achieving 11.63 million RKRs revenues
  34. 34. Logistics  (v) Ports & Shipping  (a) Karachi Port Trust:  Karachi port handles more than 65% of the entire national trade  Deep natural port provides safe navigation to 75,000 DWT tankers and modern container vessels  In July-March 2006-07, the port handled a cargo volume of 22.4 million tones volumes marking 12.5% increase  Besides, most modern terminal operators like KICT/PICT are operating
  35. 35. Logistics  (b) Port Qasim  High private sector involvement in Container terminals, Commercial terminals and even Oil terminals  23.6 million tones of cargo marking an increase of 10.8% was handled in 2005- 2006  In July-March 2006-07, the cargo handled was 19.7 million tones  Besides, new terminal operator QICT is busy in handling cargo
  36. 36. Logistics  (c) Gwadar  Gwadar deep-sea port emerges as a place of great strategic value enabling high-volume cargo  The construction of the port has spurred other major infrastructure projects in the area  The 700 km. Makran Coastal Highway reduced travel time to Karachi from 48 hours to only 7 hours  Other road projects include the Gwadar- Quetta-Chaman road and a road link to the town of Khuzdar in eastern Balochistan  The port will now be in competition with the likes of Chabahar, a port in Iran, as well as Dubai in the United Arab Emirates
  37. 37. Logistics  Here are some of the projects already underway or in place: -Fiber optic network has reached Gwadar -Gas supply plant and network partially in place -20 more bank branches have been opened -Construction of a degree college and a cultural complex -East Bay expressway and railway line alignment has been finalized -Construction of new international airport -450 + modern houses added in the city -Construction of theme parks -32 complimentary plots arrange from private schemes for various health/educational activities. -Split sewerage system with recycling and disposal in nearby green
  38. 38. Logistics Selected Major Planned Projects for the Next Five Year Project Length (KM) 1 Improvement/Widening of KKH (Khunjerab- 335 2 Realignment of KKH(Railkot-Sazin Section) 120 3 Improvement/Widening of KKH(Sazin Manshera Section) 258 4 Manshera-Abbottabad-Hasanabdal Expressway 97 5 Peshawar –Torkhum 51 6 Peshawar Notherrn Bypass 34 7 Underpass at Wah Gate No.1 Taxile-Hasanabdal Section - 8 Wazirabad-Pindi Bhattian Expressway(E-3) 100 9 Hiran Minar Interchange (M-2) with link road - 10 Faisalabad-Khanewal Expressway(E-4) 184 11 Khanewal-Lodhran Expressway 100 12 Lodhran-Sukkur Expressway 385 13 Ratodera-Sehwan(N-55), ACW 200 14 Karachi-Hub-Dureji-Dadu Motorway(M-7) 270 15 Karachi-Hyderabad Motorway(M-9) 136 16 Jand-Kohat National Highway(N-80) 46 17 Noshki-Dalbadin Section(N-40), Balochistan 165 18 Gujranwala-Dina Expressway 100 19 Chakdara-Dir, Kalkatak-Chitral (N-45) 120 20 Bridges over River Indus in Punjab & Sindh -
  39. 39. Encouraging Policies for Investment in Motorcycle Industry
  40. 40. Encouraging Policies for Investment in Motorcycle Industry:  (i) Salient Features of Pakistan’s Investment Policy Pakistan is having liberal investment policy in general with following salient features:-  Almost all economic sectors are open to foreign investors  Government permission for investment in manufacturing sector is not required except for specified industries such as arms & ammunitions, high explosives radioactive substances , security printing and currency and  Foreign equity upto 100% is allowed.  0-5% customs duty is chargeable on plant, machinery and equipment.  Remittance of capital, profits, royalty, technical and franchise fee are allowed.  There is no sales tax on the import of machinery.
  41. 41. Encouraging Policies for Investment in Motorcycle Industry:  Tax relief: First year allowance or Initial Depreciation Allowance @ 50% of plant, machinery and equipment is allowed for the investors in the manufacturing sector.  No duty, no drawback and DTRE Scheme is in place for export-oriented industries.  Long term finance for export oriented industries is available  Equal treatment of local and foreign investors is hallmark of policy/national treatment principle as defined in WTO is fully guaranteed.  WTO compatible Intellectual Property Rights regime is introduced.  There is strong network of Export Processing Zones/Industrial Estates.  China specific industrial zone is also available.  Foreign Investment is fully protected by following Acts:  Foreign Private Investment (Promotion and Protection) Act, 1976.  Protection of Economic Reforms Act, 1992.  There are Investment Protection agreements with 47 countries and Avoidance of Double Taxation agreements with 52 countries.
  42. 42. Encouraging Policies for Investment in Motorcycle Industry:  (ii) Present Tariff Structure: The industry in Pakistan operated under the Deletion Policy formulated and implemented by the Ministry of Industries and Production from 1996 till 2005. This deletion/localization/indigenization policy stipulated the mandatory progressive use of a certain percentage of locally manufactured parts & components. The table below shows the deletion/indigenization targets for the various motorcycle models: Deletion/Localization Targets for Motorcycle OEMs Source: Engineering Development Board, Pakistan S.No. Model Deletion/Localization Target June 2001 % June 2002 % June 2003 % June 2004 % June 2005 % 1 Upto 70CC 83.00 85.00 86.50 88.00 90.00 2 B/W 70- 100 CC 82.00 83.00 85.00 85.50 86.00 3 B/W 100- 175 CC 74.00 81.00 82.00 83.00 84.00
  43. 43. Encouraging Policies for Investment in Motorcycle Industry: With the signing of the WTO, Pakistan moved from the Deletion Policy to the Tariff Based System (TBS) in July 2005. Under the new system of TBS protection is provided to the local parts and component manufacturing industry through tariff measures. The below table shows tariff rates currently applicable to the motorcycle industry: Tariff Rates Applicable to the Motorcycle Industry Source: Federal Board of Revenue Sr.No. Product Applicable Customs Duty 1. CBU 90.0 % 2. CKD Kit Non Localized Parts 30.0% 3. CKD Localized Parts 50.0%
  44. 44. Encouraging Policies for Investment in Motorcycle Industry:  (iii) Auto Industry Development Plan  Since 2007 Government of Pakistan has initiated a 5 year project known as Auto Industry Development Plan (AIDP)  This envisages an increase in the industry’s annual output  The plan is intended to improve the domestic automotive industry, through the development of local capacity and “auto clusters”  This plan/programme covers all types of automotive vehicles including two wheelers & three wheelers. Since this is a five year plan therefore there is predictability and transparency for the tariff schedules as the change in tariff structure for full five years till 2011 is specified
  45. 45. Encouraging Policies for Investment in Motorcycle Industry:  This programme has been appreciated by the auto industry of Pakistan as a step in the right direction  At the end of five year, if it is found successful, Government of Pakistan may consider to extend it till the achievement of set targets 45
  46. 46. Thank you! 谢谢!