Tuesday, August 2, 2022

Pakistan: The Next Electronics Manufacturing Hub?

Soaring demand for consumer electronics and low labor costs are attracting major global smartphone manufacturers like Samsung to Pakistan. In 2021, local manufacturers produced 25 million handsets, up a whopping 88% increase from 13 million produced in 2020. A key factor credited for this rapid production ramp-up is the new Mobile Device Manufacturing Policy announced and implemented by former Prime Minister Imran Khan's government in 2020. It imposes high tariffs on the import of mobile phone sets and offers tax rebates for local manufacturing. The policy set a 49% localization target by June 2023, including 10% localization of components on the motherboard and 10% localization of batteries.  Pakistan is forecast to be the world's 7th largest consumer market by 2030. The key to attracting more manufacturing in Pakistan lies in continuation of pro-investment policies and a measure of political stability. 

Pakistan Going From Imports to Exports of Mobile Handsets. Source: PIDE

The local manufacturing plants have assembled 14.08 million mobile phone handsets in the first six months (January-June) of 2022, while imports declined to 1.14 million handsets, according to the Pakistan Telecommunication Authority (PTA). Implementation of Device Identification Registration and Blocking System (DIRBS) and conducive government policies including the Mobile Device Manufacturing Policy 2020 have created a favorable environment for mobile device manufacturing in Pakistan.

Pakistan Mobile Phone Market. Source: PIDE

In addition to Samsung, a number of Chinese mobile handset manufacturers are investing in Pakistan to ramp up local production. Itel has manufactured 3.91 million mobile devices followed by VGO Tel's 2.97 million, Infinix 2.65 million, Vivo 2.45 million, Techno 1.87 million, QQMEE 0.86 million and Oppo 0.67 million. After the export of the first lot of 4G smartphones to the UAE in 2022, Pakistan has now set $1 billion target for mobile phone exports for the current fiscal year. 

Pakistan Telecom Indicators. Source: PTA

Pakistan wants to emulate Vietnam which has emerged as one of the leading countries in the assembly and export of smartphones and other consumer electronics devices in the past decade. Apple has recently moved part of its iPad manufacturing to Vietnam from China, where Covid lockdowns have disrupted supply chains.  TRT World has recently quoted Quentin D’Silva, the head of Lucky's smartphone division in Pakistan, as saying, “It’s only in the last five to seven years that the smartphone business has mushroomed in developing countries like ours". 



3 comments:

Marshall said...

Not going to happen unless we have consistent, investor friendly policies. Manufacturing needs cheap energy. Pakistan energy rates are highest in region.

If Imran Khan comes back and our military allows him to work, Pakistan can realize its true potential. Otherwise if army wants to keep playing with its corrupt political toys, who have no vision for country execpt to steal more money, Pakistan has no future. Army needs to be kicked out of country's political decisions.

Moh said...

If our military leadership was this sincere, we sould have been Asian tiger long time ago. Its military which has been ruling the country directly or indirectly for last 75 years. Even after 75 years, we are still begging a billion or 2 dollars.

Riaz Haq said...

Moh: "If our military leadership was this sincere, we sould have been Asian tiger long time ago"

Pakistan's military-run enterprises need upgrade to revive economy
Corporate empire has potential to be globally competitive

By Uzair Younus


https://asia.nikkei.com/Opinion/Pakistan-s-military-run-enterprises-need-upgrade-to-revive-economy

It is time to accept that rather than trying to cut this empire down to size, it may be more fruitful to develop Military Inc. 2.0: a corporate empire that is globally competitive.

Pakistan's military began playing a role in the economy soon after independence. The construction of the 805-km cross-border Karakoram Highway in the Himalayas was a major inflection point. The Frontier Works Organization was formed then with the mission to construct the highway on the Pakistani side.

Today, military-run organizations have their tentacles spread across the entire economy, with the military-owned Fauji Foundation being one of the largest conglomerates in the country. The government has exempted both the Army Welfare Trust and the Fauji Foundation from income taxes, giving them an edge over privately owned companies.

The military also operates housing developments across the country, with the Defence Housing Authority (DHA) a dominant force in the country's real estate sector. While the initial aim was to develop homes for serving and retired military personnel, DHA has since evolved into a multibillion-dollar entity with a presence in all major cities.

The military's economic footprint, however, is indicative of broader economic issues plaguing Pakistan. For decades, Pakistan's civilian and military elites have extracted wealth by engaging in highly protected, low-productivity sectors. As a result, Pakistani businesses are both globally uncompetitive and provide shoddy services to domestic consumers.

An example is the DHA project in Karachi, built on land reclaimed from the Arabian Sea. The predominant role enjoyed by the military meant that development of the DHA site occurred without proper access to proper stormwater drainage, resulting in multimillion-dollar homes, paid for in cash, routinely being flooded during monsoon rains.

Political volatility and instability have further compounded the problems, leading to an anemic rate of foreign direct investment, particularly in export-oriented sectors. The result: recurring balance of payments crises that require bailouts.

To emerge from this crisis, Pakistan's military must learn from its strategic ally China. While the Chinese regime also began with military-run organizations developing public infrastructure, over the decades, it has developed companies that have a more global outlook.

In addition, China focused on improving quality by leveraging technology while also investing in global best practices. This ensured that the country built globally competitive businesses that enhanced China's technological reach, such as telecommunications group Huawei Technologies.

Pakistan's military would do well to mimic China's strategy to become globally connected, competitive and innovative.

Such a reconfiguration may solve Pakistan's macroeconomic challenges and recurring external crises, as the military is finding it difficult to muster resources required to compete with an India that is growing at a faster pace and rapidly modernizing its military. This is tilting the balance of power in the region toward India, creating national security risks for Pakistan.

Critics will argue that reorienting the military's corporate empire will only worsen the challenges facing Pakistan's floundering democracy. This concern is valid, but Pakistan's growing economic challenges mean that it is time to prioritize sustainable growth and socioeconomic development.

Changing the military's corporate approach is likely to create the space for broader economic reforms that are urgently needed to end Pakistan's protracted economic decline.