Lower Import Duties Rattle Pakistan's Mobile Handset Makers

Pakistan Federal Board of Revenue has recently announced that “Sales Tax and Income Tax at import stage has been drastically reduced in case of smartphones of Rs15,000 or below". This action was apparently taken after Digital Pakistan Initiative led by Tania Aidrus asked for it. It has come under fire from the country's nascent mobile phone and smartphone manufacturing industry which is producing low-cost mobile phones. Pakistan's mobile handset market is the 8th largest in the world. Current annual demand is for about 40 million units of which 13 million are assembled in Pakistan while the rest are imported, according to a report by Dunya News. The import bill for Fiscal Year 2020 is expected to be about $1.2 billion. Boosting it will save billions of dollars of precious foreign exchange. It will create tens of thousands of jobs and spawn new auxiliary manufacturing industries for chargers, headphones, USB cables, cases, etc.  In future, Pakistan could become a significant exporter of mobile handsets.

GFive Promo. Source: GFive

Mobile Phone Demand:

There are currently 164 million mobile phone users in Pakistan, the 8th largest in the world.  The current annual demand for mobile phones in the country is estimated at about 40 million units, according to Pakistan Telecommunication Authority (PTA). The fastest growing demand is for 4G smartphones.

According to Pakistan Bureau of Statistics, mobile-phone imports (HS Code: 8517.1219) reached $498 million in 5 months period from July to November 2019,  64% jump over the prior year. Fiscal 2019-20 imports are expected to reach $1.2 billion.

Earlier, the growth rate for 4G handsets jumped from 16% in 2018 to 29% in 2019. Imports of mobile handsets soared 69% from $ 364 million in 2018 to $ 615.7 million in 2019. Pakistan is world's seventh largest handset importer and the 8th largest mobile phone market.

Pakistan Telecom Indicators. Source: PTA

Domestic Manufacturing:

Pakistan Telecommunication Authority (PTA) has granted permission to 26 local companies for manufacturing out of which 15 are currently in production. Among those currently producing mobile handsets in Pakistan are: E-Tachi, GFive, Haier, Infinix and Tecno. They are producing  13 million mobile phones.

Domestic manufacturers claim that they can meet 80% of demand for mobile handsets over the next 2 to 3 years if they are sufficiently protected by higher tariffs on imports.

Domestic mobile phone manufacturing industry will save billions of dollars of precious foreign exchange. It will create tens of thousands of jobs and spawn new auxiliary manufacturing industries for parts, chargers, headphones, USB cables, cases, etc.  In future, Pakistan could become a significant exporter of mobile handsets.

Summary:

Pakistan's mobile handset market is the 8th largest in the world. Current annual demand is for 40 million units. Domestic plants produce 13 million units while the rest are imported.  The import bill for Fiscal Year 2020 is expected to be about $1.2 billion.  The country's nascent mobile handset manufacturing industry fears a serious early setback if the FBR decision to lower duties on imports of foreign made mobile phones is not reversed. It is being blamed on Tania Aidrus, Prime Minister Imran Khan's advisor on Digital Pakistan Initiative, who would like to increase availability of mobile handsets. Domestic mobile phone manufacturing industry will save billions of dollars of precious foreign exchange. It will create tens of thousands of jobs and spawn new auxiliary manufacturing industries for chargers, headphones, USB cables, cases, etc.  In future, Pakistan could become a significant exporter of mobile handsets.

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Digitization in Pakistan: Dr. Nadeemul Haq Interviews Riaz Haq (Urdu)

Eminent Pakistani economist Dr. Nadeemul Haq (no relation to Riaz Haq) interviewed Riaz Haq last week for his podcast "Soch Bichar" to talk about the subject of "Digitization in Pakistan" in Urdu. Here is a summary of the interview:

Dr. Nadeemul Haq: How do you define "digitization"?

 Riaz Haq: To me, digitization on a national scale is pervasive use of digital technologies in all aspects of life: business, trade, industry, media, finance, government, education, sports, entertainment, military, etc etc.

NH: What is happening in Pakistan on digitization?

RH: Jahangir Tareen, a close aide to Prime Minister Imran Khan, has recently announced the hiring of a woman of Pakistani origin who is currently working for Google in Singapore. He said she will lead the digitization effort in Pakistan from the Prime Minister's office.

NH: Is digitization possible in Pakistan?

RH: Yes, it is possible. Digitization requires digital infrastructure and human capital. Pakistan is making progress on both of these. You could argue that it is not happening fast enough but both are happening.

A lot of fiber is being laid and Zong has recently completed 5G trials. There are about 70 million subscriptions to mobile broadband. Number of smartphones being sold is rising with 1 million to 2 million being sold each month.  About 30,000 to 40,000 young people with IT skillsets are graduating from various educational institutions.

NH: What can the government do to help increase digitization?

RH: The government's job is in the policy areas to facilitate it. For example, the government bureaucracy needs to ensure that the required licenses for 5G are issued in a timely manner to make it widely available. The government needs to provide various incentives to promote investment in digital fiber and data centers, etc etc. The government also needs to invest in development of human capital and skillsets needed for digitization.

NH: How can Pakistan promote digital entrepreneurship? Startups?

RH: Pakistan needs to help develop an ecosystem for startups:  Legal framework, Incubators, venture capital, etc etc.

NH: Pakistan already has several incubators. What do you think about them?

RH:  Pakistan can learn from Silicon Valley incubators like ycombinator.  Silicon Valley incubators are created and managed by successful entrepreneurs and startup investors. Pakistan does have a few successful entrepreneurs and investors like Monis Rehman (rozee.pk), Zia Chishti (afiniti.com), Musaddir Sheikha (Careem)  and Asad Jamal (ePlanet). Incubators headed by them would be more successful.

NH: What would  be your advice to youngsters wanting to do startups in Pakistan?

RH: Pakistan has the world's 4th largest number of tech freelancers. Some of these freelancers have the potential to start up companies if they can get some good coaching by successful entrepreneurs and have access to venture capital. These youngsters can also grow their freelance business and use the proceeds to bootstrap into successful tech companies.

NH: Please explain for our listeners what is bootstrapping?

RH: Bootstrapping is the use of your own internally generated capital to grow a company. The most successful example of bootstrapping is Microsoft. Bill Gates and Paul Allan had developed a rudimentary BASIC interpreter with their own resources when IBM approached them and asked to purchase their "operating system". Bill and Paul didn't have an "operating system". So they bought one from Gary Kildall of Santa Cruz and sold it to IBM for its PCs. The rest is history.

NH: Will digitization in Pakistan hurt employment? 

RH: Yes, that is a very valid concern. I remember when there was a Blockbuster video rental store at almost every corner in major American cities and towns. Netflix wiped them out and the franchisees and employees of the these stores lost their businesses and jobs. Similarly, Uber ride-hailing service has hurt established taxi companies and taxi drivers. However, companies like Careem, Lyft and Uber  have opened up the possibility for anyone with a car to become taxi drivers on part-time and full-time basis. It's spawned "Gig Economy".

Here's the link to the podcast:

https://nhaquepod.podbean.com/e/digitization-and-startups/

Related Links:

Haq's Musings

South Asia Investor Review

Public Sector IT Projects in Pakistan

Pakistan's Gig Economy 4th Largest in the World

Afiniti and Careem: Tech Unicorns Made in Pakistan

Pakistani American Heads Silicon Valley's Top Incubator

Silicon Valley Pakistani-Americans

Digital BRI and 5G in Pakistan

Pakistan's Demographic Dividend

Pakistan EdTech and FinTech Startups

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Fintech Revolution in Pakistan

E-Commerce in Pakistan

The Other 99% of the Pakistan Story

FMCG Boom in Pakistan

Belt Road Forum 2019

Fiber Network Growth in Pakistan

Riaz Haq's Youtube Channel

Viewpoint From Overseas Channel