- The prevalent “On Money” culture compels consumers to pay black-market premiums due to limited vehicle availability, costing them an estimated PKR 30 – 34 billion annually.
- Transitioning to electric vehicles (EVs) not only promises to lower Pakistan’s fuel import expenses but also addresses the country’s deteriorating air quality, asserts VC PIDE.
Islamabad, October 10, 2024 – The Pakistan Institute of Development Economics (PIDE) launched its eagerly awaited book, “Driving Backwards: What is Wrong with Pakistan’s Automobile Industry?” at a gathering held at the National University of Modern Languages (NUML) in Islamabad. This publication offers an in-depth examination of Pakistan’s underperforming automobile sector and outlines a roadmap for its revitalization and transition into the future.
Dr. Usman Qadir, Senior Research Economist at PIDE, presented the book’s key findings and discussed the persistent challenges confronting the industry. He highlighted the necessity for Pakistan to abandon protectionist policies and instead focus on integrating its automobile sector into global value chains to enhance competitiveness and foster innovation.
The current state of Pakistan’s automobile industry mirrors the challenges it faced decades ago, characterized by poor-quality, overpriced, and technologically outdated vehicles produced in low volumes. To stimulate growth in a sector that has seen little advancement over the last fifty years, PIDE suggests imposing higher taxes on automobile manufacturers that do not meet export targets. This approach would incentivize companies to explore global markets.
In his keynote address, Dr. Nadeem Ul Haque, Vice Chancellor of PIDE, emphasized that transitioning to electric vehicles (EVs) could significantly reduce Pakistan’s fuel import bills while improving the country’s worsening air quality. He also pointed out that research and development (R&D) is the backbone of the global automobile industry but is severely lacking in Pakistan. He encouraged students to aspire to leadership roles in the global market through innovation, entrepreneurship, and research.
“Driving Backwards” is the culmination of over three years of extensive research and consultations with industry stakeholders at PIDE. The book underscores the considerable potential of Pakistan’s automobile sector, which has been hampered by excessive regulation, insufficient competition, and an overemphasis on localization that has not produced the intended outcomes. The 1987 Localization Policy (Deletion Program) aimed to reduce imports of car components by promoting local production but primarily focused on low-tech components, failing to achieve meaningful technology transfer or skill enhancement. Additionally, the transition to a Tariff Based System (TBS) for protecting locally produced components has constrained the growth of the automobile and parts manufacturing industry, leaving it disconnected from global value chains.
The publication also addresses the significant issue of the “On Money” culture, which compels consumers to pay black-market premiums due to limited vehicle availability, costing them an estimated PKR 30 – 34 billion annually, according to PIDE research. The book stresses that these inefficiencies stem from flawed policies and underscores the need for reforms aimed at enhancing consumer welfare and providing access to affordable, high-quality vehicles.
Furthermore, the book includes three chapters dedicated to Pakistan’s transition to electric vehicles. While the shift to EVs is crucial for both economic and environmental reasons, several challenges must be addressed before large-scale adoption can occur. PIDE asserts that the government should provide equal opportunities for the sale of EVs in Pakistan, allowing consumers to choose their preferred vehicles.
Dr. Manoor Ahmed, Pakistan’s former ambassador to the WTO, commended PIDE’s research on reforming the automobile industry during the book launch. He described “Driving Backwards” as a timely resource for policymakers navigating recent economic challenges and the conditionalities of the IMF program. He further emphasized the need to enhance resource allocation efficiency in the country to fully harness the manufacturing sector’s economic potential, which requires a comprehensive shift and modernization of Pakistan’s policy approach.
The event concluded with an engaging Q&A session, where attendees inquired about the future of Pakistan’s automobile industry, particularly concerning electric vehicle adoption and the global shift toward sustainable mobility. The authors reiterated that although Pakistan is lagging in EV adoption, the country has a unique opportunity to leap into the future by embracing forward-looking policies that foster innovation and sustainability.
PIDE urges industry leaders, policymakers, and entrepreneurs to reevaluate the current trajectory of the automobile sector. The book’s recommendations advocate for a transition to electric vehicles, fostering competitiveness through joint ventures, and integrating the industry into global value chains—essential steps for realizing the long-term potential of Pakistan’s auto industry.
