F.P. Report
KARACHI: Crisis in the Pakistan’s automotive industry deepened as makers laid off thousands of employees in recent months due to around 70 percent decline in the sale of vehicles.
Insiders revealed that a government ban on the import of raw materials, a massive depreciation of the rupee and soaring inflation have ruined the industry.
Pakistan is in the worst economic crisis of its history with foreign exchange reserves falling to $4 billion, barely enough to cover three weeks of imports, and currency plummeting to historic lows against the US dollar. The government imposed restrictions on the import of raw materials last year to prevent the outflow of forex from Pakistan, leading to a sharp decline in industrial output and causing layoffs and unemployment. As the rupee devaluation continued unhindered, commercial banks also stopped opening letters of credit (LCs), leaving importers in a limbo to arrange dollars for already placed orders.
To compound the crisis, inflation soared to 36.4 percent in April, the highest in the country since 1964.
Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Chairman Munir Karim Bana confirmed retrenchments “as production has virtually come to a halt.”
Manufacturers have shut down plants due to decline in sales as “there are no buyers in the markets,” he said in an interview.
Bana said the manufacturers have been paying demurrage for failing to offload consignments worth billions of rupees within the time agreed. The raw materials were stuck at the Karachi port, he added.
PAAPAM supplies around 90 percent of local parts of vehicles to the auto industry.
He said manufacturers have also been paying interests on loans from the banks as a result of which the material was getting devalued.
Bana said spare-part makers have been paying taxes as all sales are documented. “But now, we are bankrupt. There seems hardly any chance of revival of industry in the near future.”
Car sale declines
Pakistan Automotive Manufacturers Association spokesperson Abdul Waheed admitted that the sale of vehicles has declined around 70 percent in one year.
He said car manufacturing plants have been shut due to multiple reasons, including inflation, decrease in sales and ban on imports. Vehicle prices have shot up due to rupee devaluation causing a significant decline in demand, he added.
The companies were paying their staff despite closure of plants, he said and added that the future seemed to be bleak.
Waheed said the current political and economic environment in Pakistan hit industrial production and soaring inflation has hampered purchasing power of the consumers.
