TABLE 5.1: MAGNITUDE OF HHI, 2010-11

55
There is evidence of lack of innovation in terms of changes in models, quick availability, fuel efficiency, increase in user efficiency and cost cutting. A key indicator of the lack of competition is late deliveries and high premium payments even in the presence of substantial excess capacity (see Table The high prices of cars is demonstrated by the high ratio of prices to average household income, which places Pakistan in the lowest decile of countries in terms of affordability of cars. Positive factors contributing to greater competition are, first, entry has been facilitated by removal of the requirement for obtaining licenses for investing in the automobile sector. The
AIDP, as highlighted in the previous chapter, allows new entrants to import CKD cars at the same rate, 35 percent, as auto parts. As per the general Industrial Policy, a number of incentives are available to new entrants including 50 percent initial depreciation allowance, 100 percent foreign equity and full remittance of profits and low customs duty of 5 percent on imported plant and machinery. It is possible, however, that the limited size of the market in Pakistan has restricted entry. Further, import of used and reconditioned cars has been liberalized, but only under gift, personal baggage schemes and transfer of residence. But this policy has been revised year-to- year, especially with regard to provisions for depreciation. What is the net effect of the negative and positive factors on competition among car
OEMs? Table 5.2 gives estimates of profitability, measured as the return on capital employed, indifferent sub-sectors. In the case of car assemblers, the rate of return was very high in 2005, during a period of great buoyancy in demand. Since then it has fallen sharply to 12 percent, highlighting the cyclical nature of this industry. Nevertheless, car manufacturers continue to enjoy higher rates of profit than for the private sector as a whole. The Competition Commission of Pakistan (CCP) has prepared a report evaluating competition in the automobile industry. The report concludes that The automotive industry is facing problems of low volumes underutilization of capacity, high prices, late delivery, premium and slow transfer of technology. Therefore, requirement of effective competition is much more pronounced now than ever before to keep the industry afloat The report proposes the following measures to improve competition

56
i) Tariff on import of new cars in all segments of the market be reduced to bring protection to manufacturers down to 5 – 10 percent. ii) Change in the market supply chain and terms applicable to purchasing vehicles. In particular, there should be legal prohibition on payment of premium. iii) Consistency in policies, such that frequent changes in taxation, deletion and import policies are avoided. The report has been placed on the website of CCP for public comments.

Download 0.77 Mb.

Share with your friends: