New entrant policy: Yamaha deal likely to bring new investment fervour

The project envisages building and selling global models of Yamaha motorcycles which have never been built in Pakistan before, enabling the country to come at par with the rest of the world. DESIGN: CREATIVE COMMON

KARACHI: 

Despite stiff opposition from existing automobile companies, the decision of the government to facilitate Yamaha as a new applicant and finally signing a New Entrant Agreement (NEA) with the Japanese company, is undoubtedly a giant leap towards giving a new impetus to Direct Foreign Investment (FDI) in Pakistan.

The decision of Yamaha to establish its plant in Pakistan will encourage other famous brands to invest in different sectors of the economy as under this policy the country offers more lucrative business opportunities to newcomers than those offered by regional countries.

It may be mentioned here that it took about four years for Yamaha to win this deal. In fact, the automobile industry was against extending this facility to Yamaha, because according to them facilitating a particular company by distorting the tax structure would undermine the principles of free market and go against the spirit of competition. They pointed out that unrestricted import of 100 per cent Completely Knocked Down (CKD) parts would result in the closure of vending industry and as such the new entrant policy would ultimately dent the tax revenue stream.

The new entrant policy allows import of 100 per cent CKD parts at highly concessional rates. The existing customs duty on import of CKD parts is 32.5 per cent whereas the ministry has offered an attractive incentives package for the new entrants for first three years – 5 per cent duty in the first year, 10 per cent in the second and 20 per cent in the third year.

During the first three years, the new investors would be required to achieve localisation/deletion to the extent of 50 per cent by value. At the end of this period, the new entrants shall be allowed import of non-localised parts at the prescribed rates, ie, 32.5 per cent of customs duty for a further period of two years. Thereafter, the new entrants would be required to match the levels achieved by the existing players.

The Yamaha contract can be termed a milestone in achieving the investment target, because according to the Board of Investment (BoI) statistics, in the latest financial year ending June 30, 2012, FDI plunged to $813 million. Economists describe this situation as alarming.

The figures compiled by BoI show that in the latest seven-month period (July-Jan 2012-13), FDI in Pakistan amounted to $525 million with the biggest chunk going in the foreigners’ all-time favorite oil and gas exploration and production sector ($327m), followed by financial sector and transport and construction. Fast Moving Consumer Goods (FMCG) is another sector of choice for foreign inflows. The growing number of multinational food franchises proves the point. Inflows from US, UK, Switzerland, Hong Kong and Italy have been in the lead.

As Yamaha Japan gets ready to bring in $150 million Foreign Direct Investment (FDI) for setting up a motorcycle manufacturing plant on a 50-acre plot at state-of-the-art, first of its kind Bin Qasim Industrial Park (BQIP), Karachi regains the status of one of the most attractive places for investment in the region. BQIP is being developed in an area of 930 acres by National Industrial Parks Development & Management Company (NIP), a subsidiary of Pakistan Industrial Development Corporation (PIDC).

The proposed investment is expected to create 50,000 jobs and promote ancillary industries. The project would lead to transfer of technology in manufacturing of motorcycles and the company would set up exclusive training centers for developing skills and capacity of vendors. Accordingly it is expected to deposit a huge chunk of revenues to the public purse.

The project envisages building and selling global models of Yamaha motorcycles which have never been built in Pakistan before, enabling the country to come at par with the rest of the world. To boost the business of local vendors Yamaha Japan intends to grow a relationship with local spare parts industries with a view to localising the bikes it wishes to produce. It plans to begin producing motorcycles of above 100cc which are in demand globally.

On attaining full production capacity, the facility is slated to produce 45,000 units annually. With the setting up of a motorcycle manufacturing facility in Karachi with EFI, automatic transmission and European standard exhaust system, the company is set to target the Middle East, Central Asian and African markets and contribute towards the country’s exports.

BQIP is the biggest project of NIP, a company set up under section 42 of the Companies Ordinance 1984, to establish & manage world class industrial parks all over the country. The BQIP project has been designed by M/S Jurong Singapore, renowned internationally for their expertise whereas M/S Engineering Associates (EA) with wide experience in this field is given the responsibility for subsequent architectural design, engineering services and construction supervision of the project.

The project offers entrepreneurs with guaranteed uninterrupted power supply through 50 MW captive power plant and all essential utilities like water, gas and telecommunication at the customers’ doorstep. The hallmark of this industrial zone is perimeter wall with controlled entry and exit to the complex offering a safe and secure environment to the industrialists.