1. IMF’s Standard Approach vs. Pakistan’s Economic Reality
The IMF advocates for tariff reductions to promote a free-market economy, arguing that high tariffs protect inefficiencies and prevent competition. However, in a developing economy like Pakistan, prematurely removing tariffs without a comprehensive industrial growth strategy would lead to deindustrialization, rising imports, and a deteriorating trade deficit. Even developed countries like USA, Canada and others increasing the tariff to safe guard the manufacturing industries in their countries.
2. The Fallacy of Immediate Liberalization
The IMF assumes that reducing tariffs will automatically improve efficiency and attract Foreign Direct Investment (FDI). However, Pakistan lacks the investment environment of Vietnam, India, or Thailand. Without strengthening local production and export capabilities, tariff reductions alone will not attract investors or enhance industrial competitiveness.
3. Pakistan’s Vision: Becoming an Export-Oriented Automotive Hub
Pakistan must develop a long-term strategy to position itself as a global hub for small fuel-based and small electric vehicles or Hi-Tech Industries. Government incentives should be linked to export commitments, ensuring the industry’s sustainability and contribution to foreign exchange earnings.
Global Success Stories and Lessons for Pakistan
Thailand: The “Detroit of the East”
Thailand has established itself as a leading global automotive production and export hub through strategic government policies promoting localization, foreign investment, and export-oriented growth.
Key Strategies:
- Product Champion Approach: Targeted incentives for 1-ton pickup trucks and eco-cars.
- Infrastructure Development: Investment in the Eastern Seaboard Economic Corridor for state-of-the-art logistics and export capabilities.
- Result: Thailand became the world’s 10th largest automotive producer, with exports comprising over 35% of locally assembled vehicles.
Taiwan: From Import Substitution to Export Powerhouse
Taiwan transitioned from import substitution in the 1950s to an export-driven economy by the 1980s, fostering strategic alliances and investing in innovation.
Key Strategies:
- Export Promotion: Currency devaluation and policy incentives to boost competitiveness.
- Strategic Alliances: Partnerships with foreign manufacturers to enhance domestic production.
- High-Tech Integration: Heavy investment in automotive electronics and innovation.
- Result: By 2016, Taiwan’s automotive industry reached a $20 billion output, making it a key player in vehicle electronics and components exports.
- Export-driven policies helped Taiwan achieve $479 billion in merchandise exports in 2022.
Indonesia: Regional Automotive Export Hub
Indonesia has strategically developed its automotive sector by focusing on local production and global market penetration.
Key Strategies:
- Electric Vehicle (EV) Incentives: Reduced taxes for hybrid and electric vehicles to boost adoption and local manufacturing.
- Export Growth Initiatives: Vehicle exports surpassed 505,000 units in 2023, with projections exceeding 1 million units in future.
- Investment in Nickel Processing: Strengthened EV battery production, positioning Indonesia as a supplier for global EV giants like Tesla.
- Result: Indonesia has attracted major EV manufacturers and strengthened its global automotive footprint.
Vietnam: Strategic Integration into Global Markets
Vietnam has positioned itself as a rising automotive force through strategic policies and free trade agreements (FTAs).
Key Strategies:
- Automobile Industry Development Strategy: A roadmap to enhance domestic production and export capabilities.
- FTA Participation: Trade agreements with ASEAN and the EU Countries.
- Green Vehicle Initiatives: Incentives for battery-powered and hybrid vehicles align with global sustainability trends.
- Result: Vietnam aims to export 90,000 vehicles worth $10 billion by 2030, leveraging its integration into global supply chains.
Pakistan’s Roadmap to an Export-Driven Automotive Industry
To transform Pakistan into a global automotive hub, the government must adopt a long-term strategic vision centered on export growth:
- Policy Stability & Consistency:
- Establish a clear, stable auto policy with a focus on export-led growth.
- Offer predictable incentives to attract both local and foreign investment.
- Export Incentives & Localization:
- Provide tax benefits and subsidies for companies committed to exporting vehicles and auto parts.
- Encourage localization of key components to reduce reliance on imports.
- Infrastructure & Logistics Development:
- Develop dedicated industrial zones for automotive manufacturing.
- Enhance port facilities and logistics networks to support exports.
- Strategic Alliances & Investment:
- Facilitate joint ventures with global automakers to transfer technology and expertise.
- Promote Pakistan as a cost-competitive destination for manufacturing.
- Specialization in Small & Electric Vehicles or Hi-Tech Industries:
- Position Pakistan as a hub for small fuel-based cars and small electric vehicles (EVs) or Hi-Tec Industries.
- Invest in EV battery production to integrate into global supply chains.
Suggestion: A Strategic Pivot Towards Global Competitiveness
Pakistan’s economic future depends on shifting from an import-dependent model to an export-oriented industrial base. Learning from countries like Thailand, Taiwan, Indonesia, and Vietnam, Pakistan must embrace long-term policies that prioritize industrial growth, technological advancement, and global market integration. By fostering a competitive automotive industry with a strong export focus, Pakistan can enhance foreign reserves, ensure economic stability, and establish itself as a key player in the global automotive sector.
By @mashood-khan, Director – Mehran Commercial Enterprises, Expert Auto Sector / Former Chairman PAAPAM
This exclusive article has been published in Automark’s May-2025 printed/digital edition.