Ghandhara Nissan Limited (GNL), which gains Brownfield status for manufacturing Datsun cars in Pakistan, is still not sure about its future in the Pakistan amid lack of any road map provided by Nissan Motor Company Limited (NMCL).
GNL reported its project’s progress file to the Pakistan Stock Exchange and it says that the Nissan Motor Company has not yet confirmed the supply of Datsun parts, which may put the project on hold.
GNL has invested a huge amount of money in the local sector to ensure a high level of localization in the best possible way.
The GNL had also planned to invest Rs.6.5 billion in the coming four years to begin the 1200 cc Datsun Cross by 2020. However, the management policy and business strategy of Nissan with respect to the Datsun segment has recently changed. The company also added that the Indonesian auto market has the largest plant to provide completely knocked down (CKD) kits, but in the current situation, it might not turn out to be a dependable source. Perhaps the company will only make a final decision on the project once Nissan clears the future road map to them.
GNL entered the local auto sector of Pakistan by acquiring Brownfield Status from the Ministry of Industries and Production (MoIP) under the Auto Development Policy (ADP) 2016-21 to manufacture Datsun cars.
During October last year, the company indicated uncertainty regarding its future plans for Datsun cars in the country. This is primarily due to the prevailing economic crisis and the sharp depreciation of Pakistani Rupee against the US dollar that brings a high level of uncertainty for an investment of this magnitude. Furthermore, the project related challenges have grown in the past year due to high-interest rates and demand a reevaluation of the project’s sustainability.
The company also pointed out that the localization of some auto parts was potentially not possible in the short-term period due to the lack of the latest technology in the local sector. It had earlier planned to localize as much as 30% of the parts in its first three years. Apart from Datsun Cross, the company also aimed at introducing Datsun Go and Datsun Go Plus in the local sector. Ghandhara Nissan’s production plant is located in the Port Qasim area of Karachi.
On the other hand, Nissan Motors is looking out for global vendors for the import of parts along with CKD kits at a minimum cost. GNL is also running out of time now as the auto policy will expire next year. The company is only left with less than one and a half years to complete all its arrangements for starting commercial production of cars. After the deadline of 30th June 2021, the company will not be able to avail of the tax-based Brownfield Status incentives under ADP 2016-21. Since 2016, Pakistan’s auto sector has filled in with more than $1 billion of investment from new auto players through Greenfield and Brownfield Status.
It is relevant to point out that the current situation of the local auto market is not encouraging as the sales of even the existing automakers have declined by as high as 68% in the current fiscal year 2019-20. It’s largely due to the high exchange rate, increased additional customs duty on the import of raw material, and the imposition of 2.5-7.5% Federal Excise Duty (FED) by the government on locally produced cars.
All these factors combined and resulted in a massive hike in car prices and decreased the buying power of the consumers. In such circumstances, it’s much more difficult for the new entrants to succeed or even survive in the local auto sector.