Azeem Ahmed Khan

Pakistan had the potential to become a mobile phone exporter this year, but the State Bank of Pakistan’s failure to issue letters of credit (LCs) has hampered this promising prospect, due to the existing difficulties in the country’s economy. In 2021, Pakistan manufactured 24.66 million mobile phones, including 10.06 million smartphones and 14.60 million 2G phones. However, production droppedto 21.94 million in 2022 and plummeted to only 4.88 million phones (0.88 million smartphones and 4.00 million 2G phones) from January to May 2023. A shortage of raw materials has caused mobile phone production units to operate below their installed capacities, while some companies have suspended their operations. Prior to 2017-18, most mobile phones were imported into Pakistan. The shift towards local manufacturing started in 2019. The introduction of the Device Identification Registration and Blocking System (DIRBS) by the Pakistan Telecommunication Authority (PTA) in December 2018 played a crucial role in curbing counterfeit mobile phone usage and preventing mobile phone theft.

"When PTA introduced its DIRBS system, then all sorts of mobile phones stopped coming through the grey market," ZeeshanMianoor, Deputy Vice Chairmanof Pakistan Mobile Phone Manufacturer Association (PMPMA), told WealthPK. After2020, the PTA and the Engineering Development Board (EDP) worked togetherto formulate a policyforPakistan’s mobile phone manufacturers. This policy granted local manufacturers certain benefits in duties and taxation, leading to the establishment of manufacturing plants in Pakistan by 31 companies, including 11 international brands such as Samsung, Xiaomi, Nokia, Infinix, Oppo, Vivo, Techno, ZTE, Realme, Redmi, and Itel. "By the end of 2022, approximately 90% of mobile phones were being made locally, compared to 80% in 2021," Zeeshansaid. However, in 2023, due to an economic crisis, the State Bank of Pakistan reduced the issuance of letters of credit (LCs) for importing raw materials, causing a significant decline in phone manufacturing.

While there is some raw material available for producing 2G smartphones, the production of smartphones has almost ceased. Local manufacturers rely on LCs for legitimate business, but the current import quota provided by the State Bank of Pakistan covers only about 50% of the monthly $200 million raw material requirement for Pakistan’s mobile phone manufacturing. "This has led to the remaining 50% of market demand being met through illegal means, such as hundi and hawala, resulting in financial losses to the government," the PMPMA deputy vice chairman said. Pakistan’s investors aimed to achieve 95% local manufacturing by 2022 and to localize parts by 2023, while phone exports were scheduled to begin in 2024.In order to become a competitive exporter, Pakistan needs to manufacture 90% to 95% of its phones locally and produce their components domestically, reducing manufacturing costs.

ZeeshanMianoorsaid, “The PMPMA is holding negotiations with different government stakeholders for getting 7 to 8 percent relief for mobile phone exporters, to help them compete with countries like India, Bangladesh, Vietnam, and Egypt." The PMPMA is also holding negotiations with the State Bank of Pakistan besides other government departments to facilitate industry growth and move towards exporting mobile phones. Pakistan’s plans for mobile phone exports have been postponed by the current situation, while India and China have boosted their mobile phone exports to $11.12 billion and more than $125 billion annually, respectively, with the help of companies like Apple.Withglobalsales revenue of $418.88 billion in 2022, the Pakistan mobile phone manufacturing industry is a significant global player. Pakistan, being the 8th largest mobile phone market, must act swiftly to restart mobile phone manufacturing, capture international market share, and reduce foreign exchange expenditure on phone imports, besides earning foreign exchange through exports.

Credit: INP-WealthPk