Domestic demand insufficient to promote local car production

The automobile industry in Bangladesh is yet to reach the stage where producing cars locally could be considered a viable business due to the current market size, according to experts.

"Development of the domestic car industry requires a sizable domestic market, which is currently absent," said Ahsan H Mansur, executive director of the Policy Research Institute (PRI).

Mansur was speaking at a webinar styled "Car Market in Bangladesh: Challenges and Prospects" organised by the PRI yesterday.

The programme was moderated by Zahid Hussain, a former lead economist of the World Bank.

The extremely low number of people that own cars in the country is a reflection of the high tax rates imposed on motor vehicles, extreme road congestions and poor traffic management, Mansur said.

Besides, most people here generally fall in the low-income bracket while the absence of adequate public and private parking spaces, poor road quality and high vehicle maintenance costs discourage people from buying cars, he added.

Salman Fazlur Rahman, private industry and investment adviser to the prime minister, said if the duty structure was reduced, the number of registered vehicles would increase.

"In turn, the government's revenue will ultimately increase," Rahman said.

The National Board of Revenue (NBR) earns about Tk 5,000 from sedan imports and this value could double immediately if the taxes are relaxed.

"The upcoming automobile policy will be useless if road and traffic management is not incorporated," he added.

According to the prime minister's adviser, massive road development projects are currently taking place across the country.

With regard to the upcoming policy, he said it must focus on micro-level benefits for the automobile sector while the user's issues should also be addressed.

He also expressed disappointment over how the proposed policy's overall concept prioritises macro-level benefits.

"We should learn from the failure of Malaysia and Pakistan's automobile industries and improve on their mistakes," Rahman said.

He also suggested that local producers focus on manufacturing electric vehicles (EVs) instead of their traditional counterparts as the use of fossil fuels was being slowly phased out across the world.

Rahman went on to give assurance that the government would provide policy support for investors from both home and abroad for investments in EV manufacturing.

Mansur echoed the sentiment. He said the local automobile industry was better off first reaching a level of substantial expertise since there was a possibility that all the investments would amount to nothing, just like it did in Malaysia and Pakistan.

The local market is still highly dependent on the imports of reconditioned cars from Japan, with 80 per cent of all imported vehicles being used.

However, many international car companies also have direct distribution networks with domestic dealers as new car sales have been on the rise.

Only one public sector company (Progoti) has been assembling a limited number of old or discontinued models since the 1960s with very little success, Mansur said.

Automobile manufacturing does not have a bright future in Bangladesh considering the current situation, as only 3 out of every 1,000 people in the country use cars, which is lower than that in Myanmar and Thailand, according to the PRI executive.

"Unless we can increase the domestic demand, no major car company will be interested in opening a large manufacturing plant here," he said.

Besides, reconditioned Japanese cars are still quite popular in many developed or high-income countries like New Zealand, Chile, and the UAE, Mansur added.

Abdul Haque, president of the Bangladesh Reconditioned Vehicles Importers and Dealers Association (Barvida), said his organisation welcomes initiatives on manufacturing automobiles in Bangladesh since it would be a matter of pride for the country.

"But there is a requirement of a level playing field for brand new cars and reconditioned cars," he said.

The Barvida chief also said over the past 45 years, reconditioned car importers and dealers have built up the automobile market of Bangladesh.

Therefore, the government should consider customer choice when it comes to sanctions against reconditioned car imports.

Reconditioned cars from Japan go through screening to ensure that they are modern and sophisticated models.

However, the brand new cars now available in Bangladesh are not imported from Japan and are comparatively of worse quality, Haque said.

He also alleged that there was a scope to evade customs duty when importing cars. This is done by under-invoicing the actual price since duties are imposed based on a car's yellow book even though it is an artificial price fixed by the NBR.

"We purchase cars at a cheap rate from Japan while the NBR imposes custom duty on the basis of yellow book or brand-new price of the imported car after depreciation," he pointed out.

Syed Golam Kibria, a member of the NBR (customs and policy), said they would review the duty structure on both the imports of brand new and reconditioned cars.

The NBR earns Tk 5,000 crore from this sector and for this reason, it will help address any issues with the duty structure, he added.

M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, said the present state of the economy and low demand for cars were the reasons behind the automobile industry's current state.

Considering this, reconditioned car imports should continue while a long-term plan should be adopted to eventually move into manufacturing.

The domestic market generates well below the annual demand of 1.5 lakh units required to develop the local automobile industry.

"So, a plan for domestic manufacturing is all well and good but the reconditioned market needs to be kept alive as well," Reaz said.

Anwarul Alam, joint secretary to the Ministry of Industries, said they would include domestic production and export in the new automobile policy.

The ministry will hold discussions with the stakeholders and various ministries related to the industry to finalise the policy, Alam added. 

Star Business Report