This is the era of mobile phone and telecommunications technologies. With its ever-increasing demand, the mobile phone has already become a basic need for almost everyone. Especially, after the COVID-19 pandemic, when the lockdown was imposed and the most convenient way to connect with others or perform our daily tasks was through mobile phones, the demand for this gadget and apps associates has reached its maximum level. During the pandemic, overall data usage has also increased, which in turn has helped telecom companies generate more revenue, thereby contributing to the positive growth of the IT and telecom sector.
Pakistan itself has seen phenomenal growth in the IT and telecommunications sectors over the past few years. There is no doubt that the creation of 3G/4G services in Pakistan has opened up new avenues for growth and innovation in the country. With 191 million cellular subscribers, teledensity reaches 86.71% while 3G/4G penetration stands at 49.94%. . According to the Pakistan Bureau of Statistics (PBS), Pakistan’s mobile imports witnessed an increase of 7.63% in the first eight months (July-February) of the current financial year, reaching a value of 1,311.493 million. dollars to $1,411.619 million.
So far, the establishment of local manufacturing plants has brought an investment of more than 126 million dollars to the country.
To boost the telecom sector, the government has approved the Local Mobile Phone Manufacturing Policy in 2020. The Pakistan Telecommunication Authority (PTA) in light of the policy has issued the Mobile Device Manufacturing Regulations ( MDM) on January 28, 2021.
PTA has issued MDM authorization to 30 companies allowing them to manufacture mobile devices in Pakistan. The establishment of these manufacturing plants involved an investment of over $126 million.
The mobile device manufacturing policy has set a localization target of 49% by June 2023, including 10% motherboard part localization and 10% battery localization. As soon as the companies started manufacturing the mobile devices in the country, the mobile phone manufacturing industry experienced a significant growth in revenue and a positive decline in imports.
With a population of over 200 million and a steadily growing sustainable demand for technology, Pakistan has emerged as a very promising market for the IT and telecommunications industry.
According to data revealed by PTA, Pakistan produced 24.66 million handsets in 2021. This is an increase from 13.05 million in calendar year 2020, representing an increase of 88%. . In addition, smartphones assembled in 4G reached 10.06 million in 2021.
However, commercial imports reached 10.26 million in 2021. However, local manufacturing plants manufactured/assembled 1.53 million mobile phones including 0.86 million 2G and 0.67 million smartphones in January 2022.
The increase in local manufacturing has led to a decline in mobile phone imports. According to PBS, imports of mobile phones decreased by 21.45% in February 2022 compared to the previous January.
As a result of the Mobile Phone Manufacturing Policy, which contains customs incentives to improve the assembly of mobile phones in Pakistan, the majority of phones cheaper than $200 are now assembled in Pakistan.
To achieve this milestone, various Chinese mobile phone manufacturers have played a key role. According to PTA, up to November 2021, Itel topped the list producing 3.91 million mobile devices, followed by VGO Tel at 2.97 million, Infinix at 2.65 million, Vivo at 2.45 million, Tecno at 1.87 million, QQMEE at 0.86 million and Oppo at 0.67 million. But they are not the only ones.
From Global to Local – What Mobile Manufacturing Means for Pakistan
Samsung has also officially launched smartphone manufacturing in Pakistan. The company hopes to manufacture around 3 million devices a year in the country. Similarly, 2.5-3 million sets of Xiaomi are said to be produced per year in Pakistan in collaboration with Airlink Communication.
The import of manufactured or fully built units (CBU) is down while that of mobile phone components (CKD) is up. Since July-November 2021, CBU import decreased 73% to US$179 million from US$661 million in the same period last year. This saved US$410 million in foreign currency. In contrast, the import of mobile phone components for local assembly rose 407% to $674 million from $133 million last year.
The successful implementation of the Device Identification Registration and Blocking System (DIRBS) along with supportive government policies including the Mobile Manufacturing Policy has created an enabling environment for the manufacturing of mobile devices in the Pakistan. It has also contributed positively to the mobile ecosystem of Pakistan by eliminating the market for counterfeit devices while providing a level playing field for business entities and has created trust among consumers through the formulation of standardized legal channels for all kinds device imports.
Local manufacturing of mobile phones has not only helped the telecommunications sector by increasing its revenue growth. But it also helped the country in different ways. For example, the local manufacturing industry had already created nearly 50,000 jobs. Samsung aims to use the labor force to manufacture cellphones instead of machines which, in turn, will create millions of jobs for the nation’s unemployed. It is also estimated that by increasing localization, production and exports, around 200,000 to half a million jobs would have been created in the country.
The successful implementation of (DIRBS) along with supportive government policies including mobile manufacturing policy has created an enabling environment for mobile device manufacturing in Pakistan.
According to PTA, only 53% of the country’s population uses smartphones. The remaining 47% of the population still use 2G devices. It also indicates that Pakistan is still lagging behind in the 5G race. According to the GSMA, this number is still low and by 2025, 74% of the Pakistani population will be able to use smartphones. One of the main reasons for this is the high price of mobile. The lower class does not have the capacity to buy expensive or even mid-range phones. Local manufacturing of mobile phones will certainly drive down the prices of mobile phones and the availability of cheaper phones will increase, which in turn will increase the penetration of smartphones in the country. If the mobile manufacturing industry continues at this pace, in the near future, internet penetration
will also increase. Therefore, the whole scanning process will speed up.
What more should be done?
However, the mobile phone manufacturing industry is doing well in bundling revenue growth. But there are still plenty of ways to stimulate that growth. According to PBS, in the first five months of FY 2021-22, Pakistan earned $1051.050 million from offering various information technology IT services exports to other countries. While in August 2021, Pakistan exported 5,500 units of 4G smartphones with “made in Pakistan” label to United Arab Emirates (UAE). Although this is a great achievement for the country, the number of exported devices is still very low. If companies succeed in increasing this number, revenue growth will also increase.
The government intends to export the locally assembled phones to markets like Africa, Central Asian republics and Afghanistan. This is a good move as Pakistan currently manufactures low-end cell phones and it will be appropriate to export the phones to countries that preferentially use low-end phones.
Despite the local manufacture of mobile phones, the import bill is increasing. The reason behind this is the importation of high-end phones priced above $1,000, a market segment that is currently not made in Pakistan. . PBS data indicates that $1.41 billion worth of cellphones were imported in the first eight months (July-February) of the current fiscal year, compared to $1.31 billion in the the same period last year, registering a growth of 7.63%. Thus, if the country starts producing high-end smartphones, the import bill will decrease.
The government plans to export the locally assembled phones to markets including Africa, Central Asian republics and Afghanistan.
The current government recently proposed the Finance Bill 2021-22 which indicates a sharp increase in taxes. In the new bill, the government reinstated the 17% sales tax on imports of computer and computer equipment. Cell phones over $200 that are imported in CBU condition are also subject to 17% sales tax.
Although this increase in taxation is unjustified, it creates an opportunity for local manufacturers, as high taxation discourages imports.
Although this increase in taxation is unjustified, it creates an opportunity for local manufacturers because high taxation discourages imports. Therefore, when the devices are made locally, there will be no tax and the prices of the phones will automatically drop and people will prefer the locally made phones to the imported ones.
The lack of a component ecosystem is also an impediment to boosting the manufacturing industry in the country. Many electronic and non-electronic components are needed to make a smartphone. Every phone needs parts, and many manufacturers of those parts have already made deals with other brands. It is currently difficult to manufacture the phone from scratch. Assemblers import mobiles in a semi-disassembled state (SKD), which are then assembled in Pakistan.
It is not only the local production of mobile phones, but also a host of opportunities that it brings. From employment to investment and export opportunities to local capacity building, it holds immense potential. If the growth rate continues to increase at this rate, in no time Pakistan will be seen as one of the leading manufacturing hubs for smartphones just like China and India. This will attract foreign investment, save foreign exchange on mobile phone imports, earn foreign exchange from exports and create employment opportunities for local people.
Also check: Pakistan Mobile Tax Calculator: PTA Mobile Taxes (2022)