Pakistan to become more self-reliant in handset production: Fitch

The entry of global smartphone manufacturers in Pakistan will make the country more self-reliant in the local production of handsets, said Fitch Solutions in report released earlier this week.

The development comes as Chinese smartphone vendor vivo opened its new smartphone manufacturing facility in Pakistan just days ago, with fellow competitors such as Xiaomi and Realme already in line to open up their local manufacturing sites within the next few months.

Fitch said that Pakistan needs to become less dependent on imports and falling total ownership costs (TCOs) for “premium devices will be key to unlocking the full value of the country’s fast-growing mobile broadband market”.

Chinese smartphone manufacturer vivo invested $10 million in a plant capable of producing 1 million smartphones per year. While nowhere near meeting total demand, the step marks the country’s move towards a ‘Made in Pakistan’ policy with manufacturing remaining a key component.

“However, with 11 million new mobile subscriptions recorded in 2019 and our robust 4G/5G subscriptions forecasts suggesting rapid device replacement rates over the next decade, vivo’s contribution will have only a modest effect on Pakistan’s overall handset trade deficit of USD1.02bn (2019 data),” said Fitch.

Fitch was of the view that vivo’s decision to manufacture locally, rather than import, is a response to the government hiking import duties and associated certification fees for key categories of complex electronics goods.

“With the country’s mobile operators set to rapidly roll out mobile broadband services during the coming decade, being able to keep smartphone average sales prices (ASPs) within the reach of consumers will be paramount,” it said.

Early in August, the Pakistan Telecommunication Authority (PTA) issued Mobile Device Manufacturing (MDM) authorisation to Lucky Motor Corporation Limited to manufacture Samsung-branded phones in the country.

“The company had applied for authorisation to set up a mobile device manufacturing plant in Karachi, Pakistan where it will manufacture Samsung brand mobile devices,” said the PTA.

The authority said this is a landmark achievement and “will further revolutionise the vibrant mobile manufacturing ecosystem in the country by ensuring presence of major local and foreign players in the market”.

Meanwhile, other Chinese players Xiaomi and Realme are both in the process of securing MDM authorisations of their own, said Fitch.

The report noted that if each of these upcoming plants are capable of manufacturing 5-6 million handsets yearly, the future demand will be mostly served through local sources.

“We expect annual handset sales volumes to rise from 69.56mn in 2021 to 75.44mn by 2025, with smartphones expected to take an ever-larger share of overall sales as prices fall. A faster fall in handset ASPs, driven by the new local manufacturing initiative, would likely change the scale of these forecasts as more consumers would be able to purchase mid-range and premium devices,” Fitch said.

Pakistan relies heavily on imports for its handset needs with the bill causing a substantial dent in the trade deficit. While the country has embarked on a mission to achieve close to 4-5% growth this year, imports — needed to bolster it — are set to rise as well.

Economic policymakers have for long continued to find the balance between the widening deficit and encouraging growth measures.