Special Report

September 29, 2009

The future scenario does not look bright

An Interview with Mohammad Abdul Razaq, Chairman, Nexus Automotive (Pvt.) Ltd., by Nasir Mahmood

Mohammad Abdul Razaq, Chairman and major shareholder of Nexus Automotive (Pvt) Limited, assembler of Chevrolet Cars in Pakistan, is a retired Vice President and Corporate Officer of General Motors Corporation. At General Motors, Mr. Razaq served on the GM European Strategy Board, GM International Strategy Board, Board of Avis Europe plc, Board of Directors of SAAB Automobile AB (Sweden), and the Supervisory Board of Adam Opal AG (Germany), one of the twenty largest corporations in Germany.

Mohammad Abdul Razaq, in his exclusive interview expressed dismay over the prevailing economic situation in the country, especially about automobile industry. He said since last two years auto industry in Pakistan was passing through negative trend. Though the situation in 2006-07 was negative for all sectors that were a message but according to statistics in 2008-09 this industry has gone 50 percent downward, which is more alarming.

Replying to various queries he informed that in 2004-05 this industry was very optimistic, there was lot of work. Suppliers of the components were very positive and they were making huge investments. People were getting employments. Car assembling/ manufacturing was going in profit and it was working very smoothly. The circumstances were looking good. We have a large country with huge population hence growth potential was marvelous.

Having seen this environment I came forward and made investment in automobile industry. We started production in December 2005. We were glad to move this sector forward in accordance with size and population of the country.

But unfortunately the environment was suddenly changed from positive to negative and in these circumstances growth of industry has been completely stopped. Manufacturing of any type of goods requires huge investment. But the crisis started basically with law and order situation in the country with; journey towards democratic government, but end of dictatorship eclipsed growth of business and industry in the country. There were bomb blasts, target killings, looting, firing and burning incidents of properties. This situation adversely affected all sorts of trade and industry in the country.

Then holding of elections created another uncertainty and doubts in minds of people whether it would be held impartial, peaceful or not? Investors were in doldrums. This started negative trend and in those days Benazir was assassinated, judges’ issue was raised, dictatorship became controversial. Strikes, agitation, closure of transport and factories badly affected entire atmosphere. Similarly, law and order situation became worse with threat of Talbanization, which added more fuel in the fire.

Razaq added, however, we taste the fruit of democracy. Now we have a democratic government but entire environment is being spoiled with every passing day. The country is being run on borrowed money but after all these loans are to be returned while such situation earns bad name for the country at international arena. When we travel abroad and visit people they become amazed on this trend and ask us when and how you will return these loans? For paying back such huge loans you need a handsome earning system, for such earnings you need a strong infrastructure. We have a defective infrastructure, which is very old, obsolete and outdated. But the situation has turned from bad to worse and we are facing breakdown of infrastructure. There is no replacement of equipment, no repairs, and no spare parts.

At present the business activities are curtailed, foreign investors are reluctant to come here and our own countrymen were escaping being horrified due to unfair circumstances.

By citing his own experience Mr. Razaq stated; “We had understanding with General Motors for enhancing investment and business activities in Pakistan through addition of some new models of vehicles here. Two year back GM sent the first team for market study in Pakistan. They visited Pakistan and met certain business and govt. dignitaries and resultantly prepared a positive report. The negotiations were continued when serious law and order problems were raised here.”

Razaq disclosed that GM wanted to establish a factory in Pakistan for which survey teams were instructed to get select a suitable piece of land after having water and soil tests in laboratories. This team was scheduled thrice to visit Pakistan we made full arrangements to receive them but every time there were some bomb blast incidents in the country and after becoming afraid at last they were compelled to cancel their visit. Next time another team was scheduled to visit for assessment of local suppliers of parts and components but due to similar incidents their visit was called off. Then GM management decided to send a team of experts from their Indian plant but before its arrival the attack on Sri Lanka cricket team spread panic and the visit was aborted.

M A Razaq said; finally we arranged a meeting in London, held a detailed discussion, in the light of which we prepared a report as per their demand and dispatched. But now there is complete silence on their part. This is my own experience, what you can say about others? The owners of car companies belonging to other countries having business and industrial relations with local assemblers in Pakistan were also not coming under these circumstances.

Similarly, foreign bankers who were sitting in Dubai were also reluctant to visit Pakistan due to law and order problems and bomb blasts, he added.

When we talk about infrastructure, its prices are rising rapidly. We have a problem of electricity, which is not enough for use, its rates are going higher; voltage is not working properly. On the other hand Gas is available but its pressure is not up to the requirement. The rising cost of infrastructure is not positive sign for development of industrial sector. Even you don’t have proper utilities for residential purposes.

Pointing out another vital aspect he said; on financial side, our currency is plunging but nobody bothers to stop its disgrace. We are interested only in begging from the world. Our expenditures are increased but we don’t have any policy that could satisfy the market forces that our currency could be revalued. When you have import-oriented industrial infrastructure its cost would be ultimately increased with depreciation of rupee.

On the other hand bank interest rates are also going sky high. I haven’t seen any business in the world that could earn you a profit of 15 to 20 percent. If you get bank loan at the interest rate of 15 to 20 percent how you could pay back such loans ever. But in our country there is a culture that once a person got bank loan he will never pay back. However, the banks have also become conscious and they are not willing to grant such loans. Therefore, Car sales were badly affected by closure of consumer financing by local banks.

The Chairman of Nexus Company expressing his desire stated; we are praying for reversal of this trend and get out of the critical situation. I hope the day will come when we should start our journey towards progress. But how much time it will take and what would be the cost, nobody knows about this. The reason is very simple that our government has no clear-cut policy to deal with these crises. Hence the businessmen could not draw any planning. Government announced the budget but it was anonymous budget, which was passed without any meaningful debate in the parliament. Nobody understands why it was approved within ten days only.

However, now debate is on, and people ask our income is 100 but expenses are 122 how we could meet additional deficit amount of 22. This shows that we will obtain more loans from the world and the Pak rupee will be further sinking. Thus the future scenario is not looking very good.

I haven’t seen any mention of automobile industry in the new Trade Policy announced by the government. It has confessed that our industrial production was reduced by 10 percent, which means that a large number of people were removed from their jobs and this trend would be continued in future too, the Chairman, Nexus Automotive concluded.

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