New Delhi: Pakistan’s economic crisis is deepening with each passing day. After costly oil and food for the people, it’s the turn of the businesses — the mobile phone industry is close to receiving a big hit. Handset manufacturing units are on the verge of stopping production in the country due to a shortage of dollars. Manufacturing companies like Samsung, ITEL and Techno have announced layoffs.
An Express Tribune report on Wednesday said, “Operations at major mobile phone assembly plants are on the verge of a halt as the letters of credit (LCs) for import of completely knocked down (CKD) units are not being opened due to the shortage of dollars since May 20.”
The industry is facing a deficit of raw materials needed for assembly units and jobs of almost 50,000 people are at risk.
But The State Bank of Pakistan through its tweet clarified that it had not stopped import payments and commercial banks have sufficient dollar liquidity to execute purchases.
In one of the tweets, SBP said, “SBP has noticed certain rumors implying that SBP Reserves have dried up or are not usable, that SBP has stopped import payments, and that banks have run out of US$.”
“It is clarified that as of 10th June 2022, #SBP liquid foreign reserves stood at $8.99 billion.”
3/3 It is further clarified that #SBP has not stopped import payments and commercial banks have sufficient $ liquidity to execute these payments. Indeed, import payments of around US$ 4.7 billion have been executed through the interbank market during the month so far.
— SBP (@StateBank_Pak) June 21, 2022
Market in trouble
Manufacturers and businessmen are facing a crisis due to non-issue of letters of credit (LC) allegedly caused by the dollar deficit.
As on 21 June, dollar hit a record Rs 212 against the local currency.
The Express Tribune cited Tecno Pack Electronics CEO Aamir Allawala, who said, “Banks are not opening LCs for mobile phone CKD units due to shortage of dollars since May 20.”
“The industry has used all its raw material and 80% of the industry is closed unfortunately,” he said.
According to SI Global CEO Noman Ahmed, “It is an emerging industry of nearly two years. Failure to open LCs for CKD import may have a negative impact on jobs as well as foreign investment.”
He said, “It will render over 50,000 people jobless at a time when the cost of living has gone up due to high inflation.”
Amid dollar shortage problem, commercial banks have been asked to seek the State Bank of Pakistan’s (SBP) permission before initiating import transactions worth $100,000 or above in an attempt to ease dollar shortage.
Pakistan’s trade deficit has widened to an all-time high of $43.33 billion, thus putting pressure on the foreign exchange deficit.
Rapid rise in mobile phone market
In the last few years, the local production of mobile phones has rapidly increased. In 2019, the Pakistan government finalised draft policy for locally assembled mobile phones to replace imported phones.
Pakistan has 164 million cellular subscribers and is the world’s seventh-largest handset importer.
According to The Express Tribune report, “The value of Pakistan’s mobile phone market stands at PKR3366 billion which is even higher than the auto sector of the country.”
According to the Pakistan Telecommunication Authority (PTA) data, in 2021, “the production of mobile phones by local manufacturing plants has almost doubled to 18.87 million against the import of mobile phones which stood at 45 million.”
“The PTA data says that mobile phones worth $644.673 million were imported during the first four months (July-October) of 2021 compared to $557.961 million during the same period of last year, registering a growth of 15.54 per cent,” according to a Dawn report published in December last year.
As per the PTA data, Pakistan imported 28.02 million handsets in 2019, but now the country produces 25 million phones due to growing local assembly units.
Dollar liquidity is not limited to the mobile industry but is also hurting Pakistan’s agriculture sector. The devaluation of local currency is fuelling the prices of farm inputs like fertilisers, seed, pesticides, diesel, etc.
(Edited by Anurag Chaubey)