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Local handset manufacturing investments to make Pakistan more self-reliant: Fitch Solutions

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August 17, 2021 (MLN): Chinese smartphone vendor Vivo has opened a new smartphone manufacturing facility in Pakistan. Rivals Xiaomi and Realme are also looking to open local manufacturing sites within the next few months, said Fitch Solutions in its latest report.

The report noted 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.

Vivo has invested USD10mn in a plant capable of producing 1mn smartphones per year. However, with 11mn new mobile subscriptions recorded in 2019 and Fitch's 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). However, more manufacturers are expected to establish a local presence in the market in the short to medium term.

According to the report, 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.

In tandem with the tax increases, the government is aggressively pushing a 'Make in Pakistan' agenda, meaning that major brands need to quickly establish a local manufacturing base.

The Pakistan Telecommunication Authority (PTA) is supporting the 'Make in Indonesia' initiative by making mobile device manufacturing (MDM) authorizations available to vendors looking to consolidate their brand's presence locally. Early in August 2021, an MDM was issued to Samsung partner Lucky Motor Corporation Ltd, which will build a facility in Karachi. Meanwhile, Vivo's fellow Chinese players Xiaomi and Realme are both in the process of securing MDM authorizations of their own., it added.

Assuming each of these plants will be capable of producing at least 5-6mn units per year, the underlying future demand for new and replacement devices, which increasingly will include machine-based devices, will come to be served mostly through local sources.

The report expects 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.

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Posted on: 2021-08-17T09:24:00+05:00

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