According to an announcement from the Pakistani government, French automaker Renault will soon start to invest in the country.

Reuters published a report on the announcement, specifying that no details of the investment had been provided. Local media, including Dawn, have since reported that Renault will start manufacturing cars in Pakistan by 2018.

Pakistan Renault
Image: Flickr

Government announces deal with Renault

“As a result of the Finance Minister’s efforts and persuasion, Renault has decided to invest in Pakistan,” read a statement from Prime Minister Nawaz Sharif’s office.

Pakistan has been offering generous import duties to foreign automakers including Renault and Nissan. According to a statement from the Board of Investment (BoI), Prime Minister Nawaz Sharif discussed the idea with Chairman of the BoI Miftah Ismail, who later met with Pakistani stakeholders and foreign automakers.

Ismail later specified that there should be one or two foreign companies making investments in Pakistan. New investors would be allowed to import the necessary machinery duty-free, while 10% customs duty would be paid on imported car parts. Existing automakers in Pakistan have to pay the duty of 30%.

“We want greater competition, and we expect with greater competition consumers will be offered better choices,” he said.

Nissan could also invest in Pakistan

A previous report from Reuters cited a Renault source who confirmed that Pakistan was being considered as a destination for new investment. However, the source said that there were other countries under consideration, and discussions had not progressed very far.

Nissan has also expressed its interest in investing in the country.  “Pakistan is certainly a market of interest for us at present,” said Nissan chief spokesman Jonathan Adashek, who later added that there had been no decision made on the investment.

Ismail has also held meetings with Volkswagen and Peugeot. BoI chairman and Finance Minister Ishaq Dar also made a trip to France during the Eid holidays, meeting up with top executives at Renault.

Pakistani officials have agreed to review the country’s Auto Policy, and are looking to implement measures that would encourage expansion, investment and consumer protection in the auto market.

As a result of these discussions, it was agreed to introduce a new policy package designed to bring in greenfield investment and revive existing auto production sites. However, analysts are pessimistic on the chances that any deals will be struck.

Can Pakistan attract foreign investment?

Experts say that it will be difficult to reach any agreements, despite the generous terms on offer. There are persistent concerns over the political stability of Pakistan, especially given some successful and attempted military coups throughout Pakistani history.

Another concern is the ongoing issue of militancy, which persists despite a concerted campaign by the Pakistani armed forces. Uncertainty over security and the long-term prospects of the country have so far discouraged large investment from foreign firms.

“There is potential in Pakistan. There is no doubt about that,” said Puneet Gupta, associate director at consultant IHS Automotive said earlier this year. “(But) we really don’t feel Pakistan is in a relatively stable condition, from a mid to long-term perspective.”

Another issue is the small size of the auto market in Pakistan, where just 180,000 cars were sold in the fiscal year 2014-15. In neighboring India, that figure was over 2 million.

Some people in Pakistan have been angered by the availability of expensive, low-quality cars. Vehicles produced in Pakistan do not have airbags, anti-lock brakes (ABS) or other safety features that drivers in other countries have come to expect.

The Suzuki Mehran is the cheapest car on sale in Pakistan at $6,200. The same car sells for around half the price over the border in India.