Pakistan economic crisis: After Toyota, Suzuki shuts motorcycle and car plants due to kit shortage

Auto major Suzuki has temporarily shut down its motorcycle and four-wheeler plants in Pakistan due to a shortage of parts and accessories owing to a mechanism introduced last year by the country's central bank, the State Bank of Pakistan. The company said that the requirement to take prior approval for the import of completely knocked-down kits had adversely affected the clearance of consignments, thus affecting inventory levels, according to Dawn. 

The plants have been shut till July 8. Pakistan Suzuki kept its four-wheeler plant shut for over 75 days from August 2022 till June 19. The SBP's curb on opening fresh letters of credit has adversely affected the arrival of completely knocked-down kits being imported by local assemblers, the Dawn reported.

Earlier this month, Indus Motors, the manufacturer of Toyota vehicles, halted its production due to a disruption in the company's supply chain, according to ARY News. In a letter to the Pakistan Stock Exchange, the company said its production would be shut down due to "delay in the opening of Letters of Credit (LCs) and inventory shortages".

The company said that its vendors continued to face hurdles in the import of raw materials and receiving clearance of their consignments due to challenges in the opening of LCs and supply chain issues. "This has disrupted the supply chain and the vendors are unable to supply raw materials and components to the company. It has insufficient inventory levels to maintain production, therefore the company is unable to continue its production activities," the letter said.

This was the second time Indus Motors halted its production. In December last year, the company shut down its operations citing a delay in import approvals from the SBP. The company said the central bank had introduced a new mechanism for obtaining prior approval for the import of completely knocked-down kits and components of passenger cars.

"The delay in the approvals for the company and vendors has created hurdles in the import and clearance of consignments for raw materials and components of the company. This has resulted in insufficient inventory levels and consequently has created an adverse impact on the supply chain and production activities," the letter stated according to Dawn. Now there are speculations that Toyota might shut its plants permanently and exit Pakistan. 

Pakistan is staring at sovereign default due to a serious dollar crunch which is why it moved to restrict imports of many materials. However, some restrictions have hurt the industries badly as they have run out of raw materials, leading to the shutting down of shops and job loss.

Just a week ago, British oil firm Shell announced that it was exiting Pakistan. The move came after Shell Pakistan (SPL) suffered losses in 2022 due to exchange rates, the devaluation of the Pakistani rupee, and overdue receivables, Reuters reported last Wednesday.