While the government enjoys the status of being the most Telecom & IT friendly regime, and the recent award in Barcelona received by Minister of IT and Telecom, Anusha Rahaman is a testament of the impression, the mobile phone sellers in the country are tearing their hair out trying to figure out how they will survive in this business.
The recent decision by State Bank of Pakistan (SBP) to impose 100% cash margins on the import of many items including the mobile phones is enough to shake the faith of industry over government’s friendliness.
As the decision has been imposed, the monthly mobile phones imports are likely to experience a sharp decline by almost 50%. Not only the handset import will be affected, but there will also be a negative impact on related segments of IT including many projects which are deemed integral for Pakistan’s IT growth.
Why mobile phones importers cry
Mobile phones import in Pakistan fluctuates between 1.6 million to 2 million units in a month. While a large chunk represents the feature phones, however, the percentage of the smartphones is rising by approximately 2% every month. As the mobile data subscribers grow exponentially in the country from meager 1.3 million in 2014 to 38.2 million in 2017, most of the international mobile phone brands have started taking an interest in Pakistani handset market.
The 100% margin have killed the hopes of those middle to large level importers who mostly rely on the credit terms. After the policy, they find it cumbersome to place an order for a larger quantity because 100% upfront cash requirement has doubled the required investment as compared to the past.
While expressing the dismay over the policy, leading mobile phone distributors in the trade including Advance Telecom and M&P have shown fear of a sharp decline in the handset import figure by 50% and a rise in mobile phone prices for the consumer by 10 to 15% in the coming months.
How does it work?
Greentech, Advance Telecom, Airlink are some of the distributors in Pakistan who import major mobile phone brands including Samsung, Huawei, Nokia, iPhones into the country.
The entire cycle is carried out on 45 days credit model which gives distributors a reason to forward the credit facility to their major and smaller wholesalers for a rapid spread of handsets across the country. A local retail shop where people usually go for buying their desired phones, most of the times, pays back to its immediate wholesaler after selling them.
Pakistani mobile import and selling cycle revolves around 120 days. The primary distributor opens an LC with a local bank which guarantees the payment to the bank of mobile phone manufacturer. Normally LC is the 10% amount of total value of the import for most of the old players in the market and rest of the amount is paid back after a certain number of days.
Once the LC is opened, phones get imported and reached to the local distributor in 6 to 7 weeks. In next 15 days, the phones are distributed on credit into the local market for which payments are recovered after 45 days.
However, SBP’s new rule demands a 100% upfront payment of the value of entire import at the time of opening the LC. With this implemented and everyone paying in cash, the importer would no more allow advancing the goods into the retail distribution network on credit.
On the contrary, consistent pressure from the manufacturers to sell more handsets would further shrink the cash investment and cause the overall trade to experience a lower numbers of phones getting into the country.
Although, there is a likelihood of better margins in this system since not-relying on credit would eliminate the banking interest, a cost that also adds to the overall expenses of a distributor. However, the margin is less likely to compensate the dent in trade.