Young- suk Hyun Ph.D Hannam University Daejeon , Korea email : [email protected]...

The Prospect of Auto Industry Development in Kazakhstan Kazakhstan Machine Builders Forum April 16 2013

Astana, Kazakhstan

Young-suk Hyun Ph.D Hannam University Daejeon, Korea email : [email protected] skype: yshyun88 mobile : +82-10-4270-1519

1YSHYUN, Machine Builders Forum :

16 April 2013 Astana

mailto:[email protected]

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I. Introduction

II. Demand Forecast of Kazakhstan Auto Industry

III. Auto Industry Policy Options and Lessons

IV. Policy of Kazakhstan Auto Industry

V. Discussions

The Prospect of Auto Industry Development in Kazakhstan

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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CU

KazakhstanBelarus

Russia

Outside CIS (China, EU)

CIS (Uzbekistan, Ukr… )

I Introduction


4

Kazakhstan 9,550 prod (2011) Risk of Nutcracker

Long-term Auto Industry Dev. Plan

Russia 2.0 million prod (2011) Customs Union 2010- Gov. Strategy 2020 for Russian Car Industry - Industrial Assembly Agreement

East Bound Move

China 18.4 million prod (2011) WTO 2013 (KZ)

Cheap Price Largest producer & market M&A

West Bound Move

West and East Bound Move to Kazakhstan


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Strategic Path and Natural Path


Ship

Natural pathStrategic path

River

Value Added, Job Creation, Industrialization

Large small

□ Kazakhstan’s Access to the WTO Kazakhstan’s accession to the WTO will become one of the most important stages on the way to integration of the country into the global economic system. But under the Customs Union regime, Kazakhstan cannot but follow Russia’s market opening schedule in negotiation with WTO. It will lower common customs tariffs and boost import demand.

□ Impact and Policy Implication

Lower Tariff

Lower Price of Foreign Automobile

Foreign Autos get More Competitive Power

Gain More Kazakhstan’s Auto Market

Domestic Car Makers are difficult to survive

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16 April 2013 Astana

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High Growth Middle Growth Low GrowthAnnual GDP Growth rate

More than 6% 5%~6% Less than 5%

Road Infrastructure Expand until 2020 Expand until 2016 and slowdown

Expand until 2016

Strategy ofAuto company

Aggressive medium Less aggressive

Energy Price Lower Stable Higher

Government Support Strong Weak No

Assumption of Vehicle Demand Forecast in Kazakhstan

Weak Government Support Strong

Company Strategy

Less Ag-gressive

High GrowthMid Growth

Low Growth No Growth

Aggressive

II. Demand Forecast of Kazakhstan Auto Industry


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High Growth Mid Growth Low GrowthNew Vehicle 395,000 248,457 192,000 passenger car 300,000 168,447 130,000

bus

truck

20,000

75,000

16,010

64,000

12,400

49,600

Used Vehicle 125,000 62,500 48,000

Total Demand 520,000 310,957 240,000

Summary of KZ’s Vehicle Demand Forecast in 2020 (Units)

2011 2012 2020

Optimistic Neutral PessimisticTotal New Vehicle Demand

63,607 130,000 395,000 248,457 192,000

New Vehicle Import (import ratio)

55,000 110,000 158,000(40%)

124,227 (50%)

115,200 (60%)

Export 1,229 1,000 70,000 50,000 30,000 Local production 8,000 20,000 307,000 173,728 106,800Reference Case Korea, Uzbekistan

Iran(IKCO) Romania Vietnam

Summary of Three Growth Scenarios in 2020


YSHYUN, Machine Builders Forum : 16 April 2013 Astana 9

III Auto Industry Policy Options and Lessons

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Malaysia

China Russia Thai-land

Brazil Slovakia Uzbek-istan

Korea Kaza-khstan

WTO 1995 2001 2012 1995 1995 1995 no 1995 2013

Firms Local MNC

Total 27 CV 9Local 2 proton, Perodua

MNC(state JV)Local 25

Local Geely, Chery, BYD

MNC Lo-cal

25Car 17CV 8Local GAZ,Kamaz,,,,

MNC

15Japan EU, China

MNC

19US, EUJapan

MNC

3 car onlyFrance, Korea Germany

State JV

1Uz-GM

Local MNC

7Car 5 CV 2Local :Hyundai Kia

Local MNC

Major Prod-ucts

localMNC

MNCLocal

localMNC

MNC MNC MNC MNC Local MNC

Policy(WTO after)

Product taxLocal content

Local con-tent

Recy-cling tax

2020 Plan (2010)

Japa-nese produc-tion hub

MNC depen-dent

Export to EU

Import prohibit

NO WTO

Special Con-sump-tion TaxAutomo-bile tax

Recy-cling taxLocal content product tax (VAT)

Re-marks

Self re-liance

Large do-mestic demand

Large poten-tial de-mand

Large popula-tion

Large popula-tion

EU CIS Gov Initia-tive

Gov. 1970s

Prod 2011

Car 488,261CV 45,254

Car 14,472,416CV 4,032,698

Car 1,738,163CV 250,757

Car 537,987CV 919,808

Car 2,519,389CV 1,013,227

Car: 640,230 only

Car 222,022only

Car 4,221,617CV 435,477

7,000


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WTO and Gov Auto Industry Policy Policy WTO Ac-

cessCountry After WTO WTO, re-

marks 1.MNC admit and local model dev

WTO early

Early 1995 Malaysia -local content-product tax

protest

MNC admit and Local dev WTO late

Late

more late

China Dec. 2001 RussiaAug. 2012

-local content

-recycling tax

protest

protest

3. MNC admit and no local model

Early1995

Thailand, Brazil Slovakia

- no violate

4. MNC admit And no local model NO WTO

No Uzbekistan -Import prohibit -export promotion

NA

5. MNC admit But Strong Self Re-liant

Early1995

Korea -special consump-tion tax (purchase) -automobile tax (operating)

R&D, educa-tion, busi-ness, tech support


Performance

Time

Chaos (Market Opening)

Leaf frog

Mainstream

chasm (Death Valley)

Infant Growth Mature

Developing countries

Korea

Fall Behind

□ Korean government has supported holistically for the automotive industry. - Government’s support is important to cross the chasm.

Establish Long-term Development Plan

12

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Lessons from Korea’s Experience WTO Local Brand 1. Korea : 10th auto producing country (2.52 mil. production, export

978 thousands in 1995 when accessing WTO

2. Government strong initiative in supply and demand policy to dev local model in 1970s by local firm Hyundai Motor

3. Before WTO Korea, Gov could implement every policies to support local model and local maker : (ref: KOICA Report to Kazakhstan Gov. Feb. 2010)

4. Hyundai Motor selected “self reliance strategy” to develop local model with high risk taking entrepreneurship.

5. Korean Gov 1) special consumption tax (purchase tax : product Tax) 2) automobile tax (operating tax) to regulate foreign car import -

heavy tax for large cars (most import car) after WTO 3) Emission regulation as to regulate import of large foreign car

abolished as of the FTA with USA in 2012 8. Lessons - strong gov. intervention : industry policy, local content, local model

dev - without local model, hard to increase local content - but it was experience in 1970, 1980s before WTO - rapid catch up strategy under GATT

China after WTO (Dec 11 2001)

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1) Import Quota ; 1986-2005 (20 years) even after WTO Dec 11 2001

2) Local Content Issues 1 : WTO 2001 over 60% foreign parts vehicle assembled in China (below 40 local content vehicle) import duty (Custom tax) is same as complete vehicle 25% 2006 EU, USA proclaim to WTO as Unfair Trade 2008 China defeated but protest again to prevent simple screw drive foreign

vehicle plant in China 2009 Abolish3) Local Content Issues 2: by 2005 some parts custom duty 30% ( other parts 13-17%) 2006 to comply WTO complete vehicle 25% parts : 10% 4) Local Brand Vehicle Target (2006) 40% (2005) 60% (2010) 5) regulate foreign investment 2001-2008 limit not over 50% of foreign investment in automobile industry

not parts ind.6) Vehicle Safety Regulation (2005) : 9 regulations (back mirror, door

lock, interior materials … 7) Minimum Export Ratio Policy (2006) : new auto plant must meet Min

export Ratio


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1.농림수산품3.음식료품5.목재 및 종이제품7.석유석탄제품9.고무 및 플라스틱

11.철강13.금속제품15.전기전자기기

17.자동차19.기타수송장비21.전력가스수도

23.도소매25.운수 및 보관

27.금융 및 보험29.사업서비스

31.교육 및 연구33.문화오락서비스

35.기타

1.농림수산품

2.광산품

3.음식료품

4.섬유제품

5.목재 및

종이제품

6.인쇄 및

출판

7.석유석탄제품

8.화학제품

9.고무 및

플라스틱

10. 비금속광물제품

11. 철강

12. 비철금속

13. 금속제품

14. 일반기계

15. 전기전자기기

16. 정밀기기

17. 자동차

18. 선박

19. 기타수송장비

20. 기타제조업제품

21. 전력가스수도

22. 건설

23. 도소매

24. 음식 및

숙박

25. 운수 및

보관

26. 통신 및

방송

27. 금융 및

보험

28. 부동산

29. 사업서비스

30. 공공행정 및

국방

31. 교육 및

연구

32. 의료 및

보건

33. 문화오락서비스

34. 기타서비스

35. 기타

0

10

20

30

40

50

60

70

<Figure > Unit Structure of Korean Automobile Industry (2000)

Source : Input-Output Table, Bank of Korea

Chemical

Rubber & plastic

Steel Machinery

Electronics

Extensive inter-industry relationships

Auto Industry

IV. Policy of Kazakhstan Auto Industry


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Industrialization of Kazakhstan

⊙ Basic Approach

Driver Demand Creation Investment (Foreign/Local) Auto Industry Machinery: MES 20,000- 50,000 for auto plant

for parts Industry Parts Industry

Kazakhstan CU CIS

MES : Minimum Economic Scale

MachineryDemand Supply

Automobile

Vehicle

Manufacturing Industry

Industrialization of Kazakhstan Kazakhstan

Parts Industry for after market

After market Parts

Basic Strategy in Automobile and Automotive Parts Industry


Policy Options of Kazakhstan Auto Industry

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Strategy Coun-try

Local Mar-ket protect

Gov. role Remarks

1

MNC Invest Local ModelWTO access protest

MalaysiaChinese Russian

-Recycling tax

-Product tax -Local content

Gov: Local model Sup-port Policy

Many MNC firms

Local firms

2 MNC Invest No Local ModelWTO access and Follow

Thai-landBrazil Slovakia

-Dependent on MNC

How to meet Rus-sia, China Uzbekistan

Thailand : Japa-nese production hub

Custom Union

1. Strategic path : Government Strong support 2 Natural path : Government Weak support


Two Paths : Malaysia vs Thailand

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Malaysia Thailand Basic Policy Self reliance, Look East Policy in

1980sdependent

WTO Access 1995 1995

ASEAN ASEAN Member ASEAN Member

Auto Maker Local Maker. Model

27Local Maker: Proton. Perodua Local Model : Proton,

15No Local maker No Local model : Toyota, Isuzu, Honda Nissan . Mitsubishi

Gov Policy 2009 New Auto Industry Policy Incentive for local brand

2007 Eco car Program Incentive for foreigner Investment in auto industry

Local Model Share

60% + 0 % Japanese model 90%

WTO Against Follow Key Role Man Mr. Mahatier (Advisor Proton)

Previous Prime Minister 2011 Produc-

tion 2011 Export

1,193,000 units ( major : car ) 1,457,795 units (major : pick-up) 733,950

Remarks Lead Indonesia to start Timor Project in mid 1990s but fail as of WTO dispute

2012 : 10th auto making countryPick-up Export Base

Malaysian path

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1. Gov Policy : strong gov. support for local maker, local model in 1980s “Proton” to follow Korean Hyundai Path in 1970s [Look East Pol-icy]

2. Technical Assistance from Mitsubishi Motor/Japan 1995 60 % local Brand

( Proton, Perodua) 3 Product Tax 2004 1.1 Auto Parts custom tax decrease for ASEAN countries Product Tax Increase for imported vehicle, local vehicle assembled by foreign makers Product Tax is internal tax not WTO issues but national interest4. Strong Man PM : Dr. Mahatier “Hereafter 20 years, Malaysia needs protection policy for local model

car 4. Against and argue WTO : 2009 10 Industry Policy Used car Import prohibited/ 50% reduction of consumption tax for lo-

cal model /Old car support to buy local model 5. Free trade in 2006 : ten year after WTO6. ASEAN member in competing Thailand’s parts industry Japanese

support 7. Motivate Indonesia to start national car “Timor Project” in mid 1990s Indonesia : Low local content / dependent on MNC Japanese makers Screw drive factory


Thailand Path

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1. Gov Policy : weak support , no local maker , no local model

2. Japanese production hub for ASEAN countries production 90% Japanese Brand

4. 2007 Eco car program below 1300cc gasoline 1400 cc diesel car 500 Million Baht Invest 100,000/ year within 5 year, engine, core parts in Thailand product tax 30% discount -> no corporate tax for 8 years -> no Tariff for Machine and facility for auto plant induce : Honda, Susuki, Nissan, Mitsubishi, Toyota

5. Relatively strong parts industry by Japanese makers 5. ASEAN member in competing Malaysia 6. 0th auto making country in 201 2


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Free TradePolicy

Majorto KZ

Weapons and Strategy Influence on Kazakhstan’s auto Industry (new vehicle Import por-tion, Data: Custom Office Kz) 2010 2011

CustomUnion (CU)

Russia -East Bound Move -Russia’s 2020 Plan/Gov-ernment support -Foreign alliance

Car Truck 46.4 % Bus 59.6 %

Car Truck 50% Bus 21.6%

WTO China -West bound Move -Cheap Price-World factory (largest producer, largest market)

Car Truck 29.6%Bus 9.3

Car Truck 32.8%Bus 8.2

CU and WTO to Kazakhstan’s Automobile Industry


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Specification CompetitionCurrent competi-tor

Potential competitor Source of Com-petitive Strength

Car - 1500cc UzbekistanUz-Daewoo

China Low price

1500-1800cc Russia Lada Russia, China Korea

1800-3000 Japan, Toyota Japan, GermanKorea

Quality, Brand

Over 3000 Japan, Toyota Japan, German Quality, Brand Bus Russia Russia, China Truck - 5 ton Russia Russia, China

5-20 ton Russia Russia, ChinaOver 20 ton China China

Special Vehicle*

ChinaBelarus

China

Competitors Analysis of Kazakhstan Automotive In-dustry

Forecast

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1. Russia

-Renault allied with AvtoVaz will export vehicles to Kazakhstan unless Kaza-khstan can not develop her own automobile industry.

- Kazakhstan could impose ‘recycling tax’. But that will be hindrance to Kazakhstan’s

automobile export. Governments of vehicle export countries will retaliate on vehicles

produced in Kazakhstan (ex: China) - How Meet Foreign and Russian vehicles made in Russia exported to Kaza-

khstan

2. China China will build auto plant in Belarus, Russia and Kazakhstan to use CU

and WTO : Commercial Vehicle, car

3. Uzbekistan : small car export or assembly in KZ

4. EU : car assembly plant in Kazakhstan

5. Asia : Korea, Japan : car and commercial vehicle (Bus Truck) YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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1. Gov Strategic Decision : Malaysia or Thailand Path 2. WTO (ref : China and Malaysia case) 1) More extended grace time for developing country 2) Financial Support : Corporate Tax Recycling Tax, Product Tax, Consumption Tax 3) Tariff reduction for Plant and facility for auto plant in Kazakhstan 4) Local Content Regulation : preferential tariff for high local content

car 5) safety, emission regulations (Technical Center) 3. Industry Structure : number of auto makers increase so many as of dealer’s perspective 4. Export Models Local Model - Lada Model to export to CU and other countries - SUV Model -Commercial Vehicle 5. Local/ Foreign maker : start foreign model but target local model

in the long CAUV : Central Asian Utility Vehicle : [ref: Toyota Kijang in Indone-

sia]6. Parts Industry and Localization : Local Content Regulation, Joint

Venture 7. Technical regulation/standards (GLONASS system, Technical Center

by Gov. ) 8. What is Kazakhstan’s Ideal Picture in the future : - Contingency plan - Steering and Advisory Committee

Kazakhstan’s Policy Options

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V. Discussions

Ship

Natural pathStrategic path

River

Value Added, Job Creation, Industrialization of Kazakhstan

Large small

1. How to protect local market under CU and WTO ?2 How to take advantage of scale economy ? 2. How to increase value added in Kazakhstan ?3. How to access Local content, local model

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Thank for Your Attention

Young-suk Hyun Ph.D

Hannam University, Daejeon, Korea [email protected], skype: yshyun88 mobile : +82-10-4270-1519


mailto:[email protected]

Young- suk Hyun Ph.D Hannam University Daejeon , Korea email : [email protected]...

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