Malaysian carmaker Proton announces joint venture to build new assembly plant in Pakistan

A groundbreaking ceremony for the factory is set to take place on Saturday, as Prime Minister Mahathir Mohamad wraps up a three-day visit to the country
The carmaker, which was struggling before Chinese company Geely bought a 49.9 per cent stake in 2017, has shown recent signs of recovery

Malaysia

Tashny Sukumaran

Published: 9:30am, 22 Mar 2019

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Proton, Malaysia’s national carmaker, is set to build an assembly plant near Karachi in Pakistan with local partner Alhaj Automotive, in a move that economists believe will bring positives for both nations.

The carmaker, which was struggling before Chinese company Geely bought a 49.9 per cent stake in 2017, recently launched a premium SUV believed to be signalling its recovery. Now, its regional ambitions are coming to fruition sooner than expected, even as Geely’s sales within China stutter amid the US-China trade war and an economic slowdown.

In a statement, Zhejiang Geely Holding Group said the move was “part of Geely’s commitment to help restore Proton to its position as a best-selling brand in Malaysia and also a leading Asean brand”.

Pakistan's Prime Minister Imran Khan (R) speaks to his Malaysian counterpart Mahathir Mohamad in November. Photo: AFP

For Pakistan, which is grappling with both a financial crisis and inflamed tensions with its neighbour India, the deal will mean job creation and economic benefits, fulfilling a promise made by Malaysian Prime Minister Mahathir Mohamad during the first official visit by his Pakistani counterpart, Imran Khan, to the country late last year.

The groundbreaking ceremony for the new factory is set to take place on Saturday as Mahathir wraps up a three-day visit to Pakistan, during which time he will also receive the country’s highest civilian award.

Dr Zhang Baohui, director of Lingnan University’s Centre for Asian Pacific Studies in Hong Kong, described the deal as having “win-win outcomes to all parties” and said that Pakistan would be more than capable of producing quality parts.

Proton X70: an SUV, or a sign China-Malaysia ties are shifting up a gear?

“Proton, because of Geely, now has greater capacities to engage with markets outside Malaysia. Its cars, which are less costly than the Japanese or Korean competition, are also the right products for countries like Pakistan, where per capita income remains low. Pakistan can make combat aircraft like the JF-17 and advanced cruise missiles. So its manufacturing capabilities should not be an issue.”

It is unclear if the new plant will make cars for the local market or for export, though Ikram Mohammad Ibrahim, Malaysia’s high commissioner to Pakistan, has hinted that the country of 210 million people is full of potential.

“Proton feels it is big. That’s why Proton has agreed to work with Alhaj to build an assembly plant near Karachi in the Sindh province. This is significant because it will be Proton’s first plant in South Asia and the population of this country alone is 210 million,” he told reporters at the High Commission of Malaysia office in Islamabad.

A Malaysian flag reflected on a car window at a Proton showroom. Photo: Reuters

The move has the potential to boost Pakistan’s economy while simultaneously raising Proton’s profile in the region, according to Dr Tham Siew Yean, a senior fellow who specialises in economics at the ISEAS-Yusof Ishak Institute in Singapore.

“Proton is mainly for domestic consumption. So if you produce there [in Pakistan] you will likely sell there,” she said.

“Although we will need to know more about the investment deal agreement – the manufacturing licence, job creation and so on – it is safe to say this … can be beneficial to Pakistan as the host economy. It will create jobs and there will be technology spillovers, which Geely will have because it has Volvo and Lotus technology.”

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Malaysia will likewise benefit from the deal if it raises the international profile of its national carmaker.

“When Geely took over they said they wanted to increase exports. Producing and selling in Pakistan constitutes selling overseas. Also this makes sense if you think along the lines of the Belt and Road Initiative – China is building the roads and bringing in the cars,” said Tham.

The announcement of Proton’s first South Asian factory in Pakistan comes just three months after the first car under the new Geely-Proton partnership – the X70 SUV – was launched, marking a significant turnaround for the company.

Before the partnership, Proton had been losing millions of ringgit a year, plagued by a reputation for poor quality and design. Plans for partnerships with Volkswagen and General Motors had both previously fallen through.

Proton cars roll off the assembly line in Shah Alam on the outskirts of Kuala Lumpur. Photo: AFP

Proton cars made in Pakistan will likely by aimed at the domestic market to “take advantage of the government incentives or tariff structure in favour of local assembly”, according to economist Dr Yeah Kim Leng of Malaysia’s Sunway University.

The announcement of the factory comes just four months after Khan’s first official visit to Malaysia in November, when he and Mahathir pledged to help each other with the “unprecedented debt” that both countries have. The Malaysian leader also said he would be working to bring Pakistan into Asean as a dialogue partner – potentially opening up a lucrative market for Islamabad.

Global lenders to blame for belt and road debts, not us, Beijing says

Mahathir noted the “remarkable similarities” between the two nations – both leaders came to power on an anti-corruption platform, inheriting large amounts of debt and a host of China-backed megaprojects – and said he hoped the 2007 Malaysia-Pakistan Closer Economic Partnership Agreement could be fully exploited.

Meanwhile, Pakistan is still negotiating a bailout from the International Monetary Fund as the nation struggles to repay loans related to the China-Pakistan Economic Corridor.

IMF mission chief Ernesto Ramirez Rigo is expected to visit Pakistan on Tuesday for the final stage of discussions on the bailout package, according to Pakistan’s finance minister Asad Umar.

This article appeared in the South China Morning Post print edition as: Malaysia’s Proton to build plant in Pakistan

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