MIGA Backs Hyundai Assembly Plant in Pakistan
WASHINGTON DC, August 1, 2018 — MIGA, a member of the World Bank Group, has issued guarantees worth US$66 million in support of the design, construction and operation of a Hyundai motor vehicle assembly plant and associated dealership in Pakistan. The guarantees cover investments and loans guarantees extended by the Sojitz Corporation of Japan, a trading company, to Hyundai Nishat Motor (Private) Limited, a joint venture with the Nishat Group, one of the largest conglomerates in Pakistan, that is developing the facilities. The guarantees are issued for up to 15 years against the risks of transfer restriction, expropriation, and war and civil disturbance.
Once operations begin in 2020, the plant expects to assemble three Hyundai-brand vehicle models: a mid-size and a small-size Sports Utility Vehicle (SUVs), as well as a light pickup vehicle geared to SMEs and other businesses. The plant will have a maximum annual production capacity of 30,000 vehicles, and consist primarily of a body shop, paint shop, and assembly shop with inspection line, test course, motor pool, warehouse and utilities. Parts such as tires, rubber products, and batteries will be sourced locally.
A flagship dealership will be opened in Lahore, with additional dealerships to be franchised around the country.
"This project will help strengthen Pakistan's automotive industry, reducing vehicle shortages, improving safety standards, and increasing the choices consumers will have available to them," said Keiko Honda, CEO and Executive Vice President of MIGA.
Hyundai Nishat Motor (Private) Limited benefits from the Government of Pakistan's Automotive Development Policy (ADP), which aims to ramp up quality vehicle production to 350,000 units per year by 2021, up from the current 150,000 units per year. The ADP offers incentives to new entrants in the sector, including the ability to import machinery free of custom duties, and lower tariff schedules. The company will also benefit from a ten-year corporate income tax holiday, and import 100 complete built-up units for test marketing at 50 percent of the prevailing duty.
At present, automobile production in Pakistan is dominated by Japanese vehicles assembled locally, utilizing Pakistan's well-established supply chain for automobile parts, which includes over 2,000 local manufacturers that produce interior trims, plastic parts, forgings, casting, machined parts, rubber parts and electrical parts.
However, production has not kept up with local demand. For consumers, there is a lag of up to 6-8 months between placing an order for a new vehicle and receiving the vehicle. Motor vehicle ownership in the country is low, at roughly 20 per 1,000 people, with many of the vehicles lacking key safety features such as air bags and anti-lock braking systems.
"Working with MIGA on this project is essential in helping increase Pakistan's reputation as friendly territory for automobile manufacturing and investment," said Masayoshi Fujimoto, President and CEO of Sojitz. "A more diversified automotive sector will positively impact the safety and well-being of Pakistan and its drivers."
Sojitz, the guarantee holder, has extensive experience conducting business in Pakistan, and has existing partnerships with both Hyundai and Nishat. The Japanese trading company is active in numerous business sectors, and has partnered with MIGA on other projects including the Ikitelli Hospital in Turkey.
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MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war & civil disturbance; and offering credit enhancement to private investors and lenders.
This year marks MIGA's 30th Anniversary. Over the last three decades, MIGA has directly supported almost $50 billion in investments for over 845 projects in 111 developing countries.
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