MIGA, a member of the World Bank Group, has issued guarantees worth US$66 million in support of the design, construction and operation of the Hyundai-Nishat Motor vehicle assembly plant in M3 Industrial City, Faisalabad. 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 political risks of transfer restriction, acts of expropriation, war and civil disturbance.

Once operations begin in 2020, the plant expects to assemble a range of Hyundai-brand vehicle models from passenger cars to light pickup trucks geared to general public, SMEs and other fleet running businesses. The plant will have the potential to achieve an annual production capacity of 30,000 vehicles.

Hyundai Nishat Motor (Private) Limited benefits from the Government of Pakistan’s Automotive Development Policy (2016-21) (‘ADP’), which aims to ramp up quality vehicle production in the country to 350,000 units per year by 2021, up from the current ~250,000 units per year and offer increased choice for the consumers. The ADP offers incentives to new entrants in the sector, including the ability to import machinery at concessionary duties. The company will also benefit from a ten-year corporate income tax holiday and import of 100 complete built-up units for test marketing at 50 percent of the prevailing duty under the ADP.

At present, automobile production in Pakistan is dominated by Japanese vehicles assembled locally, utilizing Pakistan’s well-established supply chain for automobile parts. However, production has not kept up with the local demand resulting in excessive rise in the import bills. For consumers, there has been a lag of up to 9 months between placing an order to delivery of the vehicle. Motor vehicle ownership in the country is low, at roughly 20 per 1,000 people, with many of the vehicles lacking fundamental safety features.

The Hyundai-Nishat Motor state-of-the-art assembly plant will be designed to deliver the best-in-class Hyundai vehicles to Pakistani consumers through a nationwide dealership network. The promise will be delivered by installing contemporary hardware, software and skills enhancement programs to develop quality workforce with the help of technology principals Hyundai. The project is expected to spur significant economic activity through creation of thousands of jobs and import substitution. The project intends to localize substantial number of automotive parts with the support of local vendor industry which will also benefit from the latest Korean technology.