IFC-Supported Piaggio Provides Affordable Fuel-Efficient Transportation in India and Vietnam
July 19, 2012 -- The Vespa scooter – "wasp" in Italian – has come to India and Vietnam at a time when families, particularly women, look for safe, affordable, and easy-to-ride two-wheelers. Supported by IFC, Italian auto-maker Piaggio has introduced high-tech scooters that give cost-conscious consumers better mileage than existing models in other parts of the world. These gearless scooters – or advanced automatic transmission vehicles – have already become very popular especially with women drivers for being low-cost and capable of quickly navigating clogged streets while the three- and four-wheelers are benefiting farmers and micro businesses in urban and suburban centers.
The investments have jump-started small businesses using light vehicles with Piaggio’s footprint benefiting the entire value chain – from suppliers to distributors, end-users, and after-sales services that reach poor consumers while creating jobs and raising income levels at the base of the pyramid.
In 2011, IFC invested €45 million equivalent in two Piaggio manufacturing units: €15 million in Vinh Phuc, Vietnam, to build two-wheelers; and €30 million to expand a factory in Baramati, Maharashtra, India to build two-wheelers, three-wheelers, and four-wheelers.
Both plants are also manufacturing more fuel-efficient engines for Piaggio’s three- and four-wheel light commercial vehicles (LCVs). The environmental benefit comes from the BS4 innovative combustion engine built at the India plant which is likely to reduce carbon emissions by 31,500 tons each year. The India plant will export LCVs to Piaggio in Italy.
IFC's successful long-term relationship with Piaggio has helped the company navigate regulatory challenges and establish itself in both markets.
SMEs, Jobs, Local Currency Financing
As a cost-effective and fuel-efficient means of transportation on narrow roads in crowded cities, the vehicles are helping to increase mobility for micro and small business owners and low-income families. In both Vietnam and India, the three- and four-wheeled LCVs are used to transport food and other small cargo within cities and between villages and are also used as taxi cabs.
To make the vehicles more affordable, Piaggio set up a joint venture with retail banks to provide retail financing in smaller towns in Vietnam and India, thereby benefiting small entrepreneurs.
The projects have created about 480 new jobs in Vietnam, about 300 in India, a significant number of indirect jobs, and exceeded targets for employing women. In India, the company recently hired 20 women engineers from an engineering institute in Baramati to work at the plant producing the iconic Vespa. Technical and management training is being provided to 20 local suppliers in both countries.
In Vietnam, IFC helped limit foreign exchange risk by supporting local currency financing. IFC structured its first unfunded swap transaction by guaranteeing an onshore bank, ANZ, on its exposure to swap IFC’s loan from US Dollars into Vietnamese Dong. IFC is in turn guaranteed by Piaggio which has asked IFC’s advice on hedging structures for its foreign exchange exposures in India.