Ethiopian Business Review

"We need government support through strong automotive policies to unlock Ethiopias potential."

Africa has become the next frontier for European and Asian car manufacturers. Adding to Ethiopia’s collection of foreign auto companies, Volkswagen signed a Memorandum of Understanding (MoU) with the Ethiopian Investment Commission in the beginning of 2019. This makes Ethiopia the third country in sub-Saharan Africa to sign an MoU with Volkswagen, following Ghana and Nigeria, which both signed MoUs with Volkswagen in August 2018. Volkswagen already has a manufacturing plant in South Africa, which has been active since 1951.

According to the MoU signed between Ethiopia and the company, Volkswagen will focus on four key pillars: the establishment of a vehicle assembly facility, localization of automotive components, introduction of mobility concepts such as app-based car sharing and ride hailing as well as the opening of a training center. Thomas Schaefer, Head of Volkswagen Sub-Saharan Africa Region, who signed the MoU, detailed his company’s intentions in Ethiopia in an email interview with EBR’s Ashenafi Endale.

EBR: How do you evaluate the vehicle market in Africa and in Ethiopia in particular?
Schaefer: The strategic markets (Ghana, Nigeria, Rwanda, Kenya and Ethiopia) that we have identified for our expansion into Africa have significant potential for new car makers. We, however, need government support through strong automotive policies in order for us to unlock and realize the potential of these markets. The policy must include phasing out the importation of used cars into these countries, which is the main reason for the lack of industrialization in the sector.

Right now, many international car companies are making similar moves when it comes to investing in Africa. What are the push and pull factors for Volkswagen to look towards Africa?
Africa is the last frontier for the automotive industry and Volkswagen wants to gain first mover advantage as it did in China about 35 years ago. Ethiopia also has the second highest population in Africa; visionary government with strong industrialization policies that are conducive to the automotive industry and strong economic growth.

How many vehicles does Volkswagen produce annually?
The company produces more than 150,000 vehicles annually.  Out of the total, 90,000 vehicles are exported to EU, Japan and Australia.

Volkswagen products are have been popular in Ethiopia for a long time. Why did it take the company so long to establish an assembly plant?
Vehicle demand has been very low over the past years. So it was not feasible to build a factory. The government’s drive to industrialize will hopefully change that picture.

What are the specific components and brands Volkswagen plans to produce in Ethiopia?
Components and models will be decided after the completion of the detailed Project Phase as per the memorandum of Understanding.

When will the factory be established and how much will it cost?
These is also dependent on the outcome of the Project Phase and the degree of intervention by the government.

To which markets will Volkswagen export, besides selling the cars on the domestic market in Ethiopia?
The cars assembled in phase one will be predominantly for the local market in Ethiopia.

Will the price of locally assembled Volkswagen cars lower than the import once?
Locally assembled cars will be priced competitively.
What about the cost of transporting parts?
We will only be able to know logistics costs once the business plan for Ethiopia has been finalized.

Do you follow a redesigning or localization strategy considering the demography, road condition or weather?
Localization is considered for different markets. The same will apply for Ethiopia.    

Why does the company prefer assembling in Complete Knock Down (CKD) form in Africa?
SKD is the first step to start vehicle assembly in a new market with low volume. Further degree of vertical integration follows with growing demand.
Do you consider the Chinese assemblers that are coming to Africa to be competitors?
Chinese assemblers are not the only ones coming to Africa and Ethiopia. There are many other European and Asian car manufacturers that are looking into Africa. This is good news for Africa and us as it will allow us to collaborate to achieve economies of scale by attracting more component and part suppliers into the continent

What are the challenges you expect to face in Ethiopia?
Availability of foreign currency and measures to increase demand for new vehicles.
What are the areas that should improve in order to create a competitive automotive industry in Ethiopia?
Strong automotive policy is required to create a sustainable and competitive automotive industry with steady demand for new vehicles in the country and surrounding countries. The automotive policy must also include phasing out of importation of old cars in order to grow the local automotive industry and make the market conducive to new cars.

What are Volkswagen’s plans for the next ten years in Ethiopia?
Volkswagen aims to establish itself as the leading brand and provider of mobility in Ethiopia. Volkswagen also aims to establish Ethiopia as the component hub in East Africa.


8th Year • Apr.16 - May.15 2019 • No. 73


 

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