Automotive giant Volkswagen seems to be quietly plotting a takeover of the East African market, positioning itself for the lucrative saloon car business as the region moves towards integrating the sector.
In its latest move, last week, the Germany-headquartered automaker signed a memorandum of understanding with Ethiopia to establish an assembly plant in the country and produce automotive components.
Volkswagen also plans to introduce mobility concepts such as app-based car-sharing and ride-hailing, and open a training centre.
Thomas Schaefer, head of Volkswagen in sub-Saharan Africa, described Ethiopia as the ideal country to advance the firm’s development strategy on the continent given its population, ranked second on the continent.
“Volkswagen intends to tap into existing expertise and strategic resources in Ethiopia to establish a thriving automotive components industry,” said Mr Schaefer.
Ethiopia is the third country in sub-Saharan Africa to sign an MoU with Volkswagen in the recent past, after Ghana and Nigeria in August last year.
In Ghana, Volkswagen will establish a vehicle assembly and conduct a feasibility study for an integrated mobility solutions concept.
In Nigeria, Volkswagen implemented a phased approach of vehicle assembly with a long-term view to establishing the country as an automotive hub in West Africa.
In June 2018, Volkswagen opened its plant in Rwanda, adding to the one in Kenya where it has an assembly line for the Polo Vivo hatchback.
VW also has a vehicle assembly line in Algeria.
“We are focusing on new up-and-coming markets, and sub-Saharan Africa plays an increasingly important role. Although the African automotive market is comparatively small today, it has a bright outlook,” said Mr Shaefer.
For VW, the timing could not be better as the East African region starts shifting towards newer vehicles with lower emissions.
The EAC Heads of States 20th Ordinary Summit in Arusha on Friday was expected to endorse the establishment of the Regional Automotive Industry Platform of East Africa (Raipea).
Raipea is expected to create a single, “integrated automotive market” and serve as an incentive to attract global car manufacturers in the region for assembly and component manufacturing.
Once operational, the new platform, will see the region save more than $2 billion annually in car import costs even as the summit considers pushing for harmonised guidelines.
The region hopes to mirror the success of countries like South Africa, Nigeria and Morocco, which have managed to develop their own automotive sectors through strong and extensive coordination both at national and regional level.
It is expected that by the end of next month, EAC partner states will have rolled out mechanisms to establish national automotive industry platforms and technical working groups to co-ordinate the sector at national level, and provide a mechanism for interfacing with the regional automotive platform.
The Secretariat is now expected to factor in the cost of undertaking a feasibility study on affordable vehicle manufacturing in the region, in the EAC budget for the 2019/2020 financial year.
Once operational, this new initiative will be supported by the entry of the likes of Volkswagen into the region’s market, and will be expected to boost new vehicle numbers as EAC begins to cut down on used vehicle imports.
Already, Kenya has indicated that starting July, it will effect a planned phase-out of used vehicles, only allowing those that are five-years-old and below, as it targets a total close down by 2022.
Imported second-hand vehicles account for 85 per cent of Kenyan car purchases, totalling 86,626 units in 2017, and gobbling up precious foreign exchange estimated at about Ksh60 billion ($600 million) a year.
Two countries in the region have been given until October this year to finalise their national positions on setting age limits for imported used vehicles.
“The Council directed the Secretariat to develop a harmonised regional standard for pre-shipment inspection and standards of practice for inspection of imported used vehicles,” an EAC communique says.
In 2017, the region reactivated talks on the harmonisation of age limits for imported vehicles and on setting up assembly plants, having put them on hold following recommendations of a study by the EAC Committee on Industrialisation.
It warned against the sudden implementation of the harmonisation process without reducing the number of vehicles imported into the region.
The indecisiveness of the two countries is said to be holding back the region from adopting a common position on the matter, and a one-year deadline given to them, which expires in October this year, is meant to bring the entire process to a close.
Currently, Kenya has an eight year age limit for imported used cars, with Tanzania having a 10-year limit, while Uganda has a 15-year limit.
Rwanda, Burundi and South Sudan, will be the most affected given that they do not have age limits for second-hand cars imported into their market.
“Used vehicle imports account for 70-85 per cent of the EAC total market. The lack of a harmonised policy for the importation of used cars leads to trade diversions, loss of revenues, and risks related to road safety and environmental health risks,” the technical experts said in their report.
Vehicle assembly seems set to become the new manufacturing frontier in the region.