Volkswagen production line at the Kenya Vehicles Manufactures (KVM), Thika, on December 21, 2016. PHOTO | DIANA NGILA | NMG
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.
MoU
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.
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.
Harmonised market
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.
New vehicle numbers
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.
Age-limits
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.
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