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Volkswagen’s African experiment

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With Volkswagen’s sights set on developing the nameplate across sub-Saharan Africa, the managing director of the company’s South African operation, Thomas Schäfer, outlines the brand’s strategy

Do African governments have the courage to halt the dumping of used cars in their markets? If they did, according to Volkswagen SA (VWSA), it could just open up a whole new market for global motor companies.

East African roads are awash with old Japanese cars. Strict laws – and, unofficially, a desire to keep the local motor industry ticking over – make it impractical for Japanese motorists to hold on to cars once expensive inspections start to kick in when vehicles are three years old.

As a result, millions of cars in reasonable condition and with relatively low mileage are packed off to emerging markets each year. Africa is a favoured destination because of the number of countries where cars drive on the left-hand side of the road, like Japan.

South Africa banned the import of used cars some years ago. Other countries, with less disposable income and populations desperate for mobility, have been less strict. Across the continent, new vehicles comprise a tiny proportion of the overall car market. In some countries, used vehicles attract no import duty.

That’s why VWSA’s strategy is so interesting. I have mentioned before its foray into Kenya, where, late last year, it launched a joint venture with a local manufacturer to bolt together Polo Vivo kits sent from the company’s Uitenhage assembly plant in the Eastern Cape.

Now it is planning a similar adventure in Rwanda – but with a twist. The deal could also include ride-sharing and even a form of taxi service.

Why on earth Rwanda, when there are so many bigger markets across Africa? Because of the political will, says Volkswagen SA’s MD, Thomas Schäfer.

Just as the Kenyan government has vowed to limit the free rein granted to used imports, so the Rwandan administration of president Paul Kagame is giving its blessing to automotive industrialisation and is willing to cut back the duty advantages.

Too many African countries are over-dependent on commodities, including oil, for revenue. When prices plummet, governments run out of money. So it makes sense, says Schäfer, for countries to diversify into manageable manufacturing.

Motor companies started ploughing money into Nigeria three or four years ago because it was going to be the next big thing in Africa, after South Africa. Eventually, it probably will be, but for now those investments are lying fallow because the oil-based economy has collapsed and no one can afford to buy vehicles.

The tendency of most motor companies is to go big. But, as Schäfer says, what’s the point of, say, a Chinese motor manufacturer trying to seduce a government by promising to erect a car plant capable of building one million units annually, if there’s no market for those vehicles?

VWSA’s strategy brings new meaning to the expression “starting small.” The Kenyan joint venture will probably build this year no more than 1 000 Vivos sourced from South Africa. The medium-term annual target is 5 000 cars. Initial plans for Rwanda – which drives on the “wrong side” of the road and so is less dependent on Japanese vehicles – are similarly low-key.

VWSA hopes to establish an “environmentally-compatible, local vehicle production facility” in the capital, Kigali, by the end of 2017. It also plans to stimulate demand by offering app-based mobility solutions like car-sharing and ride-hailing.

If the timeframe to set up the assembly plant seems tight, it is. But this is reassembly, not manufacture. As in Kenya, VWSA will help set up the factory and train staff, before leaving the actual operation to local partners.

The company’s direct risk is minimal. It is a supplier to a plant owned and operated by locals. “There’s more heat on the government than there is on us,” says Schäfer, who was recently given responsibility for developing the Volkswagen brand across the rest of Sub-Saharan Africa.

“We tell governments they must be serious about cutting imports. We tell them that if they aren’t, we might as well walk away.”

More countries are in VWSA’s sights. Tanzania, Ethiopia and Ghana are all tiny new-vehicle markets with potential. So is the Ivory Coast, but Schäfer is nervous of involving the global Volkswagen group in a country with a reputation for employing child labour.

None of these markets will shoot the lights out – Rwanda’s new car market, currently about 3 000 units annually – could theoretically grow to 100 000 but, add them all together, throw in a few more countries, and the numbers start to stack up.

“It’s almost like an industrial experiment,” says Schäfer. “Wolfsburg (Volkswagen’s German headquarters) would not be interested in start-up numbers like these. But you have to be realistic in Africa. You never go from A to B in a straight line.”

 

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