The launch of Volkswagen Mobility Solutions Rwanda in June this year makes for one of the most visible industrial endeavours in the country to date. It speaks of a nation already on the march towards the development of a sector that stands to give it more a sense of pride as a manufacturer of a high-value product in a receptive local and regional market. This predicates the rationale behind the initiative as, ultimately, its success will be determined by demand, of which there’s every reason to believe it exists in the growing local and regional economy. The initiation of industrial development, observes the UN Industrial Development Report 2018, requires a critical mass of demand for manufactures. With the right set of conditions, it says under its theme for this year, “Demand for Manufacturing: Driving Inclusive and Sustainable Industrial Development”, the consumption of manufactures can set in motion a virtuous circle of industrial development comprising income creation, demand diversification and massification of consumption. The Volkswagen plant in Kigali will assemble, service and retail cars. But it will also offer ride-hailing and car-sharing services among other Mobile Solutions. This already is diversification. Aside from the usual business of manufacturing and selling cars, the Mobility Solutions are a groundbreaking diversification being pioneered in Kigali. The new firm explains that, before the sales pick up locally and as the market expands beyond the region, the priority for the moment will be on the app-based mobility solution targeting closed communities such as corporate firms and government ministries, including embassies and parastatals, among others, to have access to a fleet of Volkswagen vehicles on demand. People in the “communities” can book the car using an existing and locally developed application, use the car and return it afterwards (see “How much will the locally-assembled Volkswagen cars cost?” The New Times, June 28, 2018). This is only the beginning, before capturing income in the virtuous circle, first, domestically, then, from foreign demand following the pioneering venture. However, for the virtuous circle to work, the UNIDO Industrial Report advises, a critical mass of income needs to be generated within individual economies – and that this income should be well distributed; gains going only to the very rich – the proverbial top 1 per cent often mentioned in the media – will not keep the circle virtuous. In a globalised economy, the report goes on to say, the income generated depends on who serves the final demand for manufactures and how. In addition to capturing income from both domestic and foreign demand, another critical mass — of industrial capabilities — needs to be reached so that domestic producers can serve increasingly sophisticated demand from consumers, nationally and globally. Granted, the report essentially speaks of how one industry can fruitfully birth others in the virtuous circle. But the upshot, it says, prices of manufactures decline as production efficiency increases even as demand for the product rises. It, however, also is about favourable policies. The German carmaker Volkswagen which also has plants in Kenya and South Africa has urged for the establishment of national policies locally and on the continent that will discourage importation of used vehicles to drive demand. Various other manufacturers have urged the same. Another global analysis, the World Investment Report 2018 by the UN Conference on Trade and Development (UNCTAD), seems to agree. Themed “Investment and New Industrial Policies”, it remarks on how developing countries with small markets face pressure on their investment policies as companies increasingly look for investment locations offering the best conditions to deliver new and high-quality products rapidly, close to the customer and through flexible production processes. It speaks of there being a growing consensus that business-friendly structural transformation does not occur by itself, but rather requires a proactive policy that facilitates a transition towards new sectors and activities with higher productivity and more value-added while fostering sustainable and inclusive development. If one was to interpret that the policies fostering sustainable and inclusive development have in mind the majority of us, then, in fairness, it also is incumbent upon the new products being affordable; that, all things considered, they should be within reach of the class of people that opt to import the cheaper, if used vehicles. It helps, therefore, as reported by this newspaper, that the new Volkswagen firm is seeking to enter into financing agreement with local banks and other financial institutions to allow Rwandans to buy the locally assembled vehicles on credit. Twitter: @gituram
