10 things you need to know about Volkswagen Rwanda deal

The first Made-in-Rwanda car by German carmaker Volkswagen could hit the roads in May this year, according to the firm’s officials. This follows an announcement by the firm that they are in the process of setting up a plant to assemble cars locally and roll out a mobility solution in the second quarter of this year.
Thomas Schafer, the chief executive of Volkswagen South Africa, addresses  the media as RDB chief executive, Clare Akamanzi (left), looks on in Kigali yesterday. Timothy Kisambira.
Thomas Schafer, the chief executive of Volkswagen South Africa, addresses the media as RDB chief executive, Clare Akamanzi (left), looks on in Kigali yesterday. Timothy Kisambira.

The first Made-in-Rwanda car by German carmaker Volkswagen could hit the roads in May this year, according to the firm’s officials.

This follows an announcement by the firm that they are in the process of setting up a plant to assemble cars locally and roll out a mobility solution in the second quarter of this year.

Below are details about the firm and its investment in Rwanda.

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Senior management of Volkswagen follow proceedings during the media briefing in Kigali. Timothy Kisambira

1. Genesis of the deal

It all started in December 2016 when Volkswagen (VW) and the Government of Rwanda signed a Memorandum of Understanding on the planned investment.

The Memorandum of Understanding also paved way for a feasibility study by VW on the Rwandan market and ecosystem.

The feasibility study was done around September last year with officials from both sides, saying that the findings showed the viability of the investment.

Thomas Schafer, the chief executive of Volkswagen South Africa, said they were also attracted to establish a presence in the country by aspects in the ecosystems such as sustained growth, tech adoption among other factors.

“We chose Rwanda because there is political stability, zero tolerance to corruption, growth rate of 7 per cent, a young and tech savvy population. Volkswagen also received strong support from the government and cooperation through the Rwanda Development Board. Rwanda is also spearheading the Smart City agenda, which is in our plans,” Schafer said.

2. Process of establishing presence in Rwanda

The firm has since set up and registered a local company, Volkswagen Mobility Solutions Rwanda. City lawyer, Athanase Rutabingwa, was appointed as resident director of the company.

The firm’s address is in the Special Economic Zone and will host the assembly plant, retail and service centre. The firm’s chief executive said that, already, equipment for the plant are on their way to the port of Mombasa.

3. Operations in Kigali

Volkswagen Mobility Solutions Rwanda will be involved in assembly and retail of cars, service centre and running a mobility solution centre in Kigali.

The Gasabo based plant will also be involved in training services with an aim to transfer skills to Rwandans who will work in the plant.

The investment is set to be rolled out in three phases, expected to provide up to 1000 local jobs in the first phase of production.

Consequent phases could see the firm increase production capacity, car models, employees, scale up the mobility solutions and possibility of exports.

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Matt Gennrich general manager communication Volkswagen South Africa moderates the media briefing in Kigali. Timothy Kisambira 

4. $20m investment

The first phase of the investment will see the German carmaker spend up to $20 million (about Rwf17b) in investment to have a production capacity of 5000 cars annually, according to the business plan.

Schafer, in an exclusive interview with The New Times said that the majority of the investment will go into installations for assembly, mobility solution platform set up and training.

The plant will initially produce three models; Teramont, Jetta and Polo hatchback but could consider more models later depending on demand.

5. How the Mobility Solution approach works

Beyond setting up an assembly plant and service centre, the firm will, for the first time, globally, roll out a mobility solution service which could change car ownership and use across the world.

The first service will be community car sharing which will have about 150 vehicles and is set to be launched in the second quarter of 2018.

“Community car sharing that is offered to a closed community like a company or ministry where by people can book the car by using an application, use the car and return it afterwards. The users are charged by the time they use the vehicle or the distance they cover,” Schafer said.

The second aspect of the mobility solution involves a ride hailing service with about 150 vehicles planned in the medium term to be launched in 2018.

The ride hailing service will operate on similar model such as Uber with the difference being that the cars will be owned by the carmaker.

Towards the end of 2018 or early 2019, the firm will also roll out a public car sharing model with about 250 cars, followed by a shuttle service and later a peer to peer car sharing where car owners can give their cars for  use and earn money in the process.

“These numbers are based on assumed market demand over the last few months. We will see how that works. This has never been done before elsewhere,” he added.

The applications and tech solutions are to be developed by a local tech startup, Awesomity, which beat international firms to get the tender.

He noted that the model, if successful, could see Rwanda pioneer in the technology globally before replication across the world.

6. Impact on Rwandan economy

With up to 1000 jobs to be created in the first phase, the firm hopes to scale up employment in consequent phases.

He said that though they will bring in experts in the initial stages of setting up, the jobs are meant for Rwandans to whom they hope to transfer skills to run operations and production.

The firm will also outsource services to local firms, further scaling up the retention of revenues in the country.

7. Coexistence with VW Kenyan based assembly plant

Schafer allayed fears that the Rwandan based plant will be in competition with a similar plant in Kenya owned by the firm. The German automaker in 2016 opened a car assembly plant in Kenya with a similar production capacity.

However, he noted that the plants will not be in competition as they will produce different models of vehicles.

“I think of it as a complementary set-up, what we do it Kenya is the Polo Vivo and here we are doing Polo Hatchback which is a different model. If we introduce anything new in Kenya, it will be a different model so that we do not have to compete but work together,” the CEO said.

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RDB Chief Executive Officer, Clare Akamanzi briefs the media during Volkswagen media briefing in Kigali. Timothy Kisambira

8. Rwandan car market

Statistics from the Rwanda Revenue Authority, as of 2017, indicate that between 7000 and 9000 cars are imported annually. Most of the cars are, however, used cars and do not have provisions, such as dealership servicing and guarantee.

Volkswagen looks to tap into the opportunity through the production of new cars and making provisions such as guarantees and servicing. The firm hopes that the locally made cars will serve to gradually phase out used imports.

The cars will also be made cheaper through sale of cars that have been used under the mobility solution for about two years.

9. Anticipated challenges

Among the existing challenges that the firm expects to get past in the investment is that logistics costs in the African continent remain high which could affect importation of parts and exports of finished cars.

“Assembling in Rwanda is not going to earn you a lot of money because logistics cost in Africa is still high, but you need to get started from somewhere,” Schafer said.

By scaling up production and consumption of the locally made cars, the firm could cut on the costs by producing some of the parts locally.

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RDB chief operating officer Emmanuel Hategeka  (L) pose for a photo with Thomas Schafer the Chief Executive of Volkswagen South Africa.  Timothy Kisambira

10. Government’s response

RDB chief executive, Clare Akamanzi, said that Rwanda is encouraging the global investment community to start innovations in the country.

She noted that the investment also fits very well with the Made-in-Rwanda campaign, which aims at increasing production and consumption of goods locally.

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Thomas Schafer the Chief Executive of Volkswagen South Africa (L) pose for a photo with RDB Chief Executive Officer, Clare Akamanzi in Kigali. Timothy Kisambira 

editorial@newtimes.co.rw

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