Volkswagen Group has opened Rwanda's first car plant as it seeks to benefit from expected increased demand for mobility in the East African nation.
In a statement VW said production was starting with latest-generation Polo and Passat. Initial plans are to build up to 1,000 vehicles a year depending on demand and the success of the mobility fleet, with an annual production capacity of up to 5,000 units. The Passat, Tiguan, Amarok and Teramont models will be added, Reuters reported.
Car ownership remains low in the nation of 12 million people with just over 200,000 private cars registered since 1997, according to the country's tax collection body. Most of the cars currently on the road are second-hand imports from countries such as Japan.
The factory complements VW's production operations in Nigeria and Kenya, which were started in the past three years and have a combined annual production capacity of over 15,000 units. VW also has a plant in South Africa capable of building more than 170,000 cars annually. VW's Seat brand recently began production in Algeria.
"By starting out with several, smaller operations we can learn and respond flexibly to developments," said Thomas Schaefer, CEO of Volkswagen Group South Africa, who is responsible for the markets south of the Sahara.
Although the car demand in Africa is comparatively small today, it could develop into a growth market of the future, Schaefer said.
The assembly plant uses components shipped from South Africa to Rwanda via Kenya, Schaefer said.
The $20 million investment, which will create up to 1,000 jobs, is as an example of much needed spending by overseas firms in the nation, which receives $1 billion in foreign aid and development assistance but is making business-friendly reforms.
President Paul Kagame, who attended the factory opening, said it was an important step for the country.
"The facility undoubtedly represents a new chapter in Rwanda’s journey of economic transformation," he said. "I know some might have found it hard to believe that 'Germany cars,' as we are used to call them, could really be built in Rwanda."
VW hopes it can tap into worldwide growth in demand for using apps to make journeys rather than buying vehicles. Global ride-sharing companies such as Uber have not yet moved into Rwanda meaning that VW will get ahead of the game by launching its service there ahead of major rivals.
VW plans to start app-based car-sharing and ride-hailing services in Rwanda, starting in the capital of Kigali. The company says demand for mobility in Rwanda is growing and present offerings cannot keep pace with the country's needs.
Monique Nsanzabaganwa, the vice governor of Rwanda’s central bank, welcomed VW's move as an example of much needed investment in the nation, which receives over $1 billion in foreign aid and development assistance but has made business-friendly reforms in recent years. "It is a vote of confidence for Rwanda," she told Reuters. "It is good for job creation in Rwanda and making Rwanda a trusted location for services and in this case, manufacturing."
VW Group on June 22 announced a new structure for its regions, dividing responsibility among individual brands. The VW brand was entrusted with developing sub-Saharan African markets while Seat was given northern Africa.
Daimler's Mercedes-Benz Cars division said on Tuesday it would invest 600 million euros to expand by roughly two-thirds size its South African plant in East London.
Reuters contributed to this report