German car maker, Volkswagen is considering establishing a component assembly plant in Ethiopia, reports south African media outlet Business Day.
According to VW spokesperson Andile Dlamini, the company is considering a vehicle assembly in the long term but at the moment, a component assembly is what they are looking at.
“After having signed the MOUs in Ghana and Nigeria … the next country we are in discussion with is Ethiopia to explore potential opportunities going forward. This is more around component supply than vehicle assembly.” said Andile Dlamini.
According to Dlamini, the Africa expansion factored in risks such as the susceptibility of some of the economies to commodity swings, hence the relatively small initial investments.
He also added that VW would continue to explore opportunities as and when they present themselves, but the eventual output from the respective facilities depended on various factors including how the countries’ motor industry policies are adapted towards new car assembly, versus the policy of allowing used vehicle imports.
He added that setting up a fully fledged assembly plant is a complex and costly affair that requires an annual volume of at least 100,000 units in order to make business sense. However, he starting “with small semi-knocked-down assembly facilities until the markets grew to justify manufacturing” is the common industry practice.
“At this stage there is no country in sub-Saharan Africa with this size of a new car market. It will take time to develop this.