Volkswagen’s Rwanda, Kenya operations will complement each other, not compete – CEO

The entry of German carmaker, Volkswagen into the country has caused excitement with expectations of boosting the economy, better mobility experience and reduced import bill. However, several questions have come to mind on the viability of the project and any impact it may have on the economy in the short and long run. The New Times’ Collins Mwai caught up with Thomas Schafer, the CEO of Volkswagen South Africa to understand the firm’s business plan and many other queries as they roll out their operations. Excerpts: Some may say that having the first made in Rwanda car ready by May 2018 is quite an ambitious undertaking, how realistic is this? We are planning to have it up and running as soon as we have the mobility company, that is, like end of April or May. We have a very modular system that we use for vehicle assembly, standardized. The equipment is all clear. We had already worked out all the details and the jobs last year. We were just waiting for the announcement (which was made on Thursday last week). The logistics time is probably longer than the time to get it installed and up and running. Since you will not mention the pricing of the cars yet, what is the pricing model in consideration? We will go in with a very frugal approach, we are aware that this is not a market that you can sell super high end cars only. However now that Rwandans are importing used cars, it is just a temporary issue. For instance, South Africa does not import any used cars because they have a local plant. The new cars that we produce will be used cars in a few years’ time and with the mobility company, after two or three years the cars can be sold after use and will be affordable to Rwandans. You have to start somewhere. Rather than buying a used car from Middle East or Asia, you now have them in the country. Any plans for export to the region and is it part of the considerations in your business plan? There is quite an export market looking at the cars in the region. Will it be a massive export to the rest of the world? Probably not because of the logistical cost however when you look at the neighbouring countries, there is quite a market. How does VW plan to avoid oversaturation of their products in the region which could impact performance given that you have a similar plant in neighbouring Kenya? I look at it as a complementary set-up. What we do in Kenya is the Polo Vivo and here we are doing a different model. Even if we introduce something new in Kenya, it will not be what is being produced in Rwanda. We can work together that way. Will there be a trans-export between Kenya and Rwanda? I do not know. At the moment from a customs point of view, it is still difficult. For now its Rwanda for Rwanda, there is enough to do in this market. Looking at the mobility solution you are bringing in, it does not seem very profitable in the initial stages for a firm of your stature. Is it more of a test phase? It is a kind of a test. We have worked on the concept for a while now and have even had external help. It is a lot of work and a lot of assumptions. We believe that it will hold. We have found a country that has organized systems with orderly people. We are convinced that the environment is ideal. If it works, it is scalable and can be tried in other countries across the world. I know a number of countries that would be interested in it too. Here it suits the Rwandan agenda and what the country wants to build up. It is the ideal time and moment. Of the $20M planned investment, where do you imagine the largest chunk will be spent, going by your business plan? A large chunk of it will go into the production of vehicles; other mobility solutions do not own the cars. We own the cars and drivers will be employed by us. A significant investment will also go into the establishment of the assembly facilities and the mobility solution. These are the main cost drivers that will take up the $20 million in the first phase. Depending on how the first phase goes, the investment in following phases could be significantly higher. The plant and operations are set to provide up to 1,000 jobs, however given the skillset in the country, does this mean that most of the jobs will be outsourced? We will do this with Rwandans. There will be a few people who will come in to help us set it up and in the initial steps but this is a Rwandan company and we want to make it a Rwandan story. We hope to train people here to run operations. From a skill set point of view, I do not think that it is an issue. We have jobs of all categories and levels from drivers to admin and finance as well as engineers. We might have to invest in training more than we thought but it is fine, when we had discussions with RDB, we said that we want to help lift the skills level especially in industrial production to a new level which is what we are working on. We are in contact with the German government who are also happy to help with trainings and apprenticeship. What do you make of the local eco-system that you will be working in? What adjustments would you like made to improve efficiency? The interactions we have had so far have been professional. I do not see any roadblock at all that could hinder activities. I am impressed by the level of professionalism throughout this journey. It has been focused and clear on what we plan to achieve. Logistics of the parts to be assembled will be one of the high recurring costs and could eat into profits or inflate prices of the cars. What plans do you have to work around the challenge? Ultimately, you need to localize as much as you can. That is a reality, the only way to reduce logistics cost is if you make it in the country. To do so, you need numbers. You cannot do that with say 5,000 cars. Like in South Africa, total production is about 600,000 or 650,000 cars annually. They still have trouble localizing everything. Ultimately logistics cost is one of the drivers. It will come with the numbers. For now I see good development in a number of regional countries such as railway which could drive down costs. When I speak to Rwandans on how they purchase their cars, it often sounds like an adventure story. Speaking of car efficiency, how energy-efficient are the cars to be produced? That is why all the vehicles that we are going to produce in Kigali are energy efficient vehicles. They are new vehicles that comply with the highest standards not only in terms of emissions but also accident prevention. We have had discussions on electric mobility for the future, what we can do in Rwanda, which is a topic that we are talking to RDB. Rwanda is an efficient country considering that about 70 per cent of energy is produced with alternative sources. That and the size of the country would be ideal for electric mobility. That will fit very well in the green plans that Rwanda has. editorial@newtimes.co.rw

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Volkswagen’s Rwanda, Kenya operations will complement each other, not compete – CEO