German car maker, Volkswagen is considering establishing a component assembly plant in Ethiopia.

VW spokesperson Andile Dlamini says the company will consider setting up a vehicle assembly plant in the future but would be looking closely at setting up the components assembly first. He said, “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.”

According to Dlamini, the company’s expansion into Africa factored in various risks such as the susceptibility of some African economies to commodity swings, hence the relatively small initial investments.

He also added that VW would continue to explore opportunities as they present themselves, but the eventual output from the respective facilities will depend on various factors including how the countries’ motor industry policies are adapted towards new car assembly in contrast to policies that allow for the importation of used vehicles.

He pointed out that setting up a fully fledged assembly plant is a complex and costly affair which requires an annual volume of at least 100,000 units in order to make business sense. The common practice in the industry is starting with small semi-knocked-down assembly facilities until the markets grew to justify manufacturing. He also noted that there is no country in sub-Saharan Africa with this size of a new car market yet and that it will take time to develop.