The African continent accounted for less than 1% of global new car sales in 2018. Companies have historically been cautious about investing in African countries; however, things appear to be changing. After a dip during the pandemic, the African automotive market is expected to completely recover in 2023.

Rising incomes and consumer aspirations in Africa push companies like Volkswagen, Nissan, and Toyota to invest in local manufacturing. To entice investments like these, African governments have put incentives in place. As a result, and in combination with growing urbanization and infrastructure developments, the African automotive market is expected to grow over the coming years.

The establishment of the African Continental Free Trade Area, a project by the African Union to integrate the continent’s economies, is also seen as a development conducive of increasing future car sales.

Volkswagen is spearheading the expansion of car manufacturing companies in the African market. The first project to express this new interest was the company’s new factory in Rwanda, which produced its first automobile in 2018. To be assembled at the facility, car components are delivered from South Africa, where Volkswagen operates a factory. The German company aims to make 5,000 cars a year at its site in Rwanda.

The Rwandan market, however, won’t absorb thousands of new cars a year. Since 1997, the country’s tax collection organization has registered only 200,000 private cars in the nation of 12 million people. Most of these vehicles are second-hand imports, as buying a new car is simply not possible for the vast majority of Rwandans.

Despite being hailed as one of Africa's fastest-growing economies, with a GDP per capita of US$822 in 2021, a large portion of Rwanda’s population lives on less than US$1.9 per day, preventing them from buying new Volkswagens starting at around $23,000.

In 2021, there were only 714 registered sales of new cars in Rwanda. Conscious of this sales potential, Volkswagen has been piloting a strategy built around ride-sharing, which it hopes will be replicable across Africa.

Targeting Kigali businesses in particular, Volkswagen launched a car-sharing service similar to the likes of Uber and Bolt. The company also plans to allow customers to drive themselves, charging them for the time they spent in one of their vehicles.

After cars have been used to facilitate the aforementioned services for a few years, Volkswagen intends to sell them on the secondary market to Rwandans and replace them with new models. Volkswagen hopes that combining these businesses - recent car sales, ride-hailing, car-sharing, and used car sales will make the company’s investment in Rwanda worthwhile.

“This truly is a fantastic case study for future mobility in progressive frontier economies,” - Martyn Davies, Managing Director for Emerging Markets at Deloitte.

Volkswagen has encountered some challenges while pursuing its new strategy in Rwanda. The electric cars produced by the company, for example, guzzle energy on the mountainous terrain of Kigali. Volkswagen is addressing this with the Rwandan government by installing more charging stations around the city. However outside of the capital a complete lack of charging stations constitutes a barrier to electric car adoption.

Another problem is the height of speed bumps, which turn out to be too high for Volkswagen’s e-Golf model.

Volkswagen’s approach to expanding in the African automobile market breaks new ground for car manufacturers. The vast majority of vehicles used throughout Africa are imported second hand cars, many of which do not have a valid roadworthiness certificate and are polluting. By using new and electric vehicles for ridesharing, car companies can expand their business in a sustainable way while at the same time increasing the safety of drivers and passengers.

While it is too early to make definitive statements about the success of Volkswagen’s strategy, it certainly looks promising and might be replicated across Africa.