When a white man comes to Sri Lanka, people tend to stand up and take notice. Especially if, as in this case, this white man is German and has four wheels and is in the papers a lot.

I’m talking about Volkswagen, of course.

Volkswagen is an interesting company: not just because of its pedigree, not just because it’s the largest automaker in the world, but because it apparently wants to invest $30 million to build an automobile assembly plant in Kurunegala.

This isn’t the first time. In Aug 2011, government media reported that the German car company was interested in investing in the  Hambanthota Magampura Port Investment Zone. They even tried as far back as 2008, according to Minister Harsha De Silva. Clearly that project went South (pun intended), or maybe the previous government overstated things.

Either way, this is (probably) good news.

Let’s think about what it brings:

Assembly, not manufacturing. It makes no sense to set up a manufacturing plant here when there’s one in India already running; instead, this is going to be like Micro, which assembles Ssangyong Rextons here and sells them.

There’s two options: a) they could be bringing in parts from Volkswagen’s plant in Maharashtra  – that plant produces the Passat, Jetta, Polo and Venta. No local partner has been specified: it’s unknown whether Volkswagen will do it themselves or pair up with someone here. My money’s on Micro.

The possibility of substantially cheaper vehicles. Vehicles are unreasonably expensive here in Sri Lanka, mostly because of the massive import duties levied on them. Heck, even the Tata Nano, a car designed to be as affordable as possible, is still expensive. Something being assembled here would have the chance to compete at the Micro Panda’s price range – around Rs 1.5 million. The brand value alone would easily carry the car, or van.

Only a small likelihood of jobs. $30 million is a fine number, but it’s really not going to generate a lot of jobs. Forget a career with a Das, Auto T-shirt – rumor is that this plant will need around 75 people. The only real impact this will have is that the electricity companies get a new customer and a couple of contractors are going to make some good bucks building the factory.

Ambassadorship, and a feather in Harsha’s cap. Being able to say that Volkswagen invested in Sri Lanka is going to be a huge thing. It’s good election material and it’s presumably good for foreign investment.

Ironies.  Dr. Harsha De Silva, who’s apparently been working very closely to make this deal happen, doesn’t seem to know why Volkswagen wants to invest in Kurunegala.

Seriously: why there? The Sri Lankan market for cars isn’t huge. Most of it appears to be leased Honda Vezels and Bajaj three wheelers. Let’s say that Volks builds vans; why build a factory in Kurunegala, of all places? Conditions there are far from ideal for a vehicle assembly plant. Even Hambantota looks like a significantly better option – there’s space and transport there.

Even more ironic is that this factory is being built in a traditional MR stronghold.  Either someone’s getting a free lunch, or Harsha’s being very smart about breaking down those political walls.

 

 

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