Volkswagen Group, a German automobiles manufacturer and the leading car-maker in Europe will start an assembling plant in Kenya, the biggest economy in East Africa 39 years after it closed operations there.

The plant will be set up at the Kenya Vehicle Manufacturers (KVM) plant in Thika, a small town 30 kilometers outside Nairobi. The first car, a Polo Vivo, will be released to the market in December.

Volkswagen targets to assemble 5,000 units of the model next year, after which other models will be produced, IOL reported.

The deal was signed through its South African subsidiary and the government of Kenya on Wednesday.

President Uhuru Kenyatta welcomed the German-owned firm’s decision return to the market, saying that it was proof that government initiatives to improve the nation’s economy have borne fruit. He added that the move will increase employment opportunities.

“These are being welcomed by many investors such as Volkswagen who realise that Kenya is now a more competitive investment destination, and are responding by pursuing opportunities here,” Uhuru said after signing the deal with the car-maker.

Volkswagen is the biggest car-maker in South Africa, after Toyota of Japan and the deal marks its entry into the East Africa market. It joins Foton of China, Isuzu, Toyota, Mitsubishi and Nissan of Japan as the car-makers assembling vehicles in Kenya, Reuters reported.

Before Volkswagen closed operations in the nation in 1977, it assembled vans, microbuses and Kombi models.

The deal comes a year after the car-manufacturer re-opened its assembling plant in Nigeria in July, last yearafter a 25-year absence. The factory in Lagos manufactures the Amarok pickup, Passat, CC Sedans and Jetta, Bloomberg reported.

The number of vehicles assembled in Kenya between January and April recorded a significant drop by 31 percent to 2,258 vehicles during the same period, last year. A slowdown in government projects and high interest rates by banks pushed were the key contributors to the drop, Reuters reported.

Volkswagen downplayed the fall, saying that Kenya has a rich potential to be a key automobile market in the continent.

“We believe that Kenya has got the potential to develop a very big fully-fledged automotive industry,” Thomas Schafer, XNews quoted Volkswagen South Africa Chief Executive during the ceremony.

The giant automotive-maker recorded a fall in its global sales last year.

The Kenyan factory increases Volkswagen plants to three on the continent. The other two are in Uitenhage in South Africa and Lagos, Nigeria.