Justin Barnes, Executive Director of the Toyota Wessels Institute for Manufacturing Studies, has visited semi-knockdown (SKD) assembly plants across the world.
He believes his garage at home is equally as sophisticated as most of them.
Barnes, like most of us, is cognisant of the slew of Chinese OEMs that continue to enter the South African car market. However, it isn’t the competition these brands bring that concerns him.
Chinese manufacturers are, in his words, “formidable global players” who “provide a compelling value proposition”. What does concern him is the noise coming from the South African government about allowing these manufacturers to commence with SKD operations locally.
For an industry that has been building vehicles for 100 years, with complete knockdown (CKD) production in effect since 1961, this represents an existential threat dressed up as pragmatic compromise.
What Gets Lost in Translation
SKD assembly sounds technical. It sounds like a reasonable stepping stone towards full manufacturing. It sounds like progress.
But consider this: while Nigeria has 34 SKD operations today, they collectively produce fewer than 10,000 vehicles per year. That’s the reality of SKD: lots of activity, minimal value creation, negligible employment, and almost no component localisation.
CKD production, by contrast, requires a welding shop, a paint plant, and an assembly line. Preferably it includes a body shop, though Barnes concedes that metal pressing limitations might make that negotiable.
What isn’t negotiable though is the minimum investment required: R4 to R5 billion and minimum production volume of 20,000 units per model. “Below those thresholds, you’re not manufacturing vehicles. You’re assembling Lego pieces with allen keys,” he says.
Beth Dealtree, Head of Policy and Regulatory Affairs at naacam, the component manufacturers’ association, puts it more directly: “In the component world there is no space for SKD. You see almost no component localisation even with easily-assembled components. Tyres and batteries are being imported.”
A Loophole Masquerading as Policy
South Africa’s tariff structure inadvertently favours SKD operations, as they face lower duty rates than CKD production. This isn’t deliberate policy design. It’s a loophole that’s being exploited.
Naacam has been vocal about closing this gap. Their concern isn’t protectionism for its own sake, but recognition that every SKD operation subtracts from—not adds to—South Africa’s manufacturing capacity.
“As we attract SKD investment, what we’re actually doing is eroding the case for existing CKD production,” Dealtree explained. “We’re not adding on. It’s not one plus one. We’re actually subtracting from what we have and detracting from our current levels of localisation production.”
Current local content sits at roughly 40% at OEM level, where it has languished for a decade. Some manufacturers achieve 50% local content. Others sit in the mid-20s. That range proves local capability exists. But more SKD operations would drag those figures downward, not push them upward.
A Compact Under Threat
South Africa’s Automotive Production and Development Programme, the policy framework known as APDP, doesn’t include SKD operations. Neither does SAAM 35, the industry’s master plan running to 2035.
Tshetlhe Litheko, Chief Policy Officer at naamsa | the Automotive Business Council, emphasises what he calls “the sanctity of the compact” between government and industry. “The existence of SKD operations within the country is outside the benefit of APDP as a framework that auto and government have a compact on.”
Litheko adds that industry bodies can speak to the non-competitive interests of the sector. “They can make submissions dissuading the government from approving anything outside the agreed framework. What they cannot do is prevent the government from making short-term political compromises that create permanent structural damage.”
Barnes worries that’s exactly what’s happening.
“I’m very nervous that there are some serious decision makers who have no idea what the consequences are of us veering into SKD for the future of our manufacturing base. It’s probably my biggest concern in relation to the noise I hear from government sources.”
The Chinese Question
Some Chinese manufacturers are importing close to 80,000 vehicles annually into South Africa. That volume theoretically justifies local CKD production, but only with an export strategy. Domestic demand alone won’t support the investment required.
Regional market development becomes crucial here. If Chinese OEMs view South Africa as a gateway to African markets, and if their growth strategy targets the continent, then CKD production makes business sense.
However, if they’re simply looking to assemble vehicles for the local market whilst avoiding import duties, then SKD becomes attractive to them even as it hollows out the broader industry.
Litheko acknowledged this tension. “Is there enough justification for a CKD investment locally without an export market outlook? Is it enough for Chinese OEMs to produce locally, in the hope of sufficient regional growth? Would regional market development then become how they structure their export market strategies?”
From naamsa’s perspective, the answer is clear. Any new entrants must operate within the compact, must commit to CKD production and must contribute to localisation targets.
What’s Actually at Stake
South Africa’s automotive sector accounts for roughly 45% of all value creation in the country’s industrial sector, according to Litheko. That value comes from having a supply chain that runs from raw materials through small component manufacturers feeding into larger systems that supply tier-one suppliers who serve OEMs.
SKD assembly creates none of that. It creates a few dozen jobs screwing pre-assembled modules together. It creates no demand for local components, no incentive for skills development and no foundation for technology transfer.
What it does create is precedent. Once the government approves SKD operations for one manufacturer, the floodgates open. Existing CKD producers start questioning why they’re making billion-rand investments when competitors can achieve market access for a fraction of the cost.
Barnes drew the comparison to Thailand, a country with double South Africa’s automotive production volume and half the complexity. Thai manufacturers operate in a healthier ecosystem with better infrastructure, reliable energy, and lower security costs. But their operational capability and efficiency isn’t superior to South African plants.
What Thailand doesn’t have is an ambiguous policy environment that treats SKD assembly as equivalent to real manufacturing. What Thailand also doesn’t have is 34 glorified garages pretending to be automotive plants.
The Path Forward
Naacam and naamsa are aligned in their discussions with the government. Both organisations continuously engage with policymakers to emphasise why CKD production matters and why any SKD operations must graduate to full manufacturing as quickly as possible.
Whether those discussions will overcome political pressure remains uncertain. Chinese investment carries diplomatic weight. Job creation announcements, even for minimal employment, generate positive headlines. Short-term thinking favours compromise.
Barnes framed the stakes clearly: “The question is whether the political heat is so severe that there are short-term compromises that unfortunately would result in permanent damage to the industry.”
South Africa spent a century building automotive manufacturing capability. It spent 65 years developing CKD production expertise. It created an industry that employs tens of thousands of people and generates billions in economic value.
Throwing that away for the convenience of SKD assembly would be more than a policy mistake. It would be an act of industrial self-sabotage.