It’s WICKD: The auto manufacturing investment SA doesn’t need

New investments into manufacturing in South Africa are welcome, on paper, for creating jobs and advancing our industrial-based economy, but deeper interrogation is required of the exact nature of the manufacturing to be performed and its actual impact on local job creation and value chains.

The automotive sector has long warned that the deep economic value of localisation of supply chains and job creation brought by completely knocked-down (CKD) manufacturing is being eroded by the rise of semi-knocked-down (SKD) assembly – vehicles imported in “kit form” and put together at a local plant.

South Africa’s automotive policy has, possibly inadvertently, incentivised new investments in SKD assembly with its lower market entry requirements, as seen in several investments in recent years, mostly by Asian based brands.

The key contrast is that CKD manufacturing develops localised component supply chains and employment and economic impacts that ripple into diverse local sectors.

SKD has a much lower investment value, lower employment numbers and, because everything is imported, little impact on the local economy.

Now, the sustainability of local manufacturing faces a new threat: WI-CKD.

WI-CKD stands for wholly imported completely knocked-down assembly, which looks on the surface like CKD manufacturing but in reality almost all, if not all, of the vehicle components are imported by the brand from plants in its home country.

This is a crucial distinction that leaders of the organised vehicle and components manufacturing sectors fear that policymakers are missing and, in the process, putting thousands of South African jobs at risk and threatening the deep local value chains that surround CKD manufacturing.

Why it matters

As the “gold standard” of manufacturing, CKD – as performed by the six local original equipment manufacturers (OEMs) (BMW, Ford, Isuzu Motors SA, Mercedes-Benz, Toyota and Volkswagen Group Africa) – builds the vehicle locally. A vast diversity of parts are manufactured and supplied by about 500 local component manufacturers, providing almost 40% local content in locally built vehicles.

Additionally, CKD manufacturing brings technology transfer and skills development into localised supply chains.

Local content, which represents a deepening of local industrialisation and job creation, is a key factor in the incentives and requirements in South Africa’s Automotive Production Development Programme.

The OEMs, component manufacturers and the component aftermarket, through both domestic sales and exports, together account for R171-billion in manufacturing value added to the South African economy. This is the country’s largest manufacturing sub-sector, contributing 23.8% of domestic manufacturing output and 5.2% of GDP.

The sector is a major employer, with about 115,000 direct jobs in vehicle and component manufacturing. Indirect employment through the value chain – including suppliers of services and consumables to the manufacturers, transport and logistics, dealerships, service and fitment centres, and aftermarket parts and accessories wholesalers and retailers – is estimated at more than 500,000, up to a million jobs.

Direct employment in vehicle and component manufacturing has an estimated multiplier effect of 21 indirect jobs in the overall economy – employment induced in diverse other sectors, by the spending power of both the manufacturers and their employees.

The significance of local component manufacturing is reflected in the fact that, of the 115,000 direct jobs in auto manufacturing as a whole, 80,000 (70%) of those are in the components sector – a sector that would not exist without the OEMs and CKD manufacturing.

Given that the bulk of locally manufactured components are supplied to the OEMs, and four of the six export more than 50% of their production, the local components sector is a vital contributor to South Africa’s export revenues and positive trade balance, with vehicle and component exports last year rising to a record R291-billion, 15.6% of South Africa’s export value.

WI-CKD does very little of the above

Recent investment announcements tend to state that the assembler will “transition to CKD” over time, but without firm timelines or specific details this remains a vague promise that should instead be an absolute requirement.

The focus instead is on the positive development of an importer transitioning to local manufacturing and thereby showing confidence in the South African economy and contributing to job creation.

However, this misses the point that the key value for the investor of this “localising” lies in the benefit of bypassing tariffs on fully built-up imported vehicles.

The value to the South African economy is in fact minimal if a new manufacturing facility does not link into and expand local automotive supply chains, particularly in component manufacturing.

New investment announcements in vehicle manufacturing by Chinese automakers, which have already acquired significant market share in the domestic new vehicle market with their imported vehicles, are not being sufficiently questioned regarding job creation that goes beyond the factory gates, about localisation of content, nor about their contribution to exports.

Their export plans are vital, since South Africa’s relatively small domestic market is insufficient to deliver the economies of scale to support sustainable local production.

In the process, the new assemblers are not being held to the same standards as existing and long-established original OEMs and component manufacturers. Together, these existing manufacturers added more than R13-billion to their local investments in plants and technologies in 2024 alone.

While there is some local job creation in a WI-CKD or SKD plant, this requires far fewer people, and more low-level assembly skills, than the high numbers of employees with assembler, technical and engineering skills required for CKD manufacturing. Additionally, there will be some employment and economic contribution in terms of local businesses supplying goods and services to the facility, and local dealer and service centre networks.

However, this entirely bypasses the component supply chain.

Further, while local jobs may be retained when a manufacturing plant is taken over or partly shared by an incoming investor, the greater concern is the jobs in the surrounding ecosystem when the investor plans to source all their components from their home country.

A critical point is that SKD and WI-CKD investors have no need to invest in localising supply chains.

Chinese automotive manufacturers, for example, are heavily ramping up their vehicle exports and entry into new markets to maintain their high production levels against a backdrop of declining domestic demand for new vehicles and the scaling back of consumer incentives and government production subsidies.

This excess output of both vehicles and components has to go somewhere.

The question has to be asked: why should South Africa be supporting other countries’ drive to maintain production output, at the expense of its own domestic production that supports national economic value and sustains local jobs way beyond manufacturing?

With a review of South Africa’s automotive policy finally under way, policymakers could look to Brazil for an example of a policy framework that both incentivised and enforced investors to move from SKD assembly to CKD manufacturing through a strategically designed, time-bound tier of incentive thresholds.

By deliberately driving local integration, one of the results was Brazil’s local automotive content rising from 20% to 60% in a decade, also driven by targeted industrial financing to support modernisation and technology adoption.

The future of the automotive manufacturing industry is intrinsically tied to the future of Nelson Mandela Bay, as South Africa’s hub of production and exports where 40% of the sector’s employment is concentrated. The Eastern Cape is home to three CKD manufacturers and more than a third of the country’s approximately 500 component manufacturers.

As the industrial anchor, automotive manufacturing has been critical in attracting and entrenching not only the components supply chain to the Bay, but also other key manufacturing sectors, including food and beverages, and pharmaceuticals.

As the economic hub of the Eastern Cape, deterioration of the local auto sector and its jobs will ripple across an entire province that can ill afford further job losses.

Ours is not an anti-investment or Asian countries view, nor a plea to protect established local manufacturers at all costs – rather it is a call for new investors to be held to the same standards, to enable equal competition and ensure meaningful job creation at scale. Our plea is to put the employment of people in South Africa first. DM