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South Africa ends support for automakers using component assembly
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TechCentral
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South Africa ends support for automakers using component assembly

The Minister of Trade, Industry and Competition, Parks Tau, stated on Thursday that the government will cease providing political support to car manufacturers who import nearly finished vehicles for local assembly, as the program underpinning the country's automotive industry is being reviewed.

Speaking at the South African Auto Week event, Tau announced that the government has agreed to phase out activities based on the import of body shells and most components in kit form, known as Semi Knocked Down (SKD) assembly. Furthermore, the government will not provide political support to new facilities.

This shift aims to encourage manufacturers toward deeper local production and the sourcing of local suppliers. South Africa's automotive plan targets increasing the local content share to 60% from the current 38%, doubling employment in the sector, and raising South Africa's share of global vehicle output to 1% by 2035.

Tau clarified that this change does not apply to medium and heavy commercial vehicles. Additionally, authorities will tighten the legal definition of what constitutes Completely Knocked Down (CKD) production, where cars are assembled on-site from individual parts rather than from near-finished kits.

The Minister also noted that the government will consider the need for additional support for the light commercial vehicle segment with a 'frame structure,' which includes pickups. He has instructed the International Trade Commission (Itac), which sets import tariffs, to conduct an investigation before making a final decision.

He added that an agreement was reached that any additional protection must be accompanied by mutual commitments regarding production, localization, employment, transformation, exports, and investment.

The 'Loopholes' Issue

The government, in collaboration with the industry body Naamsa, the component manufacturers association Naacam, and organized labor, is reviewing the Automotive Production and Development Programme—a system of incentives for the sector. This review followed calls from automakers to change policies and provide incentives that would promote deeper production and protect local manufacturers from imports.

Earlier this year, CEO of BMW Group South Africa, Peter van Binnsbergen, stated that the industry had strongly urged the government to close what he called a 'loophole' in the SKD system. Van Binnsbergen noted: 'SKD manufacturers arrive almost duty-free because they use after-sales categories to import engines without duties, for example, and they really have very little presence here in South Africa, creating no investments and barely creating jobs.'

CEO of Toyota South Africa Motors, Andrew Kirby, stated in July that the country's automotive sector had moved beyond the need for SKD operations, warning that assembling cars from kits threatens to undermine larger investments in full-scale production. Kirby emphasized: 'Therefore, our persistent request is to stop SKD in South Africa and strengthen CKD competitiveness so that we can achieve a better balance between locally produced and imported vehicles.'

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Business share in South Africa's R&D funding has dropped to 29%
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iol.co.za

Business share in South Africa's R&D funding has dropped to 29%

The share of research and development (R&D) funding provided by businesses in South Africa decreased from 41% in the 2013/14 period to 29% in 2022/23. This trend has prompted calls for the introduction of new incentives to attract private sector investment.

According to data from the Ministry's Working Group on Science, Technology and Innovation, business sources accounted for 29% of Gross Expenditure on R&D (GERD) in 2022/23, compared to 41% in 2013/14. The Working Group was formed after federal funding from the United States was withdrawn from key South African research programs, highlighting broader issues in the country's science and innovation funding system.

During the same period, the share of public R&D funding increased from 43% to 51%, while international funding rose from 13% to 17%. Meanwhile, the share of R&D expenditure conducted by the business sector fell from 46% to 36% of total research spending.

The report questions the effectiveness of existing measures aimed at encouraging companies to engage in research. Specifically, it notes that tools such as the R&D tax incentive create administrative burdens and have proven ineffective due to scarce evidence of additional impact.

The Working Group also believes that South Africa's approach to innovation is too narrow. A narrow interpretation of innovation as 'scientific discovery' excludes many forms of applied and process innovations that are relevant to South African firms.

As recommendations, it proposes a complete reform of available business incentives, including changes to the R&D tax incentive, possible provision of tax breaks, and more active use of Special Economic Zones to stimulate investment.

Furthermore, the report advises the Ministry of Science, Technology and Innovation, the Department of Trade, Industry and Competition, and the National Treasury to consider introducing co-investment grants, innovation vouchers, targeted problem-solving funds, and subsidized loans.

It was noted that prolonged efforts by the Department of Science and Innovation to encourage multinational corporations to establish and invest in research facilities in South Africa have not yielded significant success. The report urges the government to remove obstacles to such investments.

It is emphasized that such investments should create broader opportunities within domestic value chains, especially for small and medium-sized enterprises owned by Black people and women, social enterprises, and cooperatives.

Referencing financing models from other countries, the report provides examples of performance-based co-investment grants in Canada and South Korea, innovation vouchers in Finland, and joint research co-financing in Germany.

Financial incentives can be supplemented through procurement preferences, accelerated regulatory support, and public recognition. Furthermore, industry councils and organizational structures must participate in developing schemes that better reflect business innovation methods.

South Africa's overall investment in research has weakened: GERD fell from 0.73% of GDP in 2013/14 to 0.61% of GDP in 2022/23, remaining significantly below the country's ambitions for research spending.

The Working Group recommended that the government, organized business, and labor unions conclude an agreement containing clear commitments to gradually increase GERD to 1.5% of GDP by 2035. It also proposed introducing progressive targets requiring state-owned enterprises to increase their spending on research, development, and innovation in areas related to national priorities.

The report asserts that increasing research spending must be accompanied by strengthening links between research, industrial policy, and company needs if South Africa wishes to gain greater economic benefit from innovation. Areas where research and innovation can support national development include healthcare, energy and water security, food security, climate change, artificial intelligence, and green technologies.

The Working Group warns that simply increasing the amount spent on R&D will not overcome the structural constraints hindering innovation. Instead, a combination of industrial and innovation policy is required to motivate companies to invest in research, commercialize intellectual property, and develop new products, processes, and technologies.

A dual funding model is also recommended, combining mission-oriented grants for long-term national priorities with competitive funding for fundamental and applied research.

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