South Africa to phase out SKD vehicle assembly as Tau orders probe into light commercial vehicle imports

South Africa will phase out current Semi-Knock-Down operations and will no longer provide policy support for any new SKD facilities in the country, Trade, Industry and Competition Minister Parks Tau announced on Thursday.

SKD operations are a manufacturing and export method in which products, most commonly vehicles or major equipment, are shipped to a destination market in a partially disassembled state and finished at a local assembly facility.

Speaking at the SA Auto Week event in Durban, Tau said the decision comes as government reviews the Automotive Production Development Programme (APDP2) with the Automotive Business Council, the National Association of Automotive and Component and Allied Manufacturers (Naacam) and organised labour unions.

An APDP modelling study has been undertaken to review the programme and identify possible short-term interventions to enhance the competitiveness of domestic vehicle manufacturers against importers of fully built units, the Minister said.

Medium and heavy commercial vehicles are excluded from the phase-out.

Tau said government will work to strengthen the legal definitions around what is determined as Complete-Knock-Down manufacturing, and that the strategic competitiveness of South Africa’s ladder frame Light Commercial Vehicle segment warrants formal investigation.

“There was also alignment that any additional protection should be accompanied by reciprocal commitments relating to production, localisation, employment, transformation, exports, and investment. I will be instructing the International Trade Administration Commission of South Africa (ITAC) to undertake this investigation to reach a final determination on the matter,” he said.

According to the Department of Trade, Industry and Competition, the proposed interventions include a review of the ad valorem tax structure to create clearer differentiation between locally produced and imported vehicles, which may involve adjustments to the tax base and the local adjustment factor. Other measures include addressing structural imbalances within the APDP, particularly regarding the operation and accumulation of Production Rebate Certificates, to strengthen localisation incentives, and considering revisions to the Volume Assembly Local Allowance parameters to better align incentives with broader industrial policy objectives. Regulatory refinements related to SKD operations, including potential time-bound provisions to encourage a transition towards higher-value CKD production, are also proposed.

Tau told the event that the current period is the greatest turning point the sector has faced in a century, with the way vehicles are powered, built, owned and used changing at once. He named New Energy Vehicles, South Africa’s carbon emission targets and the Critical Minerals Beneficiation Strategy as key focus areas.

“If we do not build the vehicles that markets such as Europe and the United Kingdom will buy, we will lose those markets, and with them our plants and our jobs. At home, in the first seven months of this year, South Africans bought almost as many new energy vehicles as in the whole of last year,” he said.

The Minister said government has begun work on an End of Life Vehicle policy as part of the decarbonisation pathway in the Industrial Development Strategy, adding that recycling batteries and giving them a second life is a new industry in its own right.

This report is based on the account published by SAnews (South African Government News Agency) at https://www.sanews.gov.za/south-africa/government-reviews-skd-operations, which summarises the Minister’s remarks and the department’s proposed interventions rather than reproducing the underlying policy documents.