The South African automotive industry is one of the country’s most important economic engines. It contributes 4.9% to GDP, supports over 400 000 jobs, and ranks as the country’s 5th largest export sector. But behind these strong numbers lies a persistent challenge: productivity in the South African automotive industry has stalled, and local content levels keep declining even as production and exports grow.
Productivity SA’s latest research report, Local Content Requirements and Productivity in the South African Automotive Industry: A Comparative Analysis with BRICS Economies, investigates why. It also draws lessons from Brazil, Russia, India and China as South Africa works toward the South African Automotive Masterplan’s (SAAM 2035) ambitious target of 60% local content.
Why Local Content Requirements Matter for the South African Automotive Industry
Governments use local content requirements (LCRs) to encourage manufacturers to source domestic components and value-added inputs. South Africa has long positioned LCRs as a lever for job creation, supplier development, technology transfer, and a smaller trade deficit.
Yet the research found that South Africa applies only 4 LCR measures in its automotive sector. Brazil applies 20. Russia applies 20. India applies 15. China applies 13. This raises an important question for policymakers and industry stakeholders: does South Africa under-use a tool that could strengthen local supplier capability, or does the BRICS experience prove that more LCRs isn’t always better?
Key Findings from the BRICS Comparative Analysis
The report combines benchmarking analysis with computable general equilibrium (CGE) modelling. This two-stage approach reveals three consistent impacts of local content requirements across BRICS automotive industries:
- Trade effects: LCRs tend to limit import competition, which reduces competition, innovation and product variety.
- Cost effects: Local content policies push up imported vehicle prices, and consumers and firms absorb the extra cost.
- Output effects: LCRs can boost output in the targeted sector, but this growth often comes at the expense of productivity and competitiveness in closely related industries.
Brazil and Russia use LCRs most intensively among the BRICS countries, and they also recorded the highest cost distortions, with ad valorem equivalents of 15.6% and 11.1% respectively. Their vehicle production rose sharply, but their imports fell steeply, and consumer prices climbed the most. China took a different path, relying less on formal local content rules and more on large-scale subsidies and joint-venture requirements to build domestic automotive capability.
What This Means for Productivity in the South African Automotive Industry
The report’s message for South African automotive policy is clear: local content requirements alone won’t drive industrial development. Their success depends on careful design, sequencing, and complementary support.
Drawing on the BRICS experience, the report recommends that South Africa’s local content strategy should:
- Calibrate LCRs to supplier readiness instead of applying a uniform, one size fits all threshold
- Pair LCRs with skills development, supplier upgrading and technology diffusion, especially for Tier-2 and Tier-3 component manufacturers
- Prioritise infrastructure reliability and lower input costs, particularly energy and logistics, so localisation strengthens rather than undermines competitiveness
- Pursue multilateral engagement, including the WTO dispute settlement process, and use regional trade frameworks like the African Continental Free Trade Area (AfCTA) to implement LCRs strategically and within international trade rules
Read the Full Report
This research supports Productivity SA’s broader mandate: evidence-based productivity and competitiveness policy for South Africa’s industrial sectors. The full report includes detailed case studies on Brazil’s Inovar Auto programme, China’s New Energy Vehicle policies, and Russia’s phased local content approach. It also sets out the complete CGE modelling results and policy recommendations for South Africa’s automotive industry.
