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SA's industrial policy must help revitalise manufacturing sector for dynamic growth

SA's industrial policy must help revitalise manufacturing sector for dynamic growth
Vuyiswa Mkhabela
By Vuyiswa Mkhabela
24 Jul 2024
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While South Africa's premature deindustrialisation experience is shared by other emerging markets, it is concerning given its status as a developing economy with high unemployment, poverty and inequality.

South Africa’s manufacturing sector is in crisis. Despite numerous policy interventions and substantial investments, it contributes less to the economy today than it did at the dawn of democracy.

With Ebrahim Patel’s recent resignation as minister of the Department of  Trade, Industry and Competition (DTIC), and Parks Tau’s appointment as minister – along with deputies Zuko Godlimpi and Andrew Whitfield in the government of national unity – the time is ripe for a critical reassessment of the performance of South Africa’s manufacturing sector and its industrial policy and strategy.

The pressing question is whether the country’s manufacturing sector can pivot from its current trajectory of stagnation to one of dynamic growth and innovation through effective industrial policy formulation and implementation.

This leads to the essential question: what does effective industrial policy formulation and implementation entail?

At its core, public policy design and implementation, including industrial policy, should address the vital needs of South Africans. The DTIC outlines its industrial development approach through the Industrial Policy Action Plan as part of the broader strategy to tackle economic growth, poverty, inequality and unemployment.

If industrial policy is truly for the people, it must be designed and implemented through strategic cooperation, coordination and collaboration between the public and private sectors, as well as formal and informal labour.

By leveraging a social contract, South Africa has the opportunity to effectively and collaboratively identify and overcome obstacles, unlock new opportunities and create a unified industrial policy strategy. This strategy should promote sustainable development, foster innovation and support the growth of complex manufacturing capabilities.

Ultimately, effective industrial policy is about taking action towards understanding the performance of South Africa’s manufacturing sector, and realistically and soberly confronting domestic conditions and environments that have created an uncompetitive and stagnating manufacturing sector, while pushing for policies that will truly make a difference.

Performance of SA’s manufacturing sector


In the early 1980s, South Africa’s manufacturing sector was a powerhouse, contributing about 23% to the Gross Domestic Product (GDP). However, by the early 1990s, the sector began a sharp decline. After 2008, South Africa experienced a sharp decline in domestic demand for manufactured goods, surpassing global trends.

Increased import competition and reduced consumption of both imported and local products mirrored the country’s economic slowdown. Additionally, decreased foreign demand for South African manufacturing led to a loss of global market share across several manufacturing industries.

Post the global financial crisis, the South African manufacturing sector’s contribution to GDP has lagged behind the rest of the economy. By 2020, the sector's contribution to GDP had fallen to a mere 13%.

Furthermore, manufacturing employment has never rebounded to pre-global financial crisis levels and declined further due to the Covid pandemic. In 2019, an average of 1.8 million people were employed in the sector, dropping to 1.4 million in 2021.

Labour-intensive subsectors, in particular, continue to perform poorly, exacerbating job losses. For instance, the overall share of employment in the clothing and textiles manufacturing sub-sector decreased from 12% to 11% between 2010 and the fourth quarter of 2022. This decline reflects broader challenges facing our manufacturing industry.

The sector’s employment and GDP contributions plummeted largely due to local factors like a failing electricity supply, high labour costs and reduced domestic and foreign demand.

The poor performance is indicative of premature deindustrialisation. 

While South Africa’s premature deindustrialisation experience is shared by other emerging markets, it is concerning given its status as a developing economy with high unemployment, poverty and inequality.

The crux of SA’s manufacturing sector woes


The multifaceted challenges underpinning the decline of the South African manufacturing sector have been highlighted repeatedly by academia, government research and private-sector representatives, underscoring the deep-rooted, structural causes of South Africa’s manufacturing decline.

A key aspect of the sector’s collapse is the decline in productive capabilities or economic complexity. This indicates a significant loss in the sector’s ability to produce a variety of more complex products.

Harvard University’s Growth Lab’s Atlas of Economic Complexity Index reveals that South Africa’s manufacturing outputs are less complex than those of leading emerging-market economies.

For instance, in industries like automotive manufacturing, the most intricate components are still imported. The textiles and electronics sectors have also shown minimal growth in complexity.

South Africa’s Competitiveness and Industrial Development Index rankings reveal significant challenges in industrial competitiveness and the technological sophistication of manufacturing processes. The country ranks 51st globally out of 153 countries and remains the lowest-ranked BRICS member. 

Although South Africa maintains a competitive position within Africa, it faces challenges in increasing the value-added and technological intensity of its exports.

Compounding the decline in producing more complex, higher-value products are infrastructure challenges such as unreliable electricity and poor transportation networks, further increasing operational costs and reducing efficiency.

Additionally, an education system that hasn’t adapted to the needs of high-skill, high-tech manufacturing jobs perpetuates a persistent skills gap.

The implication of the South African manufacturing sector’s de-industrialisation trajectory highlights the urgent need for industrial policies to enhance sector capabilities and develop new competitive advantages.

A strategic turnaround is essential to boost the sector’s economic contribution and export competitiveness, ensuring sustainable growth and job creation.

A path forward for South Africa


The current state of industrial policy reflects a tension between reactive measures and the need for strategic, sustainable solutions. Leveraging industrialisation as a growth engine requires proactive, dynamic thinking and policies tailored to the country’s unique context and constraints.

Success hinges on political will, appropriate incentives and the government’s ability to collaborate with the private sector to identify and seize opportunities that create an environment where firms and sectors can thrive.

Efforts by various private and public sector organisations, such as the DTIC; Trade and Industrial Policy Strategies; the SA Research Chair in Industrial Development at the University of Johannesburg; Policy Research in International Services and Manufacturing; the Toyota Wessels Institute for Manufacturing Studies;  the Human Sciences Research Council; the National Economic Development and Labour Council; Proudly South Africa; the Centre for Development and Enterprise, and many others, have been instrumental in driving forward the development agenda.

Positive developments in policy formation, notably through a consultative master plan approach involving business, labour and government, have emerged. Many master plans remain inward-focused, aiming primarily to protect the status quo rather than leveraging global trends and new opportunities.

For meaningful progress, collaborative industrial policy formation must be intentional and consider the changing manufacturing landscape and the evolving role of Services and Industry 4.0 (4IR) technologies in manufacturing.

Digital technologies and analytics across value chains drive productivity and enhance customer experiences. Embracing these trends will keep South Africa’s industrial policy globally competitive.

Additionally, the country must build state capabilities and accountable institutions that prioritise policy coherence, transitioning from a consumption-based economy to one built on productive capabilities and focused on creating job opportunities for both the current and future workforce.

Adaptive policies


It is imperative that collaborative industrial policy formation and implementation is based on an adaptive policy framework that is flexible and guided by coherent policies. These policies should integrate educational and economic strategies and transition from protectionism to strategically conditional trade, investment and innovation-focused policies that foster a competitive environment.

Leveraging the African Continental Free Trade Area to expand market access and develop regional value chains and industrial hubs is also essential.

Revitalising the manufacturing sector is a crucial step toward broader economic improvement. However, efforts to enhance and revitalise South Africa’s manufacturing industry will take time and won’t produce immediate results.

While revitalising the manufacturing sector is important, it alone cannot solve all of South Africa’s economic problems. Other sectors and policy areas also need attention and reform for South Africa to achieve comprehensive and sustained economic growth.

Here lies a unique opportunity for both political negotiations and the government and public sector to devise strategies on how to respond best and collaborate across differences, shaping the next chapter of the country’s hard-fought democracy.

Regarding economic growth, the time is now for collaboratively seizing the opportunity to realign South Africa’s industrial policy, ensuring the manufacturing sector thrives through innovation, global competitiveness and sustainable growth.

The path forward requires proactive, dynamic thinking and a commitment to creating an environment where manufacturing can flourish. DM

Vuyiswa Mkhabela is a development economist at DNA Economics.

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