Are there any green shoots in South Africa's manufacturing sector?

South Africa’s manufacturing sector continues to confront adverse conditions. Reviving this crucial segment of the economy will require more than nostalgia for its heyday: it will demand hard-headed strategy and forward thinking. A contracting mining sector—long a major client with strong linkages into manufacturing—and surging competition from imports, particularly from China and Germany, are dragging the industry down.

New data from Statistics South Africa show that the country has technically slipped into recession. Yet the headline number masks a more nuanced picture: the primary sector, comprising mining and agriculture, expanded by 15% last quarter. Recovering global commodity prices and the easing of a drought that had crippled farms have buoyed growth.

Why, then, does South Africa continue to lag behind peer emerging economies, despite boasting sophisticated infrastructure and business capabilities that many others can only envy? The answer lies in its dependence on raw commodity exports, which leaves it vulnerable to swings in global demand. That dependence has weighed down not only South Africa but also fellow commodity exporters such as Russia, Brazil and Nigeria.

By contrast, the countries that have weathered the global downturn with greater resilience are those with diversified economies and higher levels of manufacturing value added. South Africa’s manufacturing value added amounts to roughly 12% of GDP. In high-technology exports the gap is even starker: such goods account for just 4.5% of manufactured exports, compared with 43% in Malaysia and 26% in both China and South Korea. The difference lies in state and private investment—government support for R&D, industrial policy, export incentives and efficient logistics, combined with risk-taking venture capital.

Instead, South African manufacturing is being buffeted by headwinds: rising interest rates, weak job prospects, subdued global trade and escalating input costs. Unsurprisingly, the sector’s contribution to growth continues to falter. Yet manufacturing remains vital: it still employs 1.6m people, stimulates other sectors and spans industries from agro-processing to automotive, chemicals, ICT, metals, textiles and footwear.

The malaise has deep roots. Since the apartheid era, when manufacturing was capital- and energy-intensive and dominated by six conglomerates and state-owned enterprises, the sector has suffered from incoherent tariffs and a failure to diversify. Though post-1994 governments inherited an economy built on mining megaprojects and heavy industry, they largely clung to the old model. Commodity processing and intermediate inputs have remained the focus, with only a handful of bright spots, such as the automotive and machinery industries.

Today the industry stands at an inflection point. Productivity, costs, labour relations, skills shortages, efficiency and technology all weigh it down. None of these challenges is insurmountable on its own, but together they form a web of structural weaknesses. Progress will require deliberate strategies: greater localisation, smarter trade policy, export-oriented manufacturing and deeper regional integration.

Here geography is an asset. Africa is the fastest-growing region in the world, and South Africa is well placed to serve as a continental manufacturing hub. Already, its export growth to African markets has outpaced that to the European Union, albeit from a small base. With sustained effort, this could be scaled up.

But the hurdles remain formidable. Productivity lags far behind competitors. Input and labour costs are high. Coordination between government and business is patchy. Skills shortages persist at every level. Worse, the global shift towards digitally driven, technologically sophisticated manufacturing exposes South Africa’s weakness: a scarcity of the skills required for modern production systems.

Industrial policy has tried to address these shortcomings. The Industrial Policy Action Plan (IPAP), introduced in 2007, deployed a range of instruments to stimulate key sectors. Yet policy has lacked consistency and follow-through. What is needed now is closer collaboration between government, industry, unions and investors to build a climate in which manufacturing can grow. Skills development aligned to international standards, moving unskilled workers up the value chain, and a sharper focus on export competitiveness are all vital.

South Africa must also reckon with scale. The domestic market is too small to support large-scale manufacturing on its own. Automation will help raise productivity, but integration with wider African markets is essential. Regional infrastructure—particularly in transport—will be pivotal to unlocking demand.

In the long run, South Africa’s competitiveness will hinge on innovation and coherence. A manufacturing revival requires not only targeted interventions to address structural weaknesses but also a clear vision of the sector’s future. If policymakers and industry leaders can align around a more innovation-driven, regionally integrated model, South Africa may yet reclaim its place as a manufacturing powerhouse on the continent.