Manufacturing serves as South Africa’s critical economic engine, contributing 13% to GDP and employing 1.6 million people, but requires urgent structural repairs to overcome infrastructure failures, global competition, and policy weaknesses in order to unlock its potential to create over 500 000 jobs and rebuild the economy from the bottom up.
Manufacturing is the most complex part of South Africa’s economy, spanning everything from motor vehicles to food production. It contributes about 13% of GDP, employs 12% of the workforce – roughly 1.6 million people – and generates 42% of the country’s exports. Few sectors are as deeply woven into the rest of the economy, linking mining, agriculture, banking and retail.
Its subsectors are shaped by industry bodies of uneven strength and influenced by trade and industrial policy, plus government support of variable scale and quality.
Many argue convincingly that manufacturing is the core engine of growth, generating the strongest economic multipliers. If so, why concentrate the sector in Special Economic Zones (SEZs) such as Coega, Richards Bay and Dube TradePort?
Should we not enable manufacturing success across the country as part of a broader strategy to grow jobs and GDP – and slow the flow of people to better-performing municipalities?
Manufacturing depends on value chains that work and extend to sources of material inputs, design, capital goods, and markets – local and international.
The skill sets it requires cover the full range, from nearly unskilled to the highest-functioning globally in-demand experts. Building factories here enables us to participate in a modern, complex world.
Manufacturing is not just another sector. It is one of the few tools that can repair structural damage in the labour market. It is a job machine that can absorb large numbers of entry-level workers as operators, assemblers, and production assistants, while simultaneously creating roles for artisans, technicians, and engineers.
Its employment multipliers spread work into logistics, business services, retail, maintenance, security and local supply chains. Very few sectors offer this combination of scale and spillovers.
Manufacturing is also a skills escalator. It offers clear ladders that allow workers to move from general labour to machine operation, to team leadership, to artisan roles and to supervisory or technical specialist positions. This is how a wage-earning middle class is built from the bottom up.
Supporting stability and growth
Manufacturing wages are usually more stable and formal than those found in service or informal activities. This allows households to budget, invest in education and housing, and reduce high-cost borrowing.
Evidence from South Africa and internationally shows that households with at least one stable wage earner experience better nutrition, higher school attendance and improved long-term prospects for children.
Manufacturing can also play a spatial role. New plants and industrial clusters in secondary cities and small towns can pull opportunity closer to historically marginalised communities. When industrial zones are planned near residential areas and transport hubs, commuting times and costs fall, and labour-force participation rises – especially among women.
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Factories also give municipalities a stable customer base for electricity, water and sanitation, and they contribute to property rates.
A critical mass of industrial users can steady municipal finances, allowing maintenance backlogs to be cleared, infrastructure to be upgraded, and services to be improved. This, in turn, attracts more investment – a mutually reinforcing loop.
Because our damage is structural and historically produced, the response must also be structural and strong. A manufacturing-led stimulus is not a nostalgic gesture towards a bygone industrial era. It is a targeted repair strategy that recognises the role of manufacturing in absorbing labour, building skills and stabilising local institutions.
Crudely, with mining in decline, we need to build an economy that can continue to pay for our fuel imports.
As with much of South Africa’s business, manufacturing is under stress. Recently, local and global value chains have been underperforming – and we are underperforming within them.
Geopolitical tensions and instability exacerbate the situation. Until a decade ago, South Africa sat comfortably in the middle of the spectrum of globally reliable producers of quality goods delivered on time.
This was weakened by the usual suspects: failing municipalities, ports, roads, and logistics generally, as well as the cost, which has increased by more than 500% in 15 years, and reliability of electricity, and clean and reliable water supply, all of which contribute. At the same time, China rose to become an export giant.
Falling down global rankings
These familiar constraints have pushed us down global rankings, increasing the risk to our relationships with original equipment manufacturers (OEMs), key foreign direct investment (FDI) sources and export markets. Combined with weak domestic demand, they pose systemic, and in the case of steel and autos, existential threats.
Another weakness is the small size of our highly skilled technical and artisanal labour force. Even with sound policy, large investments and political will, progress is impossible without the people to do the work – regardless of the bold forecasts about the future contribution of AI.
Crime has a direct and indirect impact, from cable theft to the construction mafia and violence. The community within which a factory operates is often troubled and underserved by its local government, adding to the frictional costs of doing business. As we now better understand, crime and corruption result in a loss of between 12% and 15% of GDP, reducing the number of jobs and weakening demand.
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Our porous borders allow untaxed, dumped, cheap, and often counterfeit goods to destroy an estimated 75 000 jobs and result in billions of dollars in lost excise duty.
BEE adds to the complexity and cost for foreign investors and manufacturers seeking to extend their value chains and markets.
This doesn’t necessarily require abandoning BEE, but changing its focus. We simply need to evolve our tactics with changing circumstances. Close the loopholes and eliminate rent-seeking and the politically connected corruption that have blemished the practice. Focus on jobs for the poor.
Government policy and practice also have weaknesses. Rules set three decades ago have not been updated for current realities. In some cases, the rules require cooperation between departments that often clash or struggle to communicate, leading to little useful output.
Government-business forums exist to promote coherence and support manufacturing subsectors, but differing levels of trust – and often differing worldviews – get in the way.
A lesson from the automotive industry
We can’t leave a discussion of manufacturing without mentioning the automotive industry. Here, a government-OEM joint strategy was initially very successful.
This is the largest part of our manufacturing sector, contributing 5% to GDP directly and an additional 4% when considering the entire value chain. It employs 115 000 people directly and a total of 500 000 when counting all related entities, from component manufacturers to retail and financing.
Vehicles and components are exported to 148 international customers. International brands have brought skills, processes, standards, and technologies to South Africa, helping to build our reputation as a modern manufacturing economy. That reputation is now at risk. Rebuilding it will require real improvements in the operating environment and a more predictable, coherent relationship between business and the state.
Today, it is under threat from global market shifts, competition from newer technologies from China, municipal failures, and global value chain disruptions.
We do have time to repair, but hard work from both government and industry is essential.
Conclusion:
- Train for demand-led skills – AI won’t take the jobs of artisans and technicians.
- Implement the stimulus proposed in Urban Futures. Fix or reestablish sector-specific institutions, e.g., for electricians and engineers.
- Any postdoctoral applicant who wishes to relocate to South Africa is eligible for an automatic 10-year visa. If they’re an engineer, the condition is that they teach for one week a year unless they start a business.
- Shut Special Economic Zones (SEZs). Any new manufacturing business that starts anywhere in the country in an urban municipality receives SEZ-type support.
New jobs? About 200 000 if our GDP trundles along as expected and Eskom and Transnet continue to improve. More than 500 000 if we tackle the Urban Future project.
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