South Africa's conundrum over industrial decline
South Africa, once a global powerhouse in mining and manufacturing, has seen a significant decline in these sectors over the years. The country's mining sector, which accounted for a quarter of the world's gold production in 1994, has dwindled to just 3% by 2024. The number of people formally employed in the mining industry dropped by 30% during the same period.
The reasons for this decline are numerous. Over-regulation, frequent revisions, and the lack of clarity in the Mining Charter have increased costs for mining companies, making them less competitive globally. Additionally, the country's labor regulations, environmental regulations, licensing requirements, and the effective nationalization of mineral rights have taken a toll on the sector.
The manufacturing sector has also faced challenges. The manufacturing business confidence index has more than halved from 77 in Q1 2007 to 33 in Q2 2025. The industry contracted by 0.4% in 2024, compared to a growth of 8.1% in 2000.
However, there is hope. Key policy reforms are proposed to address South Africa's deindustrialisation and promote reindustrialisation. These reforms focus on industrial policy, skills development, infrastructure investment, and integration into global value chains.
Firstly, a robust industrial policy is needed to foster competitive markets and support productivity growth. This includes creating comparative advantages in knowledge-intensive and high-skill sectors rather than relying on low-skill primary product export.
Secondly, investing heavily in skills development and human capital is crucial. This will enable workers to upgrade into higher-skill manufacturing tasks, facilitating value-added production and technological adoption.
Thirdly, improving enabling infrastructure and financial sectors can reduce production costs and enhance industrial competitiveness. This includes decarbonizing the energy sector given South Africa's highly carbon-intensive economy.
Fourthly, promoting integration into manufacturing global value chains by increasing the value-added content of exports, encouraging backward linkages, and upgrading industrial capabilities to capture more value domestically is essential.
Lastly, addressing socio-economic challenges linked to urban economic stagnation and deindustrialisation impacts is necessary. This includes job losses and urban decay, which can be combated through inclusive economic development strategies that promote reindustrialisation and labor absorption.
These reforms require coordinated efforts to shift from reliance on mineral extraction and low-skill manufacturing toward a more diversified, value-added, and skill-intensive industrial base, supported by enabling infrastructure and social policies to combat unemployment and economic stagnation.
The US tariff hikes have created global trade volatility, providing South Africa with an opportunity to reassess its trade and investment policies. To escape South Africa's low-growth trap, policy reforms are needed to strengthen property rights, mineral rights, and introduce investment-friendly policies.
The disruptions in global trade and the heightened uncertainty under the second Trump administration offer an ideal opportunity for South Africa to improve its manufacturing and mining capabilities to avoid wasting its trade potential and losing out on opportunities in 2025.
Criticisms against the South African Mining Charter, intended to promote Broad-Based Black Economic Empowerment, have highlighted its negative impact on investment and operational efficiency. Growing mining and manufacturing sectors would help combat unemployment, historically one of South Africa's major social ills, particularly among young people (15-34 years).
Infrastructure issues, such as inconsistent and costly electricity supply, underperforming ports and railways, and increasing water disruptions, have made domestic mining and manufacturing operations inefficient and expensive. The government should refrain from using anti-investor rhetoric and focus on policy reforms to increase investor confidence in the mining and manufacturing sectors.
- The decline in South Africa's mining and manufacturing sectors over the years can be attributed to factors such as over-regulation, frequent revisions, and unclear mining regulations, along with stringent labor, environmental, and licensing requirements, effective nationalization of mineral rights, and the high costs of these policies for businesses.
- Reforms are proposed to address South Africa's deindustrialisation and promote reindustrialisation, with a focus on industrial policy, skills development, infrastructure investment, and integration into global value chains.
- To foster competitive markets and support productivity growth, a robust industrial policy is needed that creates comparative advantages in knowledge-intensive and high-skill sectors rather than relying on low-skill primary product export.
- Addressing issues with infrastructure, such as inconsistent and costly electricity supply, underperforming ports and railways, and increasing water disruptions, is crucial to reduce production costs and enhance industrial competitiveness by making domestic mining and manufacturing operations efficient and cost-effective.
