South Africa has lost roughly half its manufacturing base since democracy, yet it still talks about factories as the only way to grow. Take the cabinet, where ANC ministers invoke reindustrialisation and localisation as the route out of unemployment, now above 30%. Or the department of trade, industry & competition (DTIC), which leans on sector master plans and a R750bn push to fill industrial hubs.
Yet manufacturing’s share of GDP has fallen from about 21% in the mid-1990s to just 12% today. It will eventually slide “to just less than 10%”, Stanlib Asset Management chief economist Kevin Lings tells the FM. The sector has shed an estimated 1.5-million jobs over two decades, and many companies have let machines, software and buildings age for fear of the outlook.
At the same time, the economy has morphed into something else: services make up more than two-thirds of GDP, and it’s there — in retail, banking, transport, consulting and tourism — that hiring now happens.
“Be aware of anyone who gives you a silver bullet, particularly one dictated by government,” Daan Steenkamp, CEO of Codera Analytics, tells the FM. “The beauty of the market is that people find opportunities, and you see these problems being solved dynamically. It’s very hard to centrally plan which industry is going to take off 10 years from now.”
The deeper problem is productivity. A February paper by Jurgens Fourie and Steenkamp finds that total factor productivity — how efficiently capital and labour combine — has been in broad decline since the global financial crisis. An Economic Research Southern Africa (Ersa) paper by Zaakhir Asmal and Christopher Rooney argues that manufacturing is structurally weak, but a narrow cluster of “modern” services offers a more promising frontier — if policy gets out of its own way.
The old system “worked”, says Lings, because apartheid-era isolation forced South Africa to build its own “much bigger, much more vibrant manufacturing base”. Only, it was uncompetitive by design, shielded by sanctions and trade barriers that meant it never had to fight for market share.
Democracy meant cutting tariffs under the General Agreement on Tariffs and Trade and the World Trade Organisation as global brands and cheap Chinese imports flooded in. “The combination of brand awareness, cheap goods, cheaper imports — that started to undermine South Africa’s manufacturing base,” Lings says.
The second blow was self-inflicted: the government “started to systematically neglect infrastructure”, he adds.
Official thinking, however, is focused elsewhere: more master plans, more BEE-linked procurement, and a state deciding where economic activity goes.
“This diagnosis of South Africa’s problems is wrong, so the medicine we are told to take is making us sicker,” Steenkamp says. “Master plans have a very tainted history — think of the Soviet Union.” In that country, central planners set output targets without testing what the market wanted, producing shortages of some goods and surpluses of others.
The underlying assumption is that “we need a development state”, he says. But that “depends on a capable state that gets the basics right. That arguably isn’t present in South Africa.”
Elias Monage, president of the Steel and Engineering Industries Federation of South Africa, wrote in a June 2025 opinion piece that steel production remains 18% below its 2007/2008 peak and per capita consumption is down 37% since 2013 — despite the steel and metal fabrication master plan’s “over 20 workstreams and 73 deliverables”.
Steel’s most visible casualty sits in Newcastle. ArcelorMittal announced in January 2025 that it would wind down long-steel operations at Newcastle and Vereeniging, citing energy and logistics costs, cheap Chinese imports and weak policy support. This put 3,500 jobs at risk and threatened perhaps 100,000 more down the value chain. The Industrial Development Corporation’s R1.68bn rescue facility was fully drawn within months; Newcastle production has since stopped.
Against that record, the government’s newest fix risks repeating the pattern. “We are targeting R750bn worth of investments in this current fiscal year,” Maoto Molefane, the DTIC’s acting deputy director-general, said at a special economic zones (SEZ) conference in Durban in July. The money is meant to fill specialised hubs, offering a 15% income tax rate against the usual 27%. South Africa’s 13 SEZs host 224 companies, R31.7bn in investment and 28,000 direct jobs — modest against the number now promised.
The Harvard Growth Lab estimates that preferential procurement rules already add cost premiums of 27%-62% across government departments, and reforming procurement could save as much as 3% of GDP. The National Treasury’s draft procurement regulations would require bidders to show that at least 40% of their historic procurement went to majority black-owned firms, and to subcontract at least 30% of any contract’s value to South African citizens. “The procurement regulations being discussed would make procurement more expensive and more complicated,” Steenkamp says.
The DTIC’s own account remains upbeat, crediting its plans with “bearing fruit, creating jobs, transforming the economy”.
A services economy by default
If the factory-led model has narrowed and the state’s fix keeps failing, where does growth come from?
Ersa’s numbers show how far reality has moved past the policy conversation. Between 2010 and 2024, formal services added 2.3-million jobs — from 5.6-million to 7.9-million, a 40% increase — while services grew to 63% of GDP. ICT did the heavy lifting: its workforce nearly doubled, from 878,000 to 1.6-million, growing 4.4% a year.
Weighing subsectors on tradability, skills mix and capacity to scale, Asmal and Rooney narrow the field to four with genuine promise: ICT, financial services, professional and business services, and logistics. Job gains so far have been “particularly limited … at low- and semi-skilled levels”, with growth increasingly skills-biased. This risks creating deeper inequality rather than fixing it.
Steenkamp isn’t much more convinced by this than by the factory story. “It’s almost a tautology to say we must focus on the service industry,” he says, because services grow as a share of any developing economy almost by definition. South Africa, he adds, “has only a tiny and stagnant tech sector, despite all the hype” — proof that a “services economy” guarantees nothing without fixing what discourages firms from growing.
Codera and Ersa converge on productivity as the real driver of income over time, tracing South Africa’s growth deterioration since 2008 to collapsing efficiency and weak investment rather than any single industry’s failure. Neither writes manufacturing off. They just see it as narrower, tied to comparative advantage rather than mass employment.
Steenkamp’s own prescription is unfashionable for an era of activist industrial rhetoric: align South Africa’s regulatory environment with “international best practice”, aim to sit “at the median of the OECD”, and reverse a “philosophy of interventionism” that treats subsidies and protection as growth drivers in themselves.
“Our regulations have created incentives for firms to stay small, to not employ people, and raise the cost of doing business,” he says. Halting the procurement and BEE proposals alone “would probably be worth a percentage point of faster growth”.
Lings reckons there’s no route back to broad-based revival without a functioning rail, port and road network, and a construction sector no longer in its ninth straight year of recession. The manufacturing that still makes sense serves specific customers: work boots for miners, building materials, timber. “You can’t order that stuff on Temu,” he says — bulky, low-value goods sheltered from import competition.
Neither strand resolves the hardest problem: employment elasticity is low economy-wide, and the services subsectors with the clearest promise are also the most skills-intensive, while most of the unemployed are low-skilled. Asmal and Rooney argue that this makes skills reform as central to growth strategy as any industrial policy.
Steenkamp doubts any sector can absorb the unemployed under current conditions, and suggests South Africa may need to decouple its jobs strategy from its growth strategy for now — targeting labour market interventions while the harder work of fixing productivity continues.
South Africa doesn’t need to give up on manufacturing. It needs to give up on the idea that factories alone will save it, and on the industrial nostalgia that still shapes how its policymakers think. The more realistic frontier is a productivity-driven, services-centred growth strategy that reflects the economy the country actually has, not the one it remembers.