South Africa's predicament concerning industrial decline
In the face of increasing challenges, South Africa's manufacturing and mining sectors are grappling with significant setbacks. The United States' imposition of tariffs on South Africa's vehicle manufacturing sector poses a major risk, as the local automotive sector struggles to maintain its footing.
The South African manufacturing industry has contracted by 0.4% in 2024, a stark contrast to the growth of 8.1% seen in 2000. Disruptions in global trade, particularly of supply-and-value chains, coupled with heightened uncertainty during the second Trump administration, present an opportunity for South Africa to improve its manufacturing and mining capabilities.
However, unless the government addresses the domestic issues affecting the country's industrial base, South Africa will continue to waste its trade potential and lose out on opportunities emerging in 2025. The number of people formally employed in South Africa's mining industry has dropped by 30% over an unspecified period, highlighting the urgency of the situation.
Growing mining and manufacturing sectors, through policy and infrastructure reform, could help combat unemployment, particularly among young people (15-34 years). BUSISIWE Mavuso, CEO of Business Leadership South Africa, has called for urgent government action to mitigate the impact of US tariffs on South Africa's vehicle manufacturing sector.
Over-regulation of labor, environmental regulations, and licensing requirements have impacted South Africa's mining sector. Infrastructure and municipal decay need to be reversed to attract investment in mining and manufacturing. Policy reforms are needed to strengthen property rights and mineral rights, attract higher levels of investment in mining and manufacturing, and introduce investment-friendly policies.
The South African Mining Charter, designed to promote Broad-Based Black Economic Empowerment, has faced criticism for hindering investment and operational efficiency. The Mining Charter's onerous requirements, frequent revisions, and lack of clarity have increased costs for mining companies, making them less competitive globally.
The US tariff hikes have created global trade volatility, providing South Africa with an opportunity to objectively assess its trade and investment policies. In 1994, a quarter of the world's gold production occurred in South Africa, but this has dropped to just 3% in 2024.
Key policy and infrastructure reforms needed for South Africa's reindustrialization to combat unemployment include fostering local manufacturing and industrial growth, economic and regulatory reforms, infrastructure improvements, implementing a Just Transition framework, and educational and skills development reforms.
The manufacturing business confidence index has more than halved from 77 in Q1 2007 to 33 in Q2 2025. The government should refrain from using anti-investor rhetoric and focus on policy reforms to boost investor confidence. A myriad of domestic issues has led to the deterioration of South Africa's mining and manufacturing sectors, with inconsistent and increasingly costly supply of electricity, underperforming ports and railways, and increasing water disruptions making domestic mining and manufacturing operations inefficient and more expensive.
The effective nationalization of mineral rights has also affected South Africa's mining sector. Strategic policy action combining regulatory reform, infrastructure investment, workforce transition support, and local manufacturing promotion is essential for South Africa to effectively combat unemployment through reindustrialization.
- The South African government should address domestic issues affecting the country's industrial base to prevent continued waste of trade potential and seize emerging opportunities in 2025.
- Overregulation of labor, environmental regulations, and licensing requirements, along with infrastructure and municipal decay, need to be reversed to attract investment in South Africa's manufacturing and mining sectors.
- Policy reforms are needed to strengthen property rights and mineral rights, attract higher levels of investment in mining and manufacturing, and introduce investment-friendly policies.
- The government should refrain from using anti-investor rhetoric and focus on policy reforms to boost investor confidence in the manufacturing and mining sectors, particularly in the face of global trade disruptions and increased competition due to US tariffs.
