The department of trade, industry & competition cannot answer a fundamental South African question: is its industrial strategy making businesses more willing and able to invest, build factories, expand production and employ South Africans; or is it just good on paper while factories continue to close?
President Cyril Ramaphosa’s recent address to the government-business partnership specifically excluded manufacturing from the drivers of growth in our economy in his “phase 3” launch. So even the president is not confident of trade, industry & competition minister Parks Tau’s plans.
The much-anticipated Industrial Development Strategy (IDS) came under intense scrutiny at a three-day colloquium hosted by the parliamentary portfolio committee in early August. The IDS is the latest iteration of this department’s attempt to revive South Africa’s moribund manufacturing sector.
After 30 years of steady decline, from contributing 23% of GDP in the early 1990s to just 13% today, the inescapable question is whether the ship can be turned around.
From the National Industrial Policy Framework of 2007 to the Industrial Policy Action Plan 2010-13 version 1, the 2018 version 2 and the 2019 Reimagined Industrial Strategy, the department has failed to halt or reverse this decline.
Sweeping and costly sector incentives were implemented and tariffs were adjusted to protect local manufacturing, to little avail. South Africa’s problem is clearly not a lack of industrial plans but a failure to make them work.
Underlying the country’s sluggishness compared to other emerging economies is our persistently low economic growth rate, both a cause and effect of manufacturing’s decline. Low local demand leads to factory closures, which increases unemployment, further suppressing demand as consumers’ dependency on social grants increases. This in turn increases fiscal pressure on the government, which has less money to spend on tax breaks, stimulus measures and incentives.
Breaking out of this low-growth trap while stimulating job creation must be a priority for any industrial development strategy. What became abundantly clear in the colloquium is that the trade, industry & competition department itself has minimal levers to pull on the binding constraints holding back growth.
These include high electricity and data prices, deteriorating rail, road and port infrastructure, the collapse of municipal services, corruption, high crime rates, the regulatory and red tape burden, the skills deficit and an escalating water supply crisis. Operation Vulindlela is tackling many of these, but progress is slow.
What became abundantly clear in the colloquium is that the trade, industry & competition department itself has minimal levers to pull on the binding constraints holding back growth.
Compounding these local constraints are an ever-more competitive global landscape and the advancing of policies by our major trading partners that put up costs for our manufacturers, such as EU’s Carbon Border Adjustment Mechanism.
Equally threatening is the EU and UK’s phasing out of internal combustion engine (ICE) vehicles. These two markets account for 80% of South Africa’s vehicle exports and our auto sector is champing at the bit for the government to provide a more concrete path towards new energy vehicles replacing ICEs.
The IDS response to these challenges rests on its three pillars of decarbonisation, diversification and digitisation. All very sensible and elegant, until one confronts the specifics.
To turn ore into metal requires lots of electricity, which accounts for up to 60% of smelting costs. South Africa’s smelters have lost out to Chinese competitors as our electricity prices have rocketed. The department is insistent that smelting ― the first stage of what in SA is known as beneficiation ― is a priority, yet the government has not come up with a plan to reduce electricity costs in the long term to the 62c/kWh the industry regards as the maximum viable cost.
Eskom’s three-year deal for ferrochrome needs to be costed for the long term to induce the widespread revival of our smelters. The alternative is for the government and private sector to devise an investment plan into green electricity and storage that attracts Eskom and private producers to the table. It remains to be seen if the department has the political muscle to force a solution here. If not, its beneficiation strategy will fail.
The steel and metals value chain faces similar challenges. Once a thriving industry, cheap imports, inadequate tariff protections, low domestic demand, inefficient logistics and high electricity costs have led to 76% capacity utilisation and increased margin pressure. The future of ArcelorMittal hangs in the balance while the Industrial Development Corporation grapples with rescuing a company that has underinvested for years to save 4,500 jobs, or spending those billions on supporting new high-growth businesses with higher job-creation prospects.
The metal recyclers are fighting a long-running battle with the department and the Treasury over the co-existence of the Price Preference System (PPS) on scrap and the scrap export tax. DNA Economics estimated in November that a value transfer of R4.9bn per annum from the recyclers to the minimill furnaces has suppressed the supply of scrap and threatened the livelihoods of tens of thousands of workers. Much of that scrap ends up as steel billets for export rather than supplying local fabricators, the opposite of what the PPS and export tax aimed to achieve.
The presentation by Pharmaceuticals Made in South Africa (Pharmisa) gave perhaps the starkest illustration of contradictory government policies in practice, leading to the closure of nine factories with the loss of up to 3,200 jobs in the past 18 months. Dependent on the department of health for 70% of their sales, local manufacturers have seen their share of antiretroviral orders decline from 72% in 2008 to 28% in 2025, while for solid dose tablets the share went from 56% in 2014 to 18% in 2026.
Pharmisa claims the health department buys from importers that are gaming the system by falsely claiming to be manufacturing locally while in practice using BEE-compliant companies to bring in cheap imports.
The broad-based BEE scorecard gives no points for local manufacture. Importers with high BEE ratings make a nonsense of localisation policies. This is a criticism heard across many industrial sectors. The department of trade, industry & competition must choose between race-based scoring favouring a small number of connected importers and scoring that leads to investment in local capacity, jobs and exports.
Perhaps the most hard-hitting criticism of the IDS came from Amine Adoum, a New Partnership for Africa’s Development economist. Adoum tested 17 national policy frameworks, including the National Development Plan, energy, infrastructure, logistics, procurement and competition, against the targets included in the IDS. Not one of them was aligned, shared or jointly owned. It is as though the department’s IDS was grown in a petri dish, an elegant thought experiment but detached from South Africa’s real economy and myriad policy frameworks.
A clue to how this came about was the criticism voiced by business, union and civil society presenters and committee members that the department failed to consult widely enough in conceiving the IDS. No-shows by the National Treasury and the department of energy & electricity prevented committee members from interrogating key assumptions behind the strategy.
At the conclusion of deliberations the committee stressed the need for the department to reflect and be willing to adjust its strategy. If it does not, it runs the risk that the IDS will be yet another industrial policy strong on rhetoric and thin on implementation realities.
• Chance, an MP, is DA spokesperson on trade, industry & competition.
Business Day
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