# Chapter 6: Manufacturing, Trade, and Industrial Policy {% hint style="info" %} **Part II: Sectors** — This chapter continues Part II's sectoral analysis. After examining agriculture (Chapter 4) and mining (Chapter 5), we turn to manufacturing — a sector whose decline represents one of South Africa's most consequential structural shifts. Chapter 7 completes Part II with the services economy. {% endhint %} ## Learning Objectives By the end of this chapter, you should be able to: 1. **Trace** the historical trajectory of South African manufacturing from import substitution through liberalisation to contemporary deindustrialisation 2. **Analyse** the causes and consequences of deindustrialisation, including trade policy, domestic constraints, and global competition 3. **Evaluate** industrial policy instruments from IPAP to sector Master Plans, assessing their design and implementation 4. **Assess** trade policy frameworks including WTO commitments, preferential agreements, and AfCFTA opportunities 5. **Discuss** the binding constraints on manufacturing competitiveness and policy options for revitalisation *** ## I. Introduction: Manufacturing's Strategic Importance Manufacturing has long been viewed as a central engine of development (Amsden 2001). The experience of Britain, East Asia, and China suggests that sustained income growth often requires movement from primary commodities toward higher-value manufacturing (Wade 1990). Manufacturing can create jobs, build skills, expand exports, and generate spillovers across the wider economy. For countries trying to avoid the middle-income trap, upgrading remains strategically important (World Bank 1993). South Africa has harbored industrial ambitions since the early twentieth century, when mining wealth financed the first significant manufacturing investments (Feinstein 2005). By the 1970s, the country had developed Africa's most sophisticated industrial base, with capabilities spanning steel, chemicals, automotive, and armaments (Freund 2019). The democratic transition in 1994 brought hopes that liberalisation and global integration would accelerate industrial development, moving South Africa up global value chains and creating the jobs its growing population desperately needed (Hirsch 2005). Those hopes have been largely disappointed (Kaplan 2004). Manufacturing's share of GDP has declined from approximately 21% in the early 1990s to around 12% today—a process of "premature deindustrialisation" that has occurred well before South Africa achieved income levels where such decline would be expected (Statistics South Africa 2023). Tregenna (2009) provides the analytical framework for understanding this trajectory: unlike deindustrialisation in wealthy countries, which reflected rising productivity and natural sectoral shifts as economies matured, South Africa's manufacturing contraction occurred without the productivity gains or alternative employment absorption that characterised the process elsewhere. The shrinking of industry at income levels well below those at which advanced economies began their own transitions to services marks it as "premature"—a structural regression rather than a developmental milestone (Tregenna 2012). Manufacturing employment has contracted even more dramatically, falling from over 1.5 million in the mid-1990s to approximately 1.1 million in formal employment today, with total manufacturing employment (including informal) around 1.7 million (Statistics South Africa 2024). > **21% to 12%** — Manufacturing's share of GDP has nearly halved since 1994, with formal employment falling from 1.5 million to 1.1 million, a loss of 400,000+ formal jobs. The sectors that have declined most sharply—textiles, clothing, footwear, and other labour-intensive industries—are precisely those that in other countries have absorbed unskilled workers into formal employment (Edwards 2021). The causes of deindustrialisation are contested (Black 2016; Makhaya 2025). Makhaya's ERSA review highlights persistent stagnation in complexity despite successive frameworks. Edwards (2024) argues South Africa faces an export crisis and favours simpler tariffs plus more horizontal policy. One explanation emphasises liberalisation that exposed weak firms to Chinese import competition without sufficient adjustment support (Edwards 2021). Another stresses domestic constraints—electricity, logistics, skills, and policy uncertainty (Hausmann and Klinger 2006). Others point to structural inheritance from the MEC, which favoured capital-intensive processing over labour-intensive manufacturing (Fine and Rustomjee 1996). The MEC, as Fine and Rustomjee defined it, was not simply "mining plus manufacturing" but a specific system of accumulation that channelled cheap energy and subsidised capital toward heavy processing industries — steel, chemicals, aluminium smelting — at the systematic expense of light, labour-absorbing industry. This path-dependency explains why diversification into the employment-intensive sectors South Africa desperately needs has proved so resistant to policy intervention. This chapter examines manufacturing's trajectory and the industrial and trade policies shaping it. It moves from early import substitution through apartheid-era state industrialisation and post-1994 liberalisation, then analyzes deindustrialisation evidence and competing explanations. It assesses policy evolution from NIPF and IPAP to Master Plans, reviews trade strategy including AfCFTA opportunities, and closes with binding constraints and options for revitalisation.
Line chart showing manufacturing production index (2015=100) with limited growth over past decade, COVID-19 causing sharp contraction followed by incomplete recovery, with index remaining below 2008 levels in many subsectors

Figure 6.1: Manufacturing Production Index (2015=100). Source: Statistics South Africa P3041.2.

\*Note: Manufacturing production has shown limited growth over the past decade, with COVID-19 causing a sharp contraction followed by incomplete recovery. The index remains below 2008 levels in many subsectors.\* *** ## II. Historical Trajectory of Manufacturing ### Early Industrialisation and Import Substitution South Africa's industrialisation began in the late nineteenth century, driven initially by mining's demand for manufactured inputs (Feinstein 2005). The railways that served the mines required rolling stock, track, and equipment; the mines themselves needed explosives, machinery, and processed materials. These demands created opportunities for local manufacturing that early entrepreneurs exploited (Fine and Rustomjee 1996). World War I provided a significant impetus, as wartime disruptions to imports created protected space for domestic production (Freund 2019). The 1920s saw establishment of ISCOR (the Iron and Steel Corporation), a state-owned enterprise that would anchor South Africa's heavy industry for decades. The interwar period brought tariff protection for emerging industries, initiating South Africa's long experiment with import substitution industrialisation (ISI) (Feinstein 2005). World War II accelerated industrial development as South Africa produced military equipment for the Allied war effort while import supplies were again disrupted. By 1945, manufacturing had become a significant contributor to GDP, and post-war policy entrenched protection for domestic industry (Lipton 1986). The 1948 election victory of the National Party, which introduced apartheid, brought intensified state involvement in industrial development as part of Afrikaner economic empowerment and strategic self-sufficiency goals (Thompson 2014). ### Apartheid-Era State Industrialisation The apartheid period (1948-1994) saw substantial state-led industrial expansion, motivated by strategic considerations as much as economic development (Freund 2019). International isolation and the threat of sanctions created powerful incentives for self-sufficiency in strategic sectors (Lipton 1986). The state established or expanded major enterprises: Sasol developed coal-to-liquids technology to reduce oil import dependence; Armscor created a sophisticated defence industry; Koeberg nuclear power station represented ambitions in nuclear technology (Fine and Rustomjee 1996). This state-led industrialisation achieved impressive capabilities in certain sectors (Kaplan 2004). South Africa developed world-class expertise in mining equipment, specialised chemicals, and military technology. The synthetic fuels industry represented genuine technological innovation. By the 1980s, South Africa possessed manufacturing capabilities rare in the developing world (Freund 2019). However, this industrial structure had significant limitations (Fine and Rustomjee 1996). Protection from import competition reduced pressure for efficiency, leaving many industries uncompetitive by international standards (Kaplan 2004). The capital-intensive bias of the MEC extended into manufacturing, limiting job creation. Sanctions and isolation prevented integration into emerging global value chains that would later transform East Asian manufacturing (World Bank 1993). Most critically, apartheid's policies of separate development and inferior education for the majority population created severe skills constraints that would hamper manufacturing for decades (Seekings and Nattrass 2005). ### The Crisis of the 1980s By the late 1980s, South Africa's inward-looking industrial model was exhausted (Gelb 1991). Economic growth had stagnated, productivity lagged international standards, and the apartheid system was entering its terminal crisis. Inflation and currency instability undermined manufacturing competitiveness (Marais 2011). Capital flight and investment strikes—both politically motivated and responding to poor returns—starved industry of needed investment (Bond 2000). The structural weaknesses of ISI that development economists had identified globally were evident in South Africa (Kaplan 2004): protection had created inefficient industries dependent on guaranteed domestic markets; limited competition had reduced innovation incentives; anti-export bias had prevented development of competitive export capabilities. The coming democratic transition would bring fundamental reorientation of industrial policy (Hirsch 2005). *** ## III. Deindustrialisation and Trade Liberalisation ### Post-1994 Liberalisation The democratic government faced immediate choices about industrial and trade policy (Hirsch 2005). The inherited industrial structure was internationally uncompetitive, protected by high tariffs, and shaped by sanctions-era distortions. The question was whether to maintain protection while building competitiveness or to liberalise and force rapid adjustment (Marais 2011). The 1996 GEAR strategy chose the latter path (Department of Finance 1996). South Africa acceded to the World Trade Organisation (WTO) and committed to substantial tariff reductions. Average tariffs fell from around 28% in 1994 to below 8% by the early 2000s, with deeper cuts in many sectors (WTO 2003). Quantitative restrictions were eliminated, and the anti-export bias of the tariff structure was reduced. The expectation was that exposure to international competition would drive efficiency improvements, attract foreign investment, and integrate South Africa into global value chains (Edwards 2021). ### Impact of Liberalisation The results of trade liberalisation were mixed at best (Edwards 2021). Some sectors thrived under the new dispensation. The automotive industry, benefiting from the Motor Industry Development Programme (MIDP) that combined moderate protection with export incentives, successfully integrated into global value chains (Black 2016). Morris and Barnes (2009) document how this integration enabled component manufacturers to achieve functional upgrading—moving from basic assembly to design and engineering capabilities that anchored them in multinational supply networks. The MIDP's architecture, which rewarded export performance with import rebate credits, created incentives for firms to invest in the higher-value activities that deepened their position within buyer-driven value chains rather than remaining captive assemblers of imported kits. BMW, Mercedes-Benz, Volkswagen, and Toyota established or expanded manufacturing operations, and South Africa became a significant exporter of vehicles and components (NAAMSA 2024; dtic 2021). Other sectors experienced devastating contraction (Edwards 2021). Textiles, clothing, and footwear—labour-intensive industries that had employed hundreds of thousands of workers—faced intense competition from Asian imports, particularly from China following its 2001 WTO accession (Gillson and Charalambides 2012). Employment in these sectors collapsed by over 50%, with profound consequences for workers with limited alternative opportunities. Clothing manufacturing fell from approximately 230,000 workers in 1996 to below 100,000 by 2010 (Statistics South Africa 2010). The aggregate pattern is clear deindustrialisation (Kaplan 2004). Manufacturing's GDP share fell from 21% in 1994 to about 12% by 2024 (Statistics South Africa 2024). Employment, which should have risen with population and GDP growth, instead contracted in absolute terms. Lepelle and Edwards (2024) show similar declines at municipal level, with steepest losses in communities previously dependent on protected sectors. The remaining base became more capital-intensive, reducing labour absorption further (Banerjee et al. 2008).
Two-panel line chart showing retail trade (Stats SA P6242.1) and wholesale trade (Stats SA P6141.2) in constant prices on a log scale from 2000 to 2025, illustrating steady growth punctuated by sharp COVID-19 contraction in 2020 and subsequent recovery

Figure 6.2: Retail and Wholesale Trade (constant prices, log scale). Source: Statistics South Africa P6242.1, P6141.2.

\*Note: Retail and wholesale trade have grown steadily in real terms since the early 2000s, though both experienced sharp contractions during COVID-19. The contrast with manufacturing production (Figure 6.1) underscores the economy's structural shift toward distribution and services.\* > **400,000+** — Jobs lost in manufacturing since the mid-1990s, with clothing and textiles alone shedding over 130,000 workers as the sector collapsed under import competition.
Line chart showing South Africa's persistent manufacturing trade deficit with imports exceeding exports by R240 billion in 2024, widening substantially during the 2010s before moderating somewhat

Figure 6.3: Manufacturing Trade Balance. Source: SARS, SARB.

\*Note: South Africa runs a persistent manufacturing trade deficit, with imports exceeding exports by R240bn in 2024. The deficit widened substantially during the 2010s before moderating somewhat.\* ### Informal Manufacturing: The Missing Dimension Formal manufacturing statistics capture only part of the picture. An estimated 600,000 workers engage in informal manufacturing activities — metalworking, furniture-making, food processing, garment production, and construction materials — that are largely invisible in national accounts and industrial policy frameworks (Statistics South Africa QLFS 2024). This represents the gap between formal manufacturing employment of approximately 1.1 million and total manufacturing employment of approximately 1.7 million noted in the introduction above. Informal manufacturing in South Africa is unusually small compared to peer countries. In India, informal enterprises account for over 80% of manufacturing employment; in Kenya, the figure exceeds 70% (ILO 2018). South Africa's 35% informal share reflects barriers that suppress informal enterprise more than in comparable economies: municipal zoning regulations that restrict home-based production, by-laws that prohibit industrial activity in residential areas, formal retail dominance that limits market access for artisanal producers, and the high cost of inputs — particularly electricity — that erode margins for small-scale operators (Fourie 2022; SBP 2014). Township manufacturing illustrates both the potential and the constraints. Metal fabricators in Khayelitsha, furniture makers in Soweto, and food processors in Tembisa produce goods for local markets at prices below formal sector equivalents. Yet they operate without access to industrial infrastructure, business services, or supply chain integration. The spatial legacy of apartheid — which located residential townships far from industrial zones — means informal manufacturers face high transport costs for both inputs and outputs (Fourie 2022). Industrial policy that ignores this segment misses both a significant source of employment and a potential pathway from informality to formalised small-scale manufacturing. Recent policy interest in supporting informal manufacturing has grown, though implementation remains limited. The Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA) provide some support, but their reach into manufacturing is modest compared to their focus on retail and services (dtic 2021). Township industrialisation programmes — including shared workshop spaces and incubators — have been piloted in several provinces with mixed results (dtic 2021). The challenge is moving beyond once-off interventions to create an enabling environment where informal manufacturers can grow, formalise, and integrate into broader value chains without being crushed by regulatory burden or competitive pressure from imports. {% hint style="info" %} **Worked Example: Revealed Comparative Advantage (RCA)** Revealed Comparative Advantage, developed by Balassa (1965), measures whether a country exports more of a product than the world average. The formula is: **RCA = (Country's exports of product / Country's total exports) ÷ (World exports of product / World total exports)** An RCA > 1 means the country has a comparative advantage; RCA < 1 means it does not. **Example: South Africa's RCA in vehicles (HS 87), approximate 2023 data:** * SA vehicle exports: approximately R200 billion (approximately $11 billion) * SA total exports: approximately R2.0 trillion (approximately $110 billion) * SA vehicle share: $11bn / $110bn = 10.0% * World vehicle exports: approximately $1.6 trillion * World total exports: approximately $24 trillion * World vehicle share: $1,600bn / $24,000bn = 6.7% **RCA = 10.0% / 6.7% = 1.49** South Africa has a revealed comparative advantage in vehicles (RCA > 1), reflecting the success of the MIDP/APDP industrial policy framework in integrating the country into global automotive value chains. **Contrast with textiles (HS 50-63):** * SA textile/clothing exports: approximately R10 billion (approximately $0.6 billion) * SA share: $0.6bn / $110bn = 0.5% * World textile share: approximately $800bn / $24,000bn = 3.3% **RCA = 0.5% / 3.3% = 0.15** South Africa has lost its comparative advantage in textiles (RCA << 1), consistent with the devastating employment losses documented above. The contrast between vehicles (RCA = 1.49, supported by policy) and textiles (RCA = 0.15, unprotected from competition) illustrates both the potential and the limitations of industrial policy. **Try it yourself**: Calculate South Africa's RCA for mining products (HS 26-27) using data from UN Comtrade or the Atlas of Economic Complexity (atlas.cid.harvard.edu). Is the result surprising? {% endhint %} ### Causes of Deindustrialisation: A Contested Debate The causes of South African deindustrialisation remain contested among economists and policymakers (Black 2016): **Trade liberalisation:** Critics argue that tariff cuts proceeded too rapidly, exposing domestic industry to competition it could not withstand (Edwards 2021). The timing of liberalisation coincided with China's emergence as the "world's factory," intensifying competitive pressures. Labour-intensive sectors that might have absorbed South Africa's abundant unskilled labour were precisely those most vulnerable to Chinese competition (Gillson and Charalambides 2012). **Exchange rate appreciation:** The commodity boom of the 2000s strengthened the rand, making exports less competitive and imports cheaper—a "Dutch Disease" effect that disadvantaged manufacturing (Gillian Hart 2013). Currency volatility has also discouraged manufacturing investment that requires predictable export revenues to justify long-term commitments (South African Reserve Bank \[SARB] 2024). **Domestic cost pressures:** Electricity prices increased sixfold in nominal terms from 2007 (approximately threefold in real terms), and load-shedding disrupted production (Sobel et al. 2021). Logistics costs rose as Transnet's rail and port services deteriorated (Transnet 2024). Real wages increased faster than productivity in many sectors, driven by union power and the extension of sectoral bargaining agreements (Magruder 2013). **Skills constraints:** Manufacturing productivity depends on workforce skills, but South Africa's education system—discussed in Chapter 9—produces graduates poorly prepared for manufacturing employment (Spaull 2013). The vocational training system has been inadequate, and immigration policy has made skilled worker importation difficult (CDE 2014). **Policy uncertainty:** Frequent policy changes — from B-BBEE requirements to localisation mandates to beneficiation rules — have created uncertainty that discourages long-term manufacturing investment (Hausmann and Klinger 2006). The contrast with East Asian economies, where industrial policy has been stable and predictable, is stark (Wade 1990). B-BBEE ownership requirements pose a particular challenge for manufacturing FDI. Unlike mining, where the resource is geographically fixed and multinationals will accept equity dilution to access deposits, manufacturing investment is footloose: global OEMs seeking sites for high-tech, scale-intensive production — automotive components, electronics assembly, pharmaceutical manufacturing — are reluctant to cede equity stakes to local partners when alternative locations impose no such requirements. This tension between transformation goals and the ownership models of multinational manufacturers has been a persistent drag on FDI in precisely the high-value manufacturing segments where South Africa most needs investment. Most likely, all these factors contributed simultaneously. Manufacturing faced global competition, domestic cost escalation, infrastructure failure, and policy incoherence at the same time (World Bank 2018). That a significant manufacturing base persists at all under these converging pressures reflects the sector's residual strengths in automotive, resource processing, and agro-industry (the agricultural linkages of which are discussed in Chapter 4). *** ## IV. Industrial Policy Evolution ### From NIPF to IPAP The post-1994 period saw continuous evolution in industrial policy frameworks, reflecting changing diagnoses of manufacturing's problems and political economy shifts (Hirsch 2005). The early emphasis on horizontal policies—improving the general business environment rather than targeting specific sectors—gave way to more interventionist approaches as deindustrialisation accelerated (Black 2016). The National Industrial Policy Framework (NIPF), adopted in 2007, marked a return to more active industrial policy (dtic 2007). The NIPF acknowledged that market outcomes alone would not deliver desired industrial development and committed government to targeted sectoral interventions. Implementation was detailed in successive Industrial Policy Action Plans (IPAP), published annually from 2007 through 2018 (IPAP 2007-2018). IPAP identified priority sectors for government attention, including automotive, clothing and textiles, metal fabrication, agro-processing, and business process services (dtic 2007). Policy instruments included investment incentives, preferential procurement requirements, tariff adjustments within WTO-bound limits, and designation of products for local content requirements in government purchasing (IPAP 2007-2018). Assessment of IPAP effectiveness is mixed (TIPS 2024). The automotive sector—benefiting from the APDP (Automotive Production and Development Programme)—maintained and expanded production, though employment gains were limited by capital intensity (Black 2016). The clothing sector stabilised after devastating earlier losses but did not recover significantly (R-CTFL Master Plan 2019). Business process services grew, creating jobs in call centres and back-office operations. Metal fabrication remained weak despite extensive policy attention (IPAP 2018). Critics identified several IPAP weaknesses (Page and Tarp 2017): insufficient coordination between departments responsible for different policy levers; inadequate monitoring and evaluation of outcomes; rent-seeking by firms that captured incentives without delivering promised performance; and fundamental contradiction between industrial policy ambitions and binding constraints (energy, logistics, skills) that IPAP could not address (Hausmann and Klinger 2006). ### The Industrial Development Corporation The Industrial Development Corporation (IDC), established in 1940, is the primary state-owned development finance institution tasked with funding industrial development. Its balance sheet — approximately R130 billion in assets — makes it the largest single source of concessional industrial finance in South Africa, with investments spanning manufacturing, mining, agriculture, and services (IDC 2024). The IDC's portfolio reflects the MEC inheritance: historically concentrated in capital-intensive processing industries (chemicals, metals, forestry products) that generate limited employment per rand invested. In recent years the IDC has shifted toward green industrialisation, investing in renewable energy projects, green hydrogen feasibility studies, and climate-aligned manufacturing, though critics argue this pivot has been slow relative to the pace of the energy transition (Zalk 2025). A persistent tension exists between the IDC's developmental mandate and its financial sustainability requirements: aligning its lending with IPAP and Master Plan goals has sometimes meant supporting firms in sectors where commercial viability is uncertain, while its more profitable legacy investments reinforce the very capital-intensive structure that industrial policy aims to diversify. ### The Master Plan Approach From 2018, the Department of Trade, Industry and Competition (dtic) shifted toward "Master Plans"—comprehensive sector strategies developed collaboratively with business and labour (dtic 2023). Major Master Plans have been developed for automotive, clothing and textiles, steel and metal fabrication, sugar, poultry, and other sectors. Makgetla (2024), in a TIPS evaluation of the ten sector Master Plans published as of December 2023, uses theory-of-change methodology to assess whether this social compact approach—between government, business, and labour—has delivered on its objectives. Zalk (2025) argues that the next phase must shift from fossil-fuel intensive stagnation to a higher value-added, labour-absorbing, less carbon-intensive economy through green industrialisation. The Master Plan approach differs from earlier industrial policy in several respects: **Social compact model:** Master Plans are negotiated among government, business, and labour through NEDLAC structures, creating shared ownership of targets and commitments (dtic 2023). Each party makes specific undertakings: government on policy stability and incentive provision; business on investment and employment; labour on productivity improvements and wage moderation. **Localisation emphasis:** Master Plans typically include ambitious local content requirements, mandating that government procurement and sometimes private purchases favour domestic producers (IPAP 2018). Designated products include railway rolling stock, pharmaceuticals, and various manufactured goods. **Export orientation:** Unlike purely protective approaches, Master Plans generally include export targets, recognising that domestic markets alone cannot support efficient-scale manufacturing (Edwards 2021). The Automotive Master Plan illustrates the approach (dtic Automotive Master Plan 2021-2035). Building on the APDP's relative success, the plan targets maintaining current production volumes (approximately 600,000 vehicles annually) while increasing local content from around 40% to 60% (NAAMSA 2024). Commitments include investment in electric vehicle manufacturing capability, supplier development, and skills training. Government provides incentive continuity and regulatory support; manufacturers commit to investment and employment maintenance; unions commit to productivity gains and industrial peace.
Dual-axis chart showing automotive sector producing 633,000 units in 2023 with 399,000 exported representing 63% export share, demonstrating sector's success while facing transition challenges as global automotive shifts toward electric vehicles

Figure 6.4: Automotive Production and Exports. Source: NAAMSA, dtic.

\*Note: The automotive sector represents South Africa's most successful manufacturing subsector, with 633,000 units produced in 2023 and 399,000 exported (63% export share). However, the sector faces transition challenges as global automotive shifts toward electric vehicles.\* ### Critical Assessment of Master Plans Master Plans represent a more sophisticated approach to industrial policy than earlier iterations, but significant concerns remain (TIPS 2024): **Implementation capacity:** Government's ability to deliver on Master Plan commitments—maintaining policy stability, providing effective incentives, addressing infrastructure constraints—is questionable given broader state capability weaknesses (PARI 2023). **Rent-seeking risks:** Localisation requirements can become vehicles for rent-extraction by protected firms rather than genuine industrial development (Page and Tarp 2017). Without effective competition and performance monitoring, domestic-content mandates may simply raise costs for downstream users. **Sunset provisions:** Master Plans often lack clear timelines for phasing out support as industries become competitive (Stiglitz and Lin 2013). The experience of ISI worldwide suggests that protection without sunset provisions generates persistent inefficiency. **Binding constraints:** Master Plans cannot address fundamental competitiveness constraints—energy, logistics, skills—that lie outside dtic's authority (Hausmann and Klinger 2006). Without progress on these binding constraints, sector-specific interventions may amount to pushing against closed doors. ### The Clothing and Textile Sector The clothing and textile sector is especially instructive because it captures the core dilemmas of labour-intensive industrial policy in a trade-exposed economy (Edwards 2021). For much of the twentieth century it was a major employer, especially in Western Cape, KwaZulu-Natal, and Eastern Cape (Gillson and Charalambides 2012). At its mid-1990s peak it employed roughly 230,000 workers—many women with limited formal schooling—and provided one of few routes into formal, protected employment (Statistics South Africa 1996). The sector's decline was sharp. Liberalisation reduced tariff protection, and China's 2001 WTO entry intensified import competition (Edwards 2021). Between 2002 and 2010, clothing imports from China rose more than fivefold while domestic output contracted (SARS 2010). By 2020, employment had dropped to about 80,000—a loss of roughly 150,000 jobs, often in communities where clothing factories were key formal employers (Statistics South Africa 2020; TIPS 2020). Morris, Staritz, and Barnes (2011) analyse how global value chain governance structures shaped—and constrained—South African clothing firms' upgrading options: buyer-driven chains imposed cost pressures that domestic producers, burdened by higher wages and regulatory costs than Asian competitors, could not absorb. Their framework helps explain why the sector shed jobs despite repeated policy interventions: the problem was not merely import competition but the governance architecture of global apparel chains, which concentrated power with lead firms and retailers while squeezing margins for manufacturers in countries that could not match the rock-bottom production costs of Bangladesh or Vietnam. Policy responses evolved over time. Initial interventions focused on tariff adjustments within WTO-bound limits and the imposition of quotas on Chinese imports under WTO safeguard provisions (dtic 2007). These measures provided temporary relief but could not address the underlying cost differential. The government also introduced the Clothing and Textiles Competitiveness Programme (CTCP), which provided subsidies for capital upgrading and skills development, but uptake was uneven and many smaller firms lacked the capacity to navigate application processes (TIPS 2020). The most comprehensive response has been the Retail-Clothing, Textile, Footwear and Leather (R-CTFL) Master Plan, signed in 2019 (dtic 2019). The R-CTFL Master Plan attempts to create a social compact linking major retailers—who dominate purchasing decisions—with domestic manufacturers and organised labour. Retailers committed to increasing local procurement from approximately 44% to 65% of unit volumes over ten years, while manufacturers committed to investment in modernisation and workers accepted productivity-linked wage negotiations (R-CTFL Master Plan 2019). Government undertook to address customs fraud—the undervaluation and mislabeling of imports that had allowed some traders to circumvent tariff protection—and to enforce compliance with labour and environmental standards that legitimate domestic producers observe (dtic 2019). #### Case Study: Newcastle — The Rise and Fall of a Clothing Town Newcastle, in northern KwaZulu-Natal, exemplifies the human cost of deindustrialisation. During the apartheid era, the town was designated as a "growth point" near the KwaZulu homeland border, attracting clothing manufacturers with subsidies, cheap labour from nearby rural areas, and exemptions from certain labour regulations. By the early 1990s, Newcastle hosted dozens of clothing factories employing over 20,000 workers — predominantly women from surrounding communities — making it one of the largest clothing manufacturing clusters outside the Western Cape (Gillson and Charalambides 2012). Liberalisation devastated the cluster. As tariffs fell and Chinese imports surged after 2001, factory after factory closed. By 2010, clothing employment in Newcastle had fallen below 5,000 (Statistics South Africa 2010). Some factories were converted to warehousing; others stand empty. Workers who had spent decades at sewing machines had few transferable skills and faced an economy with almost no alternative formal employment. The unemployment rate in the Amajuba District Municipality, which includes Newcastle, exceeded 40% — well above the national average. The aftermath reveals structural patterns that recur across South Africa's deindustrialising regions. Workers displaced from clothing did not transition to other formal employment; most moved into unemployment or precarious informal work. The municipal economy contracted, reducing rates revenue and service delivery capacity. Young people who might have entered clothing factories a generation earlier now join the NEET population documented in Chapter 8. Newcastle's experience is not unique — similar trajectories played out in Phuthaditjhaba, Isithebe, and other former decentralisation points — but its scale and concentration make the consequences unusually visible. Early results have been cautiously encouraging. "Buy SA" campaigns backed by major retailers have raised the profile of locally manufactured garments, and some firms have invested in upgrading their capabilities (dtic 2024). However, the sector faces structural challenges that no single policy instrument can resolve. South African wage levels, even at the sectoral minimum, remain substantially above those in Bangladesh, Vietnam, and Ethiopia—countries that have become major garment exporters precisely because of their labour cost advantage (ILO 2022). Energy costs, logistics inefficiencies, and the relatively small domestic market further erode competitiveness (World Bank 2018). The clothing sector's experience offers broader lessons for industrial policy in labour-intensive manufacturing. First, the pace of trade liberalisation matters: gradual adjustment with transitional support produces better outcomes than abrupt exposure to global competition (Edwards 2021). Second, demand-side interventions—engaging retailers as partners in local procurement—can be more effective than supply-side subsidies alone (R-CTFL Master Plan 2019). Third, and most uncomfortably, there are limits to what industrial policy can achieve when fundamental cost structures are uncompetitive; sustaining employment in the sector may require ongoing support rather than temporary adjustment assistance, raising difficult questions about fiscal sustainability and resource allocation (Page and Tarp 2017). *** ## V. Trade Policy and Regional Integration ### Multilateral Framework South Africa's trade policy operates within WTO disciplines that constrain unilateral protectionism (WTO 2022). Tariff bindings limit increases, and various WTO agreements—on subsidies, intellectual property, services—shape policy space. South Africa has generally complied with these obligations while pursuing active participation in WTO negotiations as part of developing-country coalitions (Edwards 2021). The Doha Development Round's failure left the multilateral trading system in stasis, with trade governance increasingly shifting to bilateral and regional agreements (WTO 2022). South Africa has pursued a combination of preferential arrangements that provide market access while preserving policy space for industrial development (Gillson and Charalambides 2012). ### Preferential Trade Agreements **EU Trade, Development and Cooperation Agreement (TDCA) / Economic Partnership Agreement (EPA):** South Africa's trade with Europe is governed by agreements providing substantial market access, particularly for agricultural and manufactured goods (dtic 2016). The EPA, negotiated as part of the SADC group, includes provisions on services, investment, and trade facilitation alongside goods market access (Gillson and Charalambides 2012). **African Growth and Opportunity Act (AGOA):** This US preferential programme provides duty-free access to the American market for qualifying African countries (USTR 2024). South Africa has been a major AGOA beneficiary, with automotive exports and agricultural products gaining significant access. However, AGOA is unilaterally granted by the US and subject to periodic renewal, creating uncertainty. Recent tensions over agricultural trade restrictions and other issues have raised concerns about continued eligibility (Edwards 2021). Edwards and Chien (2025), in an ERSA policy paper titled "Trade Turbulence," quantify the impact of 2025 US tariff increases on South African exports: vehicles, steel, and aluminium face tariff hikes of 25–50 percent under Section 232, while a reciprocal tariff of 30 percent for South Africa threatens to undermine AGOA benefits and the competitiveness of key export sectors. **SADC Free Trade Area:** Regional integration in Southern Africa has progressed through the SADC FTA, eliminating tariffs on most intra-regional trade (SADC 2024). South Africa dominates regional trade, running substantial surpluses with neighbouring countries. This dominance has generated resentment and constrained deeper integration (AfDB 2024).
Line chart showing average tariff rates declining from 7.8% in 2010 to 6.8% in 2024, with AfCFTA implementation from 2021 creating opportunities for regional value chain development while non-tariff barriers remain significant

Figure 6.5: Trade Tariff Trends. Source: World Bank, WTO.

\*Note: Average tariff rates have declined from 7.8% (2010) to 6.8% (2024). AfCFTA implementation from 2021 creates opportunities for regional value chain development, though non-tariff barriers remain significant.\* ### The African Continental Free Trade Area (AfCFTA) The AfCFTA, in force since 2021, is the most significant recent trade-policy development for South African manufacturing (African Union 2021). A continental market of 1.4 billion creates potential for regional value chains and expanded market access (UNCTAD 2024). For South African manufacturing, AfCFTA presents several opportunities: **Regional market access:** African markets, though smaller individually than major developed economies, represent growing demand for manufactured goods (AfDB 2024). South African manufacturers have advantages in proximity, existing relationships, and comparative sophistication relative to most African competitors. **Regional value chains:** The AfCFTA's rules of origin are designed to encourage regional value chains, allowing cumulation of African content toward origin requirements (UNCTAD 2024). South African firms could anchor regional production networks in sectors like automotive, pharmaceuticals, and processed foods. However, the rules of origin also carry a significant risk of "transshipment" — goods from China, India, or other non-African producers minimally processed in a neighbouring country could enter South Africa duty-free, undermining domestic industry rather than building regional value chains. Verifying value-added requirements across porous borders with limited customs enforcement capacity imposes a substantial administrative burden that may exceed the institutional capabilities of many African customs authorities. **Infrastructure services:** South African transport, logistics, and financial services firms are well-positioned to support expanded intra-African trade, generating export revenues beyond goods trade (SARB Quarterly Bulletin 2024). However, significant challenges remain: **Non-tariff barriers:** African countries maintain numerous non-tariff barriers—customs procedures, standards requirements, licensing—that impede trade more than tariffs (World Bank 2018). Addressing these requires institutional cooperation that remains weak. **Logistics infrastructure:** Intra-African trade is constrained by poor transport infrastructure (AfDB 2024). Moving goods across African borders is slow, expensive, and unreliable—problems that South Africa's own logistics challenges compound rather than relieve (Transnet 2024). **Implementation uncertainty:** Many AfCFTA provisions remain to be negotiated, and implementation has been uneven (UNCTAD 2024). Whether the agreement will deliver its theoretical benefits depends on sustained political commitment and institutional capacity that cannot be assumed. Edwards, Fadiran, Kamutando, and Stern (2024), in the *Journal of African Trade*, estimate that customs revenue losses from AfCFTA tariff phase-downs are minor for most countries—less than 0.2 percent of total government revenue—suggesting that fiscal concerns need not block implementation. Beyond these general challenges, the AfCFTA's impact will vary substantially across manufacturing subsectors, and the specific rules governing each will shape South Africa's competitive positioning on the continent (Edwards 2021). **Automotive:** This sector captures both AfCFTA promise and complexity. Vehicle rules of origin are pivotal: stricter African-content requirements could favour South African assemblers with deeper supplier networks (dtic Automotive Master Plan 2021-2035). Yet competitors are also building capability—Nigeria through protection-led assembly policy, and Kenya/Ethiopia through new OEM investment (AfDB 2024). South Africa's advantage is meaningful but not guaranteed. **Processed food and agro-industry:** South Africa's food processing sector—linked to the agricultural value chains discussed in Chapter 4—is well-positioned to serve growing African demand for processed and packaged foods (TIPS 2024). Rising urbanisation across the continent is shifting consumption patterns toward convenience foods, beverages, and packaged goods where South African firms like Tiger Brands, Pioneer Foods, and others have established capabilities (TIPS 2024). The AfCFTA could substantially expand market access, though sanitary and phytosanitary standards remain a significant non-tariff barrier, with each country maintaining distinct regulatory requirements that raise compliance costs for exporters (World Bank 2018). **Chemicals and pharmaceuticals:** The COVID-19 pandemic exposed Africa's dangerous dependence on imported pharmaceuticals and medical supplies, generating political momentum for continental manufacturing capacity (African Union 2022). South Africa possesses the continent's most developed pharmaceutical industry, with capabilities in both generic manufacturing and some active pharmaceutical ingredient (API) production (dtic 2023). The AfCFTA's provisions on pharmaceutical trade, combined with initiatives like the African Medicines Agency, could position South African firms as anchors of continental pharmaceutical supply chains—provided regulatory harmonisation proceeds (UNCTAD 2024). South Africa's position must be assessed against active continental competitors. Nigeria has scale advantages, Kenya is a strong East African hub, and Ethiopia showed rapid industrial-park growth before recent disruptions (AfDB African Economic Outlook; World Bank 2018; Page and Tarp 2017). South Africa retains clear strengths in industrial depth and finance, but these cannot be assumed to persist without sustained competitiveness gains. Infrastructure remains decisive for intra-African manufacturing trade (AfDB 2024). Transport costs are exceptionally high, border delays often measured in days, and customs/digital systems remain weak (World Bank 2023; UNCTAD 2024). AfCFTA facilitation provisions can help, but implementation requires sustained investment. South Africa's own logistics deterioration directly undermines its continental hub ambitions (Transnet 2024). The strategic opportunity is nonetheless substantial. If South Africa can position itself as a manufacturing platform for the African market—combining its industrial capabilities, financial depth, and institutional strengths with improved infrastructure and competitive cost structures—the AfCFTA could provide the demand base that domestic markets alone cannot offer (NPC 2012). The risk is that inaction, infrastructure decay, and policy uncertainty allow competitors to capture these opportunities instead, consigning South African manufacturing to continued decline even as the continental market grows. ### Special Economic Zones: Performance and Potential South Africa's spatial industrial policy has repeatedly overpromised and underdelivered (dtic 2024). Early IDZs were designed to attract export manufacturing through dedicated infrastructure and streamlined procedures (IDZ Act 2000), but investment and employment outcomes were generally below target and several zones struggled with occupancy (TIPS 2022). The Special Economic Zones Act of 2014 represented an attempt to learn from IDZ shortcomings and adopt a more comprehensive approach (SEZ Act 2014). The legislation broadened the concept beyond export-processing to include sector-focused zones, technology parks, and free ports. Existing IDZs were redesignated as SEZs, and new zones were gazetted, including Dube TradePort in KwaZulu-Natal (linked to King Shaka International Airport), the Musina-Makhado SEZ in Limpopo (targeting energy and metallurgical industries near the Zimbabwe border), Maluti-A-Phofung in the Free State, and Atlantis in the Western Cape (focused on green technology) (dtic 2014). Results have been mixed. Coega, the largest and longest-established zone, has attracted significant investment—including a major Peugeot-Citroen vehicle preparation centre and various manufacturing operations—and can claim relative success, though employment figures remain well below initial projections (Coega Development Corporation 2024). Dube TradePort has shown promise, leveraging its airport location to attract logistics, agro-processing, and electronics firms (Dube TradePort Corporation 2024). Richards Bay has benefited from proximity to mineral resources and the port. Other zones have struggled: Musina-Makhado has faced delays in securing anchor tenants and developing basic infrastructure; Maluti-A-Phofung has failed to reverse the economic decline of its surrounding region; and several newer zones remain largely on paper (TIPS 2022; dtic 2024). Asian SEZ comparisons are instructive. Successful zones in Vietnam, China, and Bangladesh combined reliable infrastructure with meaningful regulatory differentiation (World Bank 2018; BEPZA 2024). South African SEZs have offered less differentiation while core constraints—power, logistics, and skills—persist (Gillson and Charalambides 2012). A tax-rate discount alone has not been enough to attract transformative investment (Hausmann and Klinger 2006). Key constraints on SEZ performance include infrastructure deficits (several zones lack reliable bulk services), governance weaknesses (zone management entities have experienced capacity and accountability problems), insufficient integration with surrounding communities (limiting multiplier effects), and the absence of anchor tenants whose presence would attract supplier networks (TIPS 2022). Addressing these constraints requires not additional zones—South Africa arguably has too many already, spreading limited resources too thinly—but concentrated investment in making existing zones genuinely competitive with international alternatives (Page and Tarp 2017). As the comparative policy boxes below illustrate, governance quality and infrastructure reliability matter far more than the number of zones or the generosity of tax incentives. *** #### Comparative Policy Box: Vietnam's Export Discipline Vietnam's manufacturing success provides instructive contrast with South Africa (World Bank 2018). From similar per-capita income levels in the early 1990s, Vietnam has grown dramatically while diversifying from commodities into labour-intensive and increasingly sophisticated manufacturing (Malesky 2008). Several policy elements explain this divergent trajectory: **Export-oriented SEZs:** Vietnam established Special Economic Zones with world-class infrastructure—reliable power, efficient ports, streamlined customs—linked to export performance requirements (Amsden 2001). Firms receiving incentives faced clear export targets, with support withdrawn from underperformers. **FDI attraction:** Vietnam aggressively courted foreign direct investment, offering competitive incentives, low wages, and policy stability (UNCTAD 2024). Samsung's establishment of major manufacturing operations—now producing a significant share of global smartphones—exemplifies successful FDI attraction. **Skills investment:** Vietnam invested heavily in basic and technical education, creating a workforce capable of staffing export-oriented manufacturing operations (World Bank 2018). **Infrastructure priority:** The Vietnamese state prioritised infrastructure development, recognising that manufacturing competitiveness depends on reliable power and efficient logistics (Page and Tarp 2017). **Lessons for South Africa:** Vietnam's experience suggests that manufacturing success requires simultaneous attention to infrastructure, skills, incentive design, and implementation discipline. Piecemeal interventions—incentives without infrastructure, targets without monitoring—are unlikely to succeed. South Africa's binding constraints must be addressed alongside industrial policy redesign (Hausmann and Klinger 2006). *** #### Comparative Policy Box: Bangladesh's Garment Sector Success Bangladesh's transformation into the world's second-largest garment exporter offers sobering lessons for South Africa's manufacturing decline (World Bank 2020). Starting from a similar industrial base in the 1980s, Bangladesh now exports over $45 billion in garments annually, employing 4 million workers—predominantly women—in an industry that barely existed four decades ago. Key success factors included: **Labour cost advantage, protected:** Bangladesh maintained labour costs at a fraction of competitors while gradually improving productivity (ILO 2022). Minimum wages, though controversial, remained competitive with Vietnam and Cambodia. South Africa's wage determination system—including sectoral bargaining extensions—priced workers out of labour-intensive manufacturing. **Export processing zones with real infrastructure:** Bangladesh's EPZs provided reliable electricity and efficient customs clearance, insulating exporters from broader infrastructure weaknesses (BEPZA 2024). South Africa's SEZs have struggled to deliver comparable advantages. **Trade preferences, strategically used:** Bangladesh leveraged GSP and other preferential access to build scale before facing full competition (UNCTAD 2024). The EU's Everything But Arms initiative provided crucial market access. **Back-end integration:** Bangladesh developed backward linkages—spinning, weaving, dyeing—that increased domestic value addition and reduced import dependence (McKinsey 2017). The industry became self-sustaining rather than remaining dependent on imported inputs. **Lessons for South Africa:** Bangladesh's success in precisely the labour-intensive sectors where South Africa failed raises uncomfortable questions about wage policy, union power, and the tradeoffs between worker protection and job creation. The 200,000 clothing jobs South Africa lost might have been 500,000 gained under different policy choices (Edwards 2021). For future labour-intensive industrialisation, wage flexibility and productivity bargains will be essential—though politically difficult. *** #### Comparative Policy Box: Rwanda's SEZ Governance Rwanda's Kigali Special Economic Zone demonstrates how governance improvements can attract manufacturing investment even in countries with significant disadvantages (Chemouni 2018). Despite landlocked geography and small domestic market, Rwanda has attracted manufacturing investment through: **One-stop shop:** Investors can complete all regulatory requirements—registration, permits, licenses—through a single interface, dramatically reducing transaction costs and corruption opportunities (World Bank 2020). **Fast-track processing:** Guaranteed processing timelines for regulatory approvals create certainty that investors value. **Public-private management:** Zone management involves private sector participation, bringing commercial discipline to operations (AfDB 2024). **Reliable infrastructure:** Zone infrastructure—power, water, connectivity—meets international standards, insulating investors from broader infrastructure challenges. **Lessons for South Africa:** Governance improvements can offset some competitive disadvantages (Mo Ibrahim Foundation 2024). South Africa's SEZ programme has underperformed partly due to governance weaknesses that Rwanda has addressed. Applying similar discipline to port and rail corridors could improve manufacturing competitiveness more than additional incentive spending (PARI 2023). *** ## VI. Challenges and Opportunities ### Binding Constraints Manufacturing competitiveness depends on factors largely outside industrial policy control (Hausmann and Klinger 2006). The binding constraints discussed throughout this book—energy, logistics, skills, state capability—apply with particular force to manufacturing: **Energy:** Manufacturing is energy-intensive, and both electricity prices and reliability directly affect competitiveness (Sobel et al. 2021). Load shedding forced firms to invest in backup generation, adding costs that competitors in other countries did not bear. Although load shedding ended by mid-2025, the electricity price trajectory—with further real increases expected as Eskom's debt is addressed—continues to threaten manufacturing viability (Eskom 2024). **Logistics:** Manufacturing depends on moving inputs and outputs efficiently (World Bank 2023). Transnet's deterioration—documented in Chapter 3—adds costs and delays that erode competitiveness. Container handling at Durban, Africa's largest port, is slow and expensive by international standards (Transnet 2024). Rail service unreliability forces many firms onto more expensive road transport. **Skills:** Manufacturing productivity requires skilled workers at all levels—from machine operators to engineers to managers (Spaull 2013). South Africa's education system produces graduates poorly prepared for manufacturing employment, and the TVET (Technical and Vocational Education and Training) system has been particularly weak (DHET 2023). Immigration policy has made skilled worker recruitment difficult (CDE 2014). **Policy uncertainty:** Manufacturing investment is long-term, and investors require confidence that policy settings will remain stable (World Bank 2018). South Africa's record—with frequent changes to B-BBEE requirements, localisation rules, and industrial policy frameworks—has undermined confidence. The contrast with East Asian economies, where industrial policy has been stable over decades, is stark (Wade 1990). ### Global Megatrends Manufacturing is being reshaped by global forces that create both threats and opportunities (UNCTAD 2024): **Fourth Industrial Revolution (4IR):** Automation, robotics, and artificial intelligence are transforming manufacturing globally (Schwab 2017). For South Africa, this creates both threats—further displacement of low-skilled workers—and opportunities—potential to leapfrog into advanced manufacturing if appropriate investments are made (NPC 2012). **Climate transition:** The global shift toward decarbonisation is reshaping manufacturing (IEA 2023). "Green manufacturing"—producing goods with lower carbon footprints—is becoming a competitive advantage as consumers, regulators, and investors prioritise sustainability. South Africa's coal-dependent energy system creates risks but also opportunities if the energy transition enables low-carbon manufacturing (PCC 2022). **Geopolitical reshoring:** The COVID-19 pandemic and subsequent geopolitical tensions have prompted reconsideration of extended global supply chains (UNCTAD 2024). "Reshoring" and "friend-shoring"—relocating production closer to major markets or to geopolitically aligned countries—could benefit South Africa if it can position itself as a reliable alternative to China for European and American buyers. ### Market Concentration and Competition Policy South Africa's manufacturing competitiveness is undermined not only by infrastructure and skills constraints but also by the pricing behaviour of dominant firms in key input markets (Competition Commission 2024). High levels of concentration in sectors supplying critical manufacturing inputs—steel, cement, chemicals, glass, and packaging—have enabled pricing practices that raise costs for downstream manufacturers and erode their competitiveness in both domestic and export markets (Roberts 2016). The Competition Commission has uncovered a series of major cartels in input industries. The cement cartel—involving PPC, Lafarge, AfriSam, and Natal Portland Cement—was found to have fixed prices and allocated markets for over a decade, resulting in cement prices significantly above competitive levels (Competition Tribunal 2014). The steel cartel investigation revealed coordinated pricing by ArcelorMittal South Africa that raised input costs for manufacturers across construction, automotive, and general engineering. Cartel findings in bread, poultry, and other food products demonstrated that anti-competitive behaviour extended well beyond industrial inputs into consumer markets (Competition Commission 2024). The economic effects of input market concentration on manufacturing are substantial. When domestic steel prices are maintained at import parity levels despite South Africa being a net steel exporter, downstream fabricators and manufacturers face input costs 15-30% above international levels (Roberts 2016). These elevated input prices function as an implicit tax on downstream manufacturing activity—one that compounds the more visible burdens of unreliable electricity and logistics. For labour-intensive downstream industries competing against imports from countries with both lower wages and lower input costs, the margin erosion can be fatal. Competition policy faces a structural tension with industrial policy. The desire to maintain "national champions" — large, domestically owned firms in strategic industries — can conflict with the objective of competitive input pricing for downstream industries (Roberts 2020). The Department of Trade, Industry and Competition has sometimes intervened to protect upstream producers through tariffs or regulatory measures, even when the effect is to raise costs for more numerous and more labour-intensive downstream firms. The result is policy incoherence at the heart of South Africa's industrial strategy: government simultaneously protects upstream capital-intensive firms — ArcelorMittal for steel, Sasol for chemicals — via tariffs or regulated pricing, while industrial policy targets the growth of labour-intensive downstream manufacturers whose input costs those same protections inflate. In effect, trade protection for upstream "national champions" functions as a tax on downstream employment, undermining the very labour absorption that Master Plans and IPAP were designed to achieve. The challenge is to develop an integrated policy framework that considers the full value chain effects of both competition and trade decisions — recognising that protecting one upstream firm may cost employment across dozens of downstream firms. The Competition Commission's growing focus on buyer power, market inquiries, and structural remedies represents a positive evolution (Competition Commission 2024). The 2019 data services market inquiry, which contributed to significant reductions in mobile data prices, demonstrated that competition enforcement can deliver tangible benefits to consumers and businesses alike. Extending this proactive approach to manufacturing input markets—and ensuring that competition considerations are systematically incorporated into industrial policy decisions—could meaningfully improve the environment for downstream manufacturing. *** ## VII. Conclusion: Revitalising Manufacturing Manufacturing decline is one of South Africa's major economic failures (Kaplan 2004). A sector that should have absorbed labour displaced from agriculture and mining instead contracted, with job and capability losses (Banerjee et al. 2008). Reversal is essential for inclusive growth but requires progress on constraints that have resisted repeated intervention (NPC 2012). Several conclusions emerge from this analysis: **Binding constraints first:** Industrial policy cannot succeed while energy, logistics, and skills constraints bind so tightly (Hausmann and Klinger 2006). Priority must go to resolving these fundamental competitiveness bottlenecks. The best industrial policy intervention would be reliable, affordable electricity; efficient port and rail services; and an education system that produces employable graduates (World Bank 2018). **Realistic ambitions:** Not all manufacturing activities are equally viable in South Africa's circumstances (Edwards 2021). Attempting to restore labour-intensive manufacturing that has migrated permanently to lower-cost locations is probably futile. Focus should be on sectors where South Africa has genuine competitive potential: resource-based manufacturing, automotive (building on existing capabilities), pharmaceutical manufacturing for African markets, and specialised equipment where proximity to mining markets provides advantage (Black 2016). **Implementation discipline:** Whatever industrial policy approach is adopted, implementation must improve dramatically (Page and Tarp 2017). This requires clearer performance metrics, sunset provisions for incentives, effective monitoring and evaluation, and willingness to terminate support for underperforming firms or sectors. **Regional integration:** The AfCFTA provides opportunities for regional value chain development that could support manufacturing revival (UNCTAD 2024). Capturing these opportunities requires investment in regional logistics infrastructure and reduction of non-tariff barriers. **Policy stability:** Long-term manufacturing investment requires confidence in policy stability (Wade 1990). Frequent policy changes—even when individual changes are well-intentioned—undermine the confidence needed for manufacturing commitment. ## Policy Debates and Reform Frontiers The preceding sections traced manufacturing's decline, catalogued the policy responses, and measured the gap between ambition and outcome. This section turns to the live debates about what comes next — and what can realistically be achieved given South Africa's institutional inheritance and fiscal constraints. ### The Current Debate Five overlapping controversies run through the contemporary discussion of manufacturing and trade policy. **Master Plans: social compact or soft corporatism?** The dtic's sector Master Plan approach — ten plans signed between 2019 and 2023 — represents the government's flagship industrial strategy. Makgetla's (2024) TIPS evaluation, using theory-of-change methodology, finds that the plans have been most effective where they solved coordination failures among willing parties (the automotive and poultry plans) but have struggled where the underlying problem is structural cost uncompetitiveness (steel, clothing). The Centre for Development and Enterprise (CDE 2022) has been more blunt, arguing that the Master Plan architecture amounts to "picking winners with extra steps" — negotiated outcomes among incumbents that entrench existing market structures rather than encouraging new entrants or disruptive competition. TIPS researchers counter that the social compact model at least generates shared information and aligns incentives, even when implementation lags (Gillson 2023). The honest assessment lies somewhere between: Master Plans have prevented further collapse in some sectors without engineering genuine revival in any. Whether that modest stabilisation justifies the institutional resources devoted to negotiation and monitoring is the uncomfortable question neither side has fully answered. **AfCFTA: offensive or defensive interests?** South Africa's positioning within the African Continental Free Trade Area divides analysts along predictable lines. SAIIA has consistently advocated an offensive posture, arguing that South Africa's relatively sophisticated manufacturing base gives it first-mover advantages in supplying continental demand for processed foods, pharmaceuticals, automotive components, and industrial chemicals (SAIIA 2022; Erasmus 2023). Tralac emphasises the defensive dimension: several African countries — Nigeria, Kenya, Ethiopia — are developing manufacturing capacity in precisely the sectors where South Africa hopes to export, and rules of origin negotiations will determine whether South African manufacturers can actually access these markets on favourable terms (Cilliers 2024; tralac 2023). Edwards, Fadiran, Kamutando, and Stern (2024) offer reassurance on one front: customs revenue losses from AfCFTA tariff phase-downs are fiscally negligible. The harder question is whether South Africa can translate theoretical market access into actual export growth while its logistics infrastructure continues to deteriorate. **SEZ underperformance: governance, not geography.** South Africa's Special Economic Zones have drawn sustained critical attention. The SA-TIED programme has produced some of the most rigorous assessments. SA-TIED (2022) find that South African SEZs have failed to generate meaningful employment or export growth relative to comparable zones in Vietnam, Bangladesh, and even Kenya, identifying governance fragmentation — zones dependent on municipal service delivery rather than enjoying autonomous infrastructure provision — as a primary cause. In Asian models, zone authorities operate as quasi-independent agencies with dedicated budgets and performance accountability (Farole 2011). South Africa does not lack SEZ legislation or even funding; the problem is that zone governance has been absorbed into the broader dysfunction of local government, so investors experience the same service delivery failures inside the zone as outside it. **Green industrialisation: opportunity or unfunded mandate?** Zalk (2025) makes the case that the energy transition is South Africa's best chance for a new industrialisation push — renewable energy equipment manufacturing, green hydrogen production, battery assembly, and electric vehicle components could anchor a labour-absorbing, lower-carbon industrial structure. The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) already includes local content requirements that have generated some domestic manufacturing capacity in solar panel components, wind tower fabrication, and balance-of-system equipment (IPP Office 2024). Whether localisation requirements can be calibrated tightly enough to build genuine capability without pricing South African renewable energy above grid parity is unclear. International experience — from India's solar equipment tariffs to the EU's local content debates — suggests the calibration is exceptionally difficult (Rodrik 2014). The Atlantis SEZ in the Western Cape, designated as a green technology hub, has attracted some investment but is nowhere near the scale needed to sustain a self-reinforcing green manufacturing cluster (dtic annual report 2024). Compounding the urgency, the carbon intensity of the Eskom grid — discussed in Chapter 3 — is becoming a trade barrier for South African manufactured exports to the EU under the Carbon Border Adjustment Mechanism (CBAM), which Chapter 5 examines in the mining context. For manufacturers of steel, aluminium, cement, and fertiliser, the embedded emissions from coal-fired electricity now carry an explicit cost in European markets, making the energy transition not merely an environmental imperative but a condition of continued export competitiveness. **The automotive EV transition: adapt or strand.** SAAM 2035 targets production of 1.4 million vehicles annually by 2035, up from approximately 633,000 in 2023 (NAAMSA 2024). But the plan was designed around internal combustion engine (ICE) vehicles. The global shift to electric vehicles — accelerated by EU regulations banning new ICE vehicle sales from 2035 and tightening emissions standards well before then — threatens to strand South Africa's automotive investments if the sector cannot retool for EV production (Black and Barnes 2024). South Africa's current EV manufacturing capability is negligible: no battery cell production, limited electric drivetrain capacity, and charging infrastructure that barely exists outside Gauteng and the Western Cape. BMW's announcement of EV production at Rosslyn is encouraging but represents a single model at limited volumes. NAAMSA's roadmap calls for hybrid and full-EV production capacity by 2030, but this requires investment in battery assembly, power electronics, and electric motor manufacturing that has not materialised at scale (dtic 2021; NAAMSA 2024). If South Africa's automotive sector cannot make this transition, the country risks losing its most successful manufacturing subsector to competitors — Morocco, Turkey, Eastern Europe — that are moving faster to align with European regulatory requirements. ### International Lessons The temptation to draw policy lessons from successful industrialisers is irresistible, and occasionally useful, provided one is honest about what does not transfer. Four cases illuminate different facets of South Africa's predicament. **South Korea's industrial transformation** remains the canonical example of state-led industrialisation in a middle-income economy (Amsden 1989; Wade 1990). The creation of POSCO as a world-class steel producer, the coordination of chaebol investment through state-directed credit, and the relentless enforcement of export discipline — subsidies flowed to firms that hit export targets and were withdrawn from those that did not — produced one of history's most compressed episodes of structural transformation. The relevance to South Africa is real but bounded. South Korea in the 1960s possessed what South Africa conspicuously lacks: an exceptionally capable economic bureaucracy insulated from political patronage, forged in post-Korean War reconstruction and operating under the existential pressure of Cold War competition with the North (Evans 1995). American strategic patronage — military spending, preferential market access, technology transfer — provided resources and policy space that no external actor offers South Africa today. And Korean industrial policy operated before WTO disciplines constrained subsidies and local content requirements. South Africa should not try to create its own POSCO — it has, with mixed results, through the IDC and various state-owned enterprises. The real lesson is that effective industrial policy requires a bureaucratic apparatus capable of disciplining capital, and South Africa's state capacity constraints (analysed in Chapter 2) are the binding constraint on any ambitious industrial strategy. **Vietnam's FDI-led manufacturing model** has drawn enormous attention (Malesky 2008; World Bank 2018). Vietnam combined low wages with aggressive trade agreements (CPTPP, EU-Vietnam FTA), purpose-built SEZs with reliable infrastructure, and a disciplined approach to FDI attraction that offered genuine regulatory differentiation to foreign manufacturers. Samsung's decision to locate major smartphone production in Vietnam — now accounting for roughly half the company's global output — exemplifies the model's success. For South Africa, the comparison is instructive but sobering. Vietnam's wages are a fraction of South Africa's, even at minimum wage levels; its trade agreements provide preferential access to markets (the EU, Japan, Canada) that South Africa does not enjoy on comparable terms; and its SEZs deliver infrastructure reliability that South Africa's cannot match (Page and Tarp 2017). South Africa could learn from Vietnam's approach to SEZ governance and its use of trade agreements as industrial policy tools, but it cannot replicate Vietnam's labour cost advantage or easily negotiate equivalent preferential access. **Bangladesh's garment sector takeoff** shows that labour-intensive export manufacturing can flourish even where institutions are weak, governance is poor, and infrastructure is unreliable — provided certain specific conditions are met (World Bank 2020). Bangladesh built a $45 billion garment export sector on the foundation of extremely low wages, preferential trade access (the EU's Everything But Arms initiative), and export processing zones that provided reliable electricity and customs clearance when nothing else in the country did (BEPZA; ILO 2022). The relevance to South Africa lies precisely in the discomfort it provokes: Bangladesh succeeded in the labour-intensive manufacturing where South Africa failed, and it did so partly because its wage levels — though exploitative by South African standards — made production competitive. South Africa's sectoral minimum wages, bargaining council extensions, and stronger labour protections priced workers out of garment manufacturing; whether this represents a defensible social choice or a catastrophic policy failure depends on one's priors about the tradeoff between job quality and job quantity. The outcome, at least, is not debatable: Bangladesh employs four million garment workers while South Africa's clothing sector has shrunk to fewer than 80,000. **Costa Rica's medical devices cluster** offers a more hopeful and perhaps more transferable model (Gereffi, Bamber, and Fernandez-Stark 2016). Costa Rica attracted Intel and subsequently a cluster of medical device manufacturers — Baxter, Abbott, Boston Scientific — through a combination of targeted FDI attraction, investment in technical education (particularly bilingual technicians), and a free trade zone regime that delivered genuine regulatory and infrastructure differentiation. The country moved from low-value assembly to higher-value manufacturing and design activities within a decade. Costa Rica's success rested not on low wages but on an educated workforce, political stability, and proximity to the US market. For South Africa, the lesson is that FDI attraction into higher-value niches is possible without competing on wages — but it requires targeted skills investment, infrastructure reliability in designated zones, and sustained policy consistency over the medium term. Whether South Africa can deliver these preconditions given its current institutional constraints is the question that matters. What all four cases share is that successful industrial transformation required alignment between policy ambition and state capacity. South Korea succeeded because its bureaucracy could discipline firms. Vietnam succeeded because its state could build and maintain infrastructure. Bangladesh succeeded because its EPZs insulated exporters from state dysfunction. Costa Rica succeeded because its education system produced the workers investors needed. In each case, the binding constraint was identified and addressed. South Africa's problem is that its binding constraints are multiple and mutually reinforcing — piecemeal reform is insufficient and comprehensive reform is politically daunting. ### Reform Tiers: Achievable and Transformative It is worth distinguishing — pedagogically and analytically — between reforms achievable within existing institutional constraints and those that would require transformative changes in state capacity, political economy, or both. This is not advocacy for either tier but an analytical device for assessing feasibility and prioritising effort. **Tier 1 — The Achievable Agenda** These reforms operate within current institutional capabilities and fiscal constraints. None requires new agencies, constitutional changes, or politically impossible bargains. Their limitation is that, individually, none is transformative. *Reform SEZ governance.* The highest-return intervention may be giving existing SEZs autonomous governance structures with dedicated infrastructure budgets, independent of municipal service delivery (SA-TIED 2022). This means zone-level water, electricity (with dedicated renewable generation), broadband, and security that does not depend on the surrounding municipality. The Dube TradePort model — with its own management entity and ring-fenced infrastructure — offers a domestic template. Legislation enabling this already exists; what is needed is political will to insulate zones from the patronage dynamics that have compromised other spatial interventions (Farole 2011). *Pursue AfCFTA early-harvest negotiations.* Rather than waiting for the full AfCFTA tariff schedule to be implemented — a process that will take years and may stall — South Africa should prioritise early-harvest agreements in sectors where it has clear competitive advantages: automotive components, processed foods, financial services, and professional services (SAIIA 2023; tralac 2024). Services liberalisation under the AfCFTA Protocol on Trade in Services offers particular promise, given South Africa's strength in financial, engineering, and ICT services — though this connects more directly to the discussion in Chapter 7. *Calibrate renewable energy localisation requirements.* The REIPPPP's local content provisions have generated some domestic manufacturing capacity, but they need recalibration to balance capability-building against cost competitiveness (IPP Office 2024). A graduated approach — starting with less technically demanding components (mounting structures, cabling, towers) and progressively extending to higher-value items (inverters, trackers) as domestic capacity matures — is preferable to blanket requirements that raise costs without building lasting capability. *Develop an automotive EV transition plan.* The SAAM 2035 must be updated with explicit EV production targets, retooling support for existing ICE component manufacturers, and investment attraction for battery assembly and electric drivetrain manufacturing (Black and Barnes 2024; NAAMSA 2024). The EU's Carbon Border Adjustment Mechanism (CBAM) and vehicle emissions regulations create a hard deadline: South African automotive exports to Europe will face escalating penalties if the sector's carbon intensity does not decline. Government, OEMs, and component manufacturers need a coordinated transition roadmap with clear milestones and contingency provisions. *Streamline trade facilitation.* One-stop border posts, electronic customs documentation, and mutual recognition of standards with major African trading partners would reduce the non-tariff barriers that impede intra-African trade more than tariffs do (World Bank 2023; UNCTAD 2023). South Africa's own border management is fragmented across multiple agencies — SARS customs, the Department of Agriculture (phytosanitary), the Department of Home Affairs (immigration) — and consolidation under a single border management authority, long discussed, has progressed slowly (Border Management Authority Act 2020). **Tier 2 — The Transformative Agenda** These reforms would fundamentally alter the course of manufacturing, but each requires institutional capabilities, political conditions, or fiscal resources that do not currently exist. They are aspirational goals rather than near-term policy options — the horizon toward which incremental reforms might build. *A strategic industrial policy coordination agency.* The Korean model's most transferable insight is not any specific policy instrument but the existence of a powerful coordination agency — a planning body with authority across government departments, staffed by technically competent officials, and insulated from short-term political pressures (Evans 1995). South Africa's National Planning Commission was intended to fill this role but lacks executive authority; the dtic coordinates industrial policy but cannot compel cooperation from Energy, Transport, Education, or Home Affairs. A genuine coordination agency — with budget authority, performance accountability, and a mandate spanning the binding constraints — would transform policy coherence. It would also require bureaucratic reform and political centralisation that current conditions do not support. *Strategic import substitution in selected sectors.* COVID-19 exposed dangerous import dependencies in pharmaceuticals, personal protective equipment, and agricultural inputs (African Union 2021; dtic 2021). Targeted import substitution — not the blanket protection of the ISI era but selective investment in domestic capacity for strategically important products — could reduce vulnerability while creating manufacturing jobs. Pharmaceutical manufacturing for the African market, agricultural chemical and fertiliser production, and medical device assembly are candidates where domestic demand and regional export potential could support efficient-scale production (UNCTAD 2022). The risk, well documented in South Africa's own history, is that import substitution degenerates into rent-seeking protection for inefficient producers; sunset provisions and export performance requirements are essential safeguards. *Regional value chain integration with SADC.* Moving beyond the SADC Free Trade Area's tariff reductions toward genuine economic integration — harmonised standards, mutual recognition of qualifications, integrated transport planning, and coordinated industrial policy — would create a regional market of over 300 million people with complementary factor endowments (AfDB 2024). South Africa's capital and technology combined with the region's labour and natural resources could anchor competitive value chains in agro-processing, automotive components, mining equipment, and renewable energy. But regional integration has been impeded by South Africa's trade dominance (which generates resentment), political instability in several SADC members, and infrastructure deficits that make intra-regional trade more expensive than intercontinental shipping. *Green hydrogen industrialisation.* South Africa's abundant renewable energy potential (solar irradiation among the world's highest), existing industrial infrastructure, and port access position it as a potential producer of green hydrogen and its derivatives — green ammonia, sustainable aviation fuel, green steel (PCC 2022; Zalk 2025). The Northern Cape's Boegoebaai project and various Limpopo initiatives are early moves, but realising the green hydrogen opportunity requires massive infrastructure investment (electrolysers, pipelines, port facilities), water resources that are scarce in the sunniest regions, and a global green hydrogen market that remains uncertain in both price and volume. The prize — a new export commodity that exploits South Africa's renewable energy advantage — is substantial, but so are the execution risks. *Mandatory local procurement for public infrastructure spending.* South Africa spends tens of billions of rand annually on public infrastructure — roads, water, energy, buildings — much of it using imported materials and equipment (National Treasury 2024). Mandatory local procurement requirements, rigorously enforced and with built-in capability transfer provisions, could create demand-side pull for domestic manufacturing. The catch, as the locomotive procurement debacle and other scandals have shown, is that local procurement mandates without effective oversight become vehicles for corruption and rent-extraction rather than industrial development (Gillson and Charalambides 2012). Effective local procurement requires agencies with technical capacity to evaluate bids, monitor performance, and enforce contracts — capabilities in critically short supply. ### Evidence from Parliamentary Oversight Parliamentary oversight offers a useful, if imperfect, barometer of policy performance. The BRRRs produced by the Portfolio Committee on Trade, Industry and Competition provide annual assessments of the dtic's performance against its own targets. Recurring themes include: the gap between Master Plan commitments and measurable outcomes; SEZ underperformance on investment attraction and employment targets; delays in disbursing manufacturing incentives; and the disconnect between industrial policy announcements and actual manufacturing output trends (Parliamentary Monitoring Group; BRRR reports 2021-2024). The Committee has flagged repeatedly the absence of a credible monitoring and evaluation framework for Master Plans — a concern Makgetla (2024) echoes in her TIPS evaluation. Without systematic tracking of whether specific commitments by government, business, and labour are being met, the Master Plan process risks becoming a series of signing ceremonies followed by implementation drift. The Committee has also questioned the proliferation of SEZs, noting that spreading limited fiscal and institutional resources across too many zones dilutes impact and makes it impossible to achieve the infrastructure quality that international competitiveness demands. These parliamentary concerns should not be dismissed as political theatre. They reflect a growing recognition — shared across the analytical community — that South Africa's manufacturing challenge is one of implementation rather than design. The country does not lack industrial policy frameworks, trade agreements, or SEZ legislation. It lacks the institutional capacity to execute these instruments with the discipline and consistency that successful industrialisation requires. Closing this gap — through bureaucratic reform, performance accountability, and sustained political commitment — is the precondition for progress on any of the reform agendas outlined above. ### Binding Constraints Connection Manufacturing is arguably the sector most damaged by the binding constraints—and the one whose revival most depends on loosening them. The **energy crisis** (Chapter 3) hit manufacturing directly: factories that cannot maintain production schedules lose clients to reliable competitors abroad. The **logistics breakdown** raises input and export costs—manufacturers report that port delays alone add 5-10% to final product costs, eroding the competitiveness gains that industrial policy seeks to create. **State capacity** failures undermine industrial policy implementation: the IPAP and master plan processes required coordination across departments that the bureaucracy struggled to deliver. **Human capital deficits** (Chapter 9) create acute skills shortages—the automotive sector's SAAM 2035 target of 1.4 million vehicles depends on technical skills that TVET colleges are not yet producing. **Labour market dysfunction** (Chapter 8) raises costs through above-productivity wage settlements in some sectors while leaving millions of potential workers unemployable. And the **investment collapse** is both cause and consequence of deindustrialisation: manufacturing fixed investment has fallen as a share of GDP, while the resulting production decline reduces the returns that would attract new investment—a vicious cycle that only coordinated reform across multiple constraints can break. *** ## VIII. Key Data Visualisations {% hint style="success" %} **Key Takeaways** 1. South Africa has experienced "premature deindustrialisation": manufacturing's share of GDP has declined from 21% (1994) to approximately 12% today, with formal employment falling from over 1.5 million to around 1.1 million—particularly devastating in labour-intensive sectors like textiles and clothing. 2. Deindustrialisation resulted from converging pressures: trade liberalisation exposed uncompetitive industries to import competition (especially from China), while domestic constraints—electricity costs, logistics failures, skills shortages, and policy uncertainty—eroded competitiveness. 3. Industrial policy has evolved from IPAP's sectoral interventions to Master Plans' social compact approach, with the automotive sector representing the most successful example (633,000 vehicles produced in 2023, 63% exported), though implementation capacity remains weak across most sectors. 4. Binding constraints on manufacturing competitiveness—energy, logistics, skills, and policy stability—lie largely outside industrial policy control, suggesting that fixing infrastructure and education may be more effective than additional incentives or protection. 5. The African Continental Free Trade Area (AfCFTA) creates opportunities for regional value chain development and market access, but realising these opportunities requires addressing infrastructure constraints and non-tariff barriers that impede intra-African trade. {% endhint %} ## Discussion Questions 1. **Deindustrialisation Causes:** Evaluate the relative importance of trade liberalisation, domestic cost pressures, and global competition in explaining South African manufacturing decline. Could different policies have produced different outcomes? 2. **Industrial Policy Design:** Compare the IPAP and Master Plan approaches to industrial policy. What are the strengths and weaknesses of each? What would an ideal industrial policy framework include? 3. **Comparative Lessons:** What lessons does South Africa's manufacturing experience offer for other developing countries? What lessons should South Africa draw from Vietnam, Indonesia, or other manufacturing success stories? 4. **AfCFTA Opportunities:** How should South Africa position itself to benefit from the African Continental Free Trade Area? What investments and policy changes would maximise the benefits? 5. **Binding Constraints:** If you could address only one of the binding constraints on manufacturing (energy, logistics, skills, policy uncertainty), which would you prioritise and why? **Exercises** 1. **Manufacturing Value Added Trends**: Manufacturing's share of GDP fell from 21% in 1994 to approximately 12% in 2024. South Africa's nominal GDP was approximately R1.1 trillion in 1994 and R7.1 trillion in 2024. Calculate manufacturing value added in nominal rand for both years. Using a GDP deflator that increased approximately fivefold over this period, estimate whether manufacturing output grew, stagnated, or declined in real terms. What does the distinction between declining share and absolute output tell us about the nature of deindustrialisation? 2. **Tariff and Effective Rate of Protection Calculations**: Consider a clothing manufacturer that imports fabric at R100 per unit (subject to a 15% tariff) and produces a garment valued at R250 (subject to a 45% tariff). Calculate the nominal tariff rate on the final good and the effective rate of protection (ERP) using the formula: ERP = (tariff on output - input share x tariff on input) / (1 - input share). If the tariff on clothing is reduced to 25% while the fabric tariff stays at 15%, recalculate the ERP. Discuss how the ERP better captures the true protection afforded to domestic value addition than nominal tariff rates. 3. **Automotive Incentive Cost-Effectiveness**: The Automotive Production and Development Programme (APDP) costs the fiscus approximately R30 billion annually in foregone revenue through production and investment incentives. The sector employs approximately 110,000 workers directly and produces approximately 633,000 vehicles (2023). Calculate the fiscal cost per direct job and per vehicle produced. If the sector's total value added is approximately R90 billion, what is the ratio of incentive cost to value added? Compare this to the Employment Tax Incentive's estimated cost of R5 billion per year for 50,000 additional jobs. Which programme is more cost-effective per job, and what other factors should be considered? 4. **AfCFTA Trade Impact**: South Africa's manufacturing exports to Africa totaled approximately R180 billion in 2024, representing about 25% of total manufacturing exports. If AfCFTA implementation reduces tariff and non-tariff barriers by an equivalent of 10 percentage points, and the price elasticity of demand for South African manufactures in African markets is -1.5, estimate the percentage and rand increase in manufacturing exports to Africa. What assumptions does this calculation rely on, and what factors might cause actual outcomes to differ significantly from this estimate? *** ## IX. Further Reading **Industrial Policy and Manufacturing:** * Zaakhir Asmal, Haroon Bhorat, Caitlin Rooney, and François Steenkamp, "Deindustrialisation in Sub-Saharan Africa," DPRU Working Paper 202303 (2023) — Places SA's manufacturing decline in continental context. * Bell, T. and Gillam, M. (2021). "Manufacturing" in *The Oxford Handbook of the South African Economy*. * Black, A. (ed.) (2016). *Towards Employment-Intensive Growth in South Africa*. UCT Press. * Lawrence Edwards, "Trade and Industrial Policy for South Africa's Future," ERSA Policy Paper 31 (2024) — Diagnoses the export crisis and argues for tariff simplification and horizontal industrial policy. * Trudi Makhaya, "Industrial Policy in South Africa: From 1994 to Now," ERSA Policy Paper 38 (2025) — Comprehensive review of industrial policy evolution and persistent stagnation in structural change. * Neva Makgetla, "Evaluation of the Industry/Sector Master Plan Process," TIPS Research Report (2024) — Theory-of-change evaluation of all ten sector Master Plans. * Mike Morris, Cornelia Staritz, and Justin Barnes, "Value Chain Dynamics, Local Embeddedness, and Upgrading in the Clothing Industries of Lesotho and Swaziland" (2011) — How global value chain governance structures constrained upgrading options for Southern African clothing producers. * Fiona Tregenna, "Characterising Deindustrialisation: An Analysis of Changes in Manufacturing Employment and Output Internationally," *Cambridge Journal of Economics* 33(3) (2009) — Foundational framework distinguishing premature deindustrialisation from productivity-driven structural change; central to understanding South Africa's manufacturing decline. * Nimrod Zalk, "Greening South Africa's Industrial Policy," TIPS Working Paper (2025) — The case for green industrialisation as the next phase of industrial strategy. **Trade Policy:** * Edwards, L. (2021). "Trade Policy in South Africa: Past, Present and Future." *South African Journal of Economics*. * Lawrence Edwards and Jee-Wan Chien, "Trade Turbulence: The Consequences of United States Tariff Increases for South African Exports," ERSA Policy Paper 41 (2025) — Quantifies the impact of 2025 US tariff escalation on SA's automotive, steel, and aluminium exports. * Lawrence Edwards, David Fadiran, Godfrey Kamutando, and Matthew Stern, "Quantifying Tariff Revenue Losses from the African Continental Free Trade Area," *Journal of African Trade* (2024) — Revenue losses from AfCFTA are minor; fiscal concerns need not block implementation. * Rikard Lepelle and Lawrence Edwards, "Manufacturing Tariff Liberalisation and the Sectoral Reallocation of Employment in Local Labour Markets," *Journal of International Trade & Economic Development* 33(6) (2024) — Local-level evidence on how tariff liberalisation redistributed employment across municipalities. **Industrial Policy Frameworks:** * Department of Trade, Industry and Competition. *Industrial Policy Action Plans* (various years). * National Planning Commission. (2012). *National Development Plan 2030*. * *Sector Master Plans* (Automotive, Clothing & Textiles, Steel, etc.). **Comparative Experience:** * Page, J. & Tarp, F. (eds.) (2017). *The Practice of Industrial Policy*. Oxford University Press. * Stiglitz, J. & Lin, J.Y. (eds.) (2013). *The Industrial Policy Revolution I*. Palgrave Macmillan. *** ◀️ [Chapter 5: Mining and the Minerals-Energy Complex](/textbooks/the-south-african-economy/part-ii-sectors/chapter-5.md)[Chapter 7: Services, Finance & the Digital Economy](/textbooks/the-south-african-economy/part-ii-sectors/chapter-7.md) ▶️ --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. 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