By Mmakgoshi Lekhethe

South Africa’s long-term growth challenge cannot be addressed without confronting the continued weakening of its manufacturing base. Over the past three decades, manufacturing’s contribution to GDP has fallen from about 21–22% in the early 1990s to around 12–13% today, alongside stagnating output and a weaker contribution to employment. Last week, Statistics South Africa released the latest production and sales data, which reports further decline in manufacturing output over the first 5 months of 2026. This is cause for concern and raises key but fundamental questions. What will it take to have an all-hands-on deck approach to South Africa’s industrial development?

The Manufacturing Indaba, which aims to promote industrialisation, strengthen local manufacturing, and support economic growth, kicks off this  morning in Johannesburg. Among other objectives, the Indaba enables sector participants, investors and broader stakeholders to engage and deliberate on issues that are pertinent to the sector. In this article, I contribute by engaging on some of the salient issues that need to be addressed.   

First, it is critical that we settle the debate of the continued importance of manufacturing in driving economic growth and contributing to overcoming socioeconomic challenges such as unemployment. Manufacturing remains central to sustained economic growth because it does more than produce goods. It builds productive capabilities, supports exports, absorbs and produces technology, creates demand for services, links sectors and creates a platform for building capabilities in high value services. This is why it is characterised as pulling along growth. Every R1 of value addition (GDP) in the manufacturing sector, creates R2.38 of value addition in the rest of the South African economy. Similarly, 1 job in the manufacturing sector supports 3.34 jobs in the economy. As such, despite the declining direct jobs in manufacturing due to automation, amongst other factors, it still is critical to supporting aggregate jobs.

Additionally, it accounts for 12-13% of GDP, and over half of the country’s export earnings. If further decline of the sector persists on our watch, we must accept the substantial cost that will be borne.

The central objective of industrial policy is to build productive capabilities, foster innovation, and strengthen industrial competitiveness. It is through these capabilities that economies create sustainable growth and, ultimately, more and better jobs. The importance of the sector should not be limited to its direct employment contribution.

Importantly, the choice is not manufacturing versus services. Productive services grow most successfully when anchored in deep industrial ecosystems. The development challenge is therefore not to move beyond manufacturing, but to integrate manufacturing, services, infrastructure, technology and skills into mutually reinforcing productive systems.

Second, to unlock a higher industrial development trajectory we need to confront factors constraining growth. Beyond the constraints that are often listed, there are fundamental challenges that we need to grapple with to achieve different outcomes.  

It is generally accepted that post democratic South Africa has struggled to adopt a coordinated approach to support industrial development. A significant impediment to the implementation of the National Industrial Policy Framework (NIPF) through the iterative Industrial Policy Action Plans was the lack of coordination of policy levers, such as fiscal, monetary, energy, transport, technology policy, and economic regulation. The success of industrial policy depends on the entire eco system working together for positive outcomes.

The Industrial Development Strategy (IDS) illustrates Cabinet’s acknowledgement of the continued importance of the manufacturing and industrial development more broadly. The discussion of a coordination platform in the Presidency, further recognises that Industrial Policy should not only be a concern for the department of Trade, Industry and Competition but requires an all of government approach. These are important steps forward, which need to be complemented by several others to ensure successful implementation of the IDS, including:

The inclusion of industrial development in the pillars of growth outlined by the Minister of Finance in the Budget. Economic reforms which have been a consistently identified as a pillar of growth over the last 5 years or so are necessary, but not sufficient to drive investment-led structural transformation, especially at a time of dramatic and complex changes in the global economy. Infrastructure rollout without links to production can only support stop start growth dynamics.

The establishment of an industrial development platform, similar to Operation Vulindlela, that drives coordinated implementation of IDS. The task of the platform should be to ensure that existing and new instruments are fit for purpose, aligned and deployed in a coordinated manner that restores, expands and upgrades production, builds capabilities and drives sustained industrial growth. The platform’s core focus being on building industrial ecosystems around production outcomes, acknowledging that a decision in one part of the ecosystem has implications for the performance of others.

An ecosystem approach also requires prioritisation. South Africa cannot solve every industrial challenge at once. Focused attention should be placed on value chains where coordinated action can unlock investment, deepen capabilities and strengthen linkages. Within these ecosystems, policy tools must be bundled rather than scattered: industrial incentives, localisation, trade measures, infrastructure provision, development finance, blended finance, guarantees, skills systems and innovation support should be deployed as integrated packages.

Industrial support should be framed within a set of reciprocal control and commitment mechanisms between the government and private firms, including conditionalities, that result in the desired outcomes. The design, enforcement, and monitoring of conditionalities requires capabilities that are not ubiquitous in the state at the moment, as such it will be critical to identify and leverage capabilities that do exist.

The Industrial Development Corporation has adopted an industrial ecosystem approach to supporting investments and this has included us identifying ecosystem gaps requiring a coordinated approach to close. An example being the establishment of the Project Development unit which supports early-stage investments. We are starting to see the fruits of this approach in growth industries such as the critical mineral value chains.

Lekhethe is CEO of the Industrial Development Corporation