Turning industrial policy into investable industrial ecosystems

South Africa faces a long-term growth challenge that stems from the weakening manufacturing base. Over the past three decades, manufacturing's contribution to GDP has dropped significantly, alongside stagnating output and weaker employment contributions. The latest data from Statistics South Africa indicates a continued decline in manufacturing output over the first five months of 2026, raising concerns about the need for a unified approach to industrial development.

The Manufacturing Indaba, a gathering aimed at promoting industrialisation, strengthening local manufacturing, and supporting economic growth, is currently underway in Johannesburg. The event provides a platform for sector participants, investors, and stakeholders to discuss critical issues facing the industry. This article delves into some of the key issues that must be addressed.

Firstly, it is vital to acknowledge the continued importance of manufacturing in driving economic growth and addressing socioeconomic challenges such as unemployment. Manufacturing plays a crucial role in building productive capabilities, supporting exports, absorbing and producing technology, creating demand for services, linking sectors, and creating a platform for developing high-value services.

Despite the decline in direct manufacturing jobs due to automation, every R1 of value addition in the manufacturing sector generates R2.38 of value addition in the rest of the South African economy. Moreover, 1 job in manufacturing supports 3.34 jobs across the economy. Thus, despite the sector's challenges, it remains essential to supporting overall employment.

Secondly, the central objective of industrial policy is to build productive capabilities, foster innovation, and strengthen industrial competitiveness. These capabilities enable economies to generate sustainable growth and create more and better jobs. The focus should not be limited to manufacturing versus services, as productive services thrive when anchored in deep industrial ecosystems.

The development challenge lies in integrating manufacturing, services, infrastructure, technology, and skills into mutually reinforcing productive systems.

However, several factors hinder industrial growth. Post-democratic South Africa has struggled to adopt a coordinated approach to support industrial development, with a significant impediment being the lack of coordination in implementing the National Industrial Policy Framework (NIPF) through Industrial Policy Action Plans. This coordination issue was exacerbated by the absence of a platform for collaboration among various policy levers, such as fiscal, monetary, energy, transport, technology policy, and economic regulation.

The Industrial Development Strategy (IDS) acknowledges the importance of manufacturing and industrial development more broadly. The Presidency's discussion of a coordination platform further highlights the need for an all-of-government approach to industrial policy. Essential steps forward include establishing a coordinated platform, creating an Industrial Development Corporation with an industrial ecosystem approach to supporting investments, and developing early-stage investments through units like the Project Development unit.

These initiatives are starting to show promising results in growth industries, such as critical mineral value chains.