South African manufacturing plant with robotic arms and cityscape background symbolizing economic growth.

South African Manufacturing: Adapting to Change and Driving Growth

Nico Varela in Business & Economy August 2025 • 4 min read.

"How manufacturers can thrive in a transforming economy."

The South African manufacturing sector has faced a series of significant changes since the end of apartheid. This period has brought both challenges and opportunities, driven by globalization, shifts in economic policy, and evolving market dynamics. While much has been written about these broad trends, understanding how individual firms navigate these changes is crucial for fostering sustainable growth and employment.

Historically, economic policy focused on industry and sector-level strategies, emphasizing sectoral and comparative advantages to drive economic success. However, recent research highlights the critical role of firms as key units of analysis. Understanding the dynamics at the firm level is essential for grasping broader industry changes and fostering industrial development.

This article examines the experiences of South African manufacturing firms in transition, focusing on firm-level characteristics that drive employment growth and adaptation. By analyzing data from firm surveys, we aim to provide insights into the strategies and factors that enable manufacturers to thrive in a changing economic landscape. This knowledge can inform more effective policies and support initiatives to bolster the manufacturing sector and create employment opportunities.

The Changing Landscape: Understanding the Challenges

South African manufacturing plant with robotic arms and cityscape background symbolizing economic growth.

South Africa's manufacturing sector has undergone significant changes due to rapid trade liberalization in the 1990s. This involved reducing tariff barriers, impacting industries previously protected by import-substitution industrialization (ISI) policies. Traditional trade theory suggested resources would shift to sectors with comparative advantages. However, the reality is more complex, with reallocation occurring within industries, necessitating firm-level analysis.

Employment remains a central issue for South Africa's economic and industrial policy. Despite efforts, the economy has struggled to create significant job opportunities. Following the end of Apartheid in the 1990s, capital stock growth resumed rapidly, but this was accompanied by increased capital intensity, leading to falling employment. Nattrass (2003) pointed out that capital accumulation didn't efficiently generate new output, with the manufacturing sector producing less output per unit of capital in 2001 than in 1960.

Global Financial Crisis Impact: The global financial crisis (GFC) starting in 2008 profoundly impacted South African unemployment. Faulkner noted a 2.7% output decline between September 2008 and June 2009, with manufacturing and mining hit hardest. Employment fell by over one million (7.5%).
Job Losses: Job losses primarily occurred in trade, manufacturing, and construction, concentrated among lower-skilled and less-educated workers. Manufacturing employment, which had seen limited growth between 2003 and 2008, declined by 14.3% from 2008 to mid-2010 (Faulkner, Loewald, and Makrelov 2013).
Unemployment Rate: By May 2016, South Africa's unemployment rate increased to 26.7%. Manufacturing lost 100,000 jobs, and the expanded unemployment rate increased to 36.3% in the first quarter of 2016 (Business Tech, 2016).

These factors highlight the persistent unemployment problem in South Africa, where unemployment, poverty, and inequality remain significant socio-economic challenges (Faulkner, Loewald, and Makrelov 2013). Understanding firm-level dynamics is crucial for addressing these issues and promoting sustainable economic growth.

Strategies for Success: Embracing Change and Driving Growth

South African manufacturing firms can thrive by embracing innovation, adapting to global value chains, and strategically utilizing subcontracting. These approaches not only enhance competitiveness but also contribute to sustainable economic growth and job creation. Further research and policy support in these areas can unlock the full potential of the manufacturing sector, ensuring a prosperous future for South Africa.

About this Article -

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Everything You Need To Know

What were the primary factors that led to changes in the South African manufacturing sector after apartheid?

The South African manufacturing sector experienced significant changes following the end of apartheid due to globalization, shifts in economic policy, and evolving market dynamics. These factors created both challenges and opportunities for firms, necessitating adaptation and strategic responses to thrive in the changing economic landscape. Rapid trade liberalization in the 1990s, including reduced tariff barriers, particularly impacted industries previously shielded by import-substitution industrialization policies.

How did the reduction of tariff barriers impact South African manufacturing, and what did traditional trade theory predict versus the actual outcome?

The reduction of tariff barriers, a part of trade liberalization in the 1990s, significantly impacted South African manufacturing. Traditional trade theory anticipated that resources would shift to sectors with comparative advantages. However, the reality was more complex. Reallocation occurred primarily within industries. This complexity highlights the importance of firm-level analysis to understand how individual firms navigate these shifts and adapt to new market conditions, rather than just looking at sector-level changes.

What was the impact of the Global Financial Crisis (GFC) on employment and output within the South African manufacturing sector?

The Global Financial Crisis (GFC) starting in 2008 profoundly impacted South African employment and output. The manufacturing and mining sectors were hit the hardest. A decline in output between September 2008 and June 2009 was noted. Simultaneously, employment fell significantly, with job losses concentrated among lower-skilled and less-educated workers. Manufacturing employment experienced a decline during this period, which further exacerbated the unemployment issues.

What firm-level strategies are highlighted as crucial for the success of South African manufacturing firms in the current economic climate?

South African manufacturing firms can thrive by embracing innovation, adapting to global value chains, and strategically utilizing subcontracting. These approaches enhance competitiveness, contribute to sustainable economic growth, and create job opportunities. These strategies help firms navigate the challenges posed by globalization, shifts in economic policy, and evolving market dynamics, leading to greater resilience and growth.

Why is understanding firm-level dynamics considered so important for addressing South Africa's unemployment problem and promoting economic growth?

Understanding firm-level dynamics is crucial for addressing South Africa's persistent unemployment problem and promoting sustainable economic growth because it allows for a detailed analysis of how individual firms adapt to economic changes. Analyzing firm-level data provides insights into the strategies and factors that enable manufacturers to thrive in a changing economic landscape. This knowledge informs more effective policies and support initiatives to bolster the manufacturing sector, create employment opportunities, and foster industrial development, which are essential for addressing the socio-economic challenges of unemployment, poverty, and inequality.