Why Budget 2025 Must Reignite SA’s Industrial and Services Sectors

These were envisioned as blueprints for individual industries, designed to catalyse growth, generate economic opportunities, and align sectoral strategies with the broader objectives of industrial policy.

Much can be debated about the effectiveness—or lack thereof—of these master plans. Yet, regardless of their outcomes, they marked a critical moment of recognition by government of the need to prioritise strategic sectors as the engines of economic renewal.

The years since have not been kind.

Between 2021 and 2023, inflation soared across advanced and emerging markets alike, fuelled by a confluence of factors: surging commodity prices, supply chain disruptions, rising transport costs, rebounding demand, and the lingering effects of pandemic-induced shocks. These pressures, compounded by geopolitical instability—from wars to contested elections—further strained an already fragile global order.

However, the worst of these price pressures now appear to be receding.

Despite pockets of volatility in energy markets, the rebalancing of supply and demand has initiated a gradual cooling of inflation. The International Monetary Fund (IMF) projects global headline inflation will fall to 3.5% this year, aided by tighter monetary policies and softening commodity prices. Against this backdrop, global growth is forecast to hold steady at 2.6% for 2024 (3% for Africa), according to the World Bank, inching up to 2.7% in the subsequent two years—still a far cry from the 3.1% average recorded in the decade preceding COVID-19, but still cause for cautious optimism.

Closer to home, there have been encouraging signs of market recovery.

Between February and September 2024, South Africa’s sovereign risk premium narrowed significantly, dropping from 327 to 240 basis points, while the 10-year bond yield fell below 10%—its lowest level in almost three years. The rand appreciated to its strongest level against the US dollar in nearly two years, albeit briefly, and stocks listed on the Johannesburg Stock Exchange delivered their strongest third-quarter performance in over a decade, signalling renewed investor confidence.

These reflect the impact of tighter monetary policy and improved fiscal discipline, which have tempered inflationary pressures and reassured investors of South Africa’s commitment to stabilising its economy.

The upcoming National Budget Speech represents a critical opportunity to cement these early gains and lay the foundation for broader economic renewal.

While fiscal consolidation remains essential, it must not come at the expense of strategic interventions that can drive economic growth and job creation. South Africa’s industrial and services sectors, long recognised as cornerstones of the economy, must take centre stage in this effort. These sectors have the capacity to generate high-value economic activity, stimulate domestic demand, and unlock new opportunities in regional and global markets—but only if the budget provides clear policy direction and targeted support.

Achieving this potential starts with localisation—transforming South Africa’s role in global supply chains by prioritising value-added production and beneficiation. For decades, the country has exported raw materials at the expense of building industrial ecosystems capable of capturing greater economic value domestically. This missed opportunity is reflected in the diminished role of manufacturing within the economy: as of 2024, the sector contributes just 13% to GDP, a stark decline from approximately 23% in the early 1980s.

This cycle must be broken.

Budget 2025 should outline targeted incentives for industries that process and refine raw materials into finished or semi-finished goods, with a focus on high-growth sectors such as renewable energy components, advanced manufacturing, and agro-processing. Investment incentives in the form of tax breaks for localised production, preferential procurement policies, and reduced regulatory hurdles for manufacturing and beneficiation projects are essential.

To maximise local beneficiation and drive inclusive growth, a simultaneous process of economic decentralisation has to occur—channelling investments toward industries that leverage geographic competitive advantages and fostering distributed economic activity outside traditional urban hubs like Gauteng and Western Cape. By investing more in infrastructure, skills training, and logistics tailored to other regions, the country can cultivate economic nodes that complement, rather than compete with, existing urban centres.

Yet, the pursuit of a localised and decentralised economy must be underpinned by a future-oriented framework that prioritises sustainability and innovation.

Environmental, social, and governance (ESG) principles are no longer peripheral to economic strategy and Budget 2025 should embed policies that incentivise sustainability-aligned practices at every stage of the value chain. The urgency of such measures is underscored by shifting global trade dynamics, like the European Union’s Carbon Border Adjustment Mechanism (CBAM). While South African industries have historically benefited from high carbon intensity and lower export prices, the CBAM and similar policies will erode this advantage, increasing costs and placing greater pressure on manufacturers to meet stringent sustainability requirements.

This means expediting frameworks that reward energy efficiency, encourage the adoption of renewable energy, and promote sustainable resource use in industrial production. Similarly, in services—particularly financial and professional services—adopting transparent governance models and fostering equitable labour practices can position South Africa as a responsible and forward-thinking participant in the global market.

While ESG principles guide the “why” of South Africa’s economic strategy, technology provides the “how.”

Advances in artificial intelligence, automation, and digital platforms have the potential to fundamentally restructure both industrial processes and service delivery, enhancing productivity, reducing costs, and enabling new business models. However, realising this potential requires deliberate investment in research and development, as well as public and private support for innovation ecosystems that bridge academia, government, and industry.

Critically, the integration of advanced technologies cannot succeed without addressing the skills deficit that has long hindered the nation’s growth. Workforce upskilling must be treated as a national imperative, with training programmes tailored to equip workers with the capabilities to thrive in a tech-driven economy. This includes not only technical skills but also the adaptive, problem-solving, and creative abilities that automation cannot replicate.

Accomplishing this, however, will require collaborative effort.

The 2024 Medium-Term Budget Policy Statement (MTBPS) indicated that government has finalised amendments to the regulations governing public-private partnerships (PPPs) in South Africa—reforms which are expected to streamline PPP processes, reduce administrative complexity, and unlock greater private capital for public projects. This is a significant step forward in addressing long-standing barriers that have hindered the effective mobilisation of private resources to support public development objectives. It should mean that private investors now face fewer procedural bottlenecks, enabling faster project approvals and more predictable timelines—critical factors in attracting large-scale investment. For government, it provides an opportunity to scale infrastructure and social development projects without overburdening constrained fiscal resources.

The priority must now be inclusive and sustained sector growth—growth that not only revitalises South Africa’s industrial and services sectors as key economic levers but ensures that their benefits reach across geographic and social divides. Budget 2025 must go beyond intent, and deliver bold, actionable policy measures that address the systemic challenges holding these sectors back while seizing the opportunities that lie ahead.