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What does the ArcelorMittal crisis tell us about the South African economy? 
  Is the fall of AMSA a canary in the coal mine for manufacturing in South Africa? 

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Key Takeaways:

  • AMSA’s crisis highlights deep structural issues in South Africa’s steel industry.

  • Manufacturing’s share of GDP has steadily declined in South Africa and in other developing economies, perhaps signaling premature deindustrialisation.

  • But, manufacturing still provides millions of jobs and underpins a significant portion of exports.

  • South Africa lags behind countries like Vietnam and India in leveraging labour-intensive manufacturing.

  • Preserving manufacturing is essential for jobs, stability, and an inclusive economy.

What is ArcelorMittal, and why is it in crisis?

Arcelormittal South Africa (AMSA) is the largest steel producer in Africa, producing, on average, 5.5 million tonnes of steel to sell each year. In the past few years, AMSA has faced numerous crises, including a reduction in local demand for steel (since 2018, demand for steel in South Africa has declined by 16%), increased competition from cheap imports from China, and high electricity and logistics costs. Since 2004, for example, the cost of electricity for industrial use (in cents per kWh) has increased from 13.97c to 138.74c: an increase of almost 900%. 

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In January 2025, AMSA announced that it was shutting down its Newcastle Long steel (Longs) operation - impacting 3,500 jobs. The company has stated that this decision was due to a number of reasons, including the duties on exporting scrap metal in South Africa, which keep scrap metal prices low, as well as high electricity and logistics costs. AMSA is unable to compete with “scrap mills” which are able to create steel at a lower cost. This closure was delayed by government intervention and last-minute funding, which ran out on 31 August. The retrenchment process began on 1 September, and the company may close its Longs operation by the end of the month.

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While many commentators acknowledge AMSA’s importance to the economy, others have cautioned against bailouts without a sustainable plan in place. The deeper question is whether ArcelorMittal’s crisis signals wider troubles ahead for South Africa’s manufacturing sector. What does this mean for the future of the manufacturing sector?

What has happened in manufacturing in South Africa?

The manufacturing picture in South Africa is complicated. Four sectors make up most manufacturing in the country: Food and beverages, Motor vehicles and transport equipment, Steel and metal products, and Petroleum, chemical and plastic products. 

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Manufacturing’s contribution to GDP has declined steadily since 1990, as services have become more important in the economy.

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However, this decline in manufacturing is not unique to South Africa: in many developing countries, manufacturing’s contribution to GDP has declined as economies have become more service-oriented. This “deindustrialisation” is happening more quickly in developing countries than it did in developed countries, with some warning of “premature deindustrialisation”.

Globalisation and technological progress are the main reasons for premature industrialisation in developing countries: as new technologies are developed, manufacturing work is becoming more skilled, and harder for low and medium-skilled workers to enter. Globalisation has allowed some countries, such as China, to achieve economies of scale in manufacturing, producing items cheaply and at scale, making it harder for other countries, like South Africa, to compete internationally. 

 

Premature deindustrialisation can be dangerous for developing countries because, despite technological progress, manufacturing remains a highly labour-intensive industry and produces many jobs - especially low and medium-skilled jobs. This is especially relevant in South Africa, a country with a surplus of low and medium skilled workers. Although manufacturing as a percent of GDP has declined in South Africa, it is still a large employer: in the first quarter of 2025, 1.6 million South Africans were employed in manufacturing.

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Manufactured goods also continue to play a significant role in South Africa’s exports. In 2024, 40% of exports from South Africa were manufactured goods, such as Vehicles, Iron and steel, Aluminium and Plastic. However, South Africa’s manufacturing exports remain far below its imports.

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South Africa's Labour-Intensive Manufacturing Sectors

Certain sub-sectors within South Africa's manufacturing industry are particularly labour-intensive. Sub-sectors within manufacturing, such as textiles, food production, furniture and wood manufacturing are labour intensive, and also have high employment multipliers. 

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Employment multipliers show how many additional jobs are created in the economy for every one job generated in a specific industry. Industries like textiles have high employment multipliers because they have long supply chains: one job in a textile factory doesn’t just employ one person, it also supports additional jobs upstream (such as cotton farming, fabric suppliers, dye producers, machinery maintenance) and downstream (for example, transport, retail and marketing). 

But, aside from the food and beverages sub-sector, all sub-sectors within manufacturing have declined since 2008.

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In contrast, countries like India, Vietnam, and Bangladesh have successfully leveraged their labour-intensive manufacturing sectors to drive economic growth and job creation. For instance, Vietnam's textile industry has become a significant employer, contributing to the country's rapid economic development and poverty reduction. 

 

South Africa's struggle to maintain a competitive manufacturing sector has led to a reliance on imports and a loss of potential employment opportunities. Unlike some Asian countries that have protected their industries, South Africa has faced challenges in building long-term competitiveness. The decline in labour-intensive manufacturing sectors not only affects job creation but also has broader economic implications, including reduced export potential and increased import dependency.

Manufacturing is important in South Africa. It is also in trouble.

The AMSA crisis is not an isolated problem. It is a symptom of South Africa’s broader manufacturing malaise. Steps need to be taken to address constraints facing the manufacturing sector, such as high utilities and logistics costs, and cheap imports. 

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This matters not only for economic growth, but also for jobs and social stability. Manufacturing may contribute less to GDP, but for a country like South Africa, with high unemployment and inequality, it remains indispensable.

References:

Decoding Impact

Disclaimer: The views and opinions expressed on this blog are my own and do not reflect those of my employer. I blog in my personal capacity, and my content is not affiliated with my workplace.

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