Business happy with clarity on electricity but warns of manufacturing crisis

As the dust settles after Thursday’s state of the nation address (Sona), the private sector has welcomed long-awaited clarity on electricity reform but warned that the accelerating erosion of South Africa’s manufacturing base received no meaningful response.

Investors and business leaders said the address delivered progress on energy policy yet left unanswered questions about industrial protection, trade diplomacy and the pace of structural reform needed to lift growth beyond its present low base.

Jason Swartz, portfolio manager at Old Mutual Investment Group, described the macroeconomic outlook as one of cautious optimism. He argues that 2025 marked an unusual alignment of cyclical tailwinds.

After years of persistent load-shedding, operational performance at Eskom improved materially. Generation stability strengthened, maintenance became more effective and private power generation expanded rapidly, resulting in an extended period of near-zero load-shedding.

Energy availability recovered sharply and unplanned outages declined, easing one of the economy’s most binding constraints.

Beyond electricity, South Africa benefited from record precious metal prices, which boosted the terms of trade and supported the rand and the fiscus.

The National Treasury and South African Reserve Bank adopted a lower inflation target, creating space for structurally lower long-term interest rates. The government of national unity remained intact despite policy disagreements, the country secured its first sovereign credit rating upgrade in 20 years from S&P and was removed from the Financial Action Task Force greylist.

Yet growth remains subdued. Swartz expects real GDP growth for 2025 to have edged above 1%, with consensus forecasts for 2026 at about 1.4%. Estimates further out remain at 1.5%-2% — well below the levels required to meaningfully reduce unemployment.

Structural constraints

The constraint, he said, remains structural. Supply-side bottlenecks, particularly in logistics, continue to cap potential growth. Rail and port volumes remain significantly below levels seen five years ago. Reform efforts focus on restructuring Transnet, establishing an independent transport economic regulator and increasing private sector participation in freight rail and port networks.

Electricity reform dominated President Cyril Ramaphosa’s address. He confirmed that an independent transmission system operator will own and operate transmission assets and run the electricity market, with a dedicated task team required to report to him within three months. The government is targeting 40% renewable energy in the generation mix by 2030.

For business, this clarification was critical.

In her weekly newsletter, Business Leadership South Africa CEO Busisiwe Mavuso said the announcement resolved policy confusion that emerged in December when an alternative unbundling proposal suggested transmission assets would remain within Eskom. That uncertainty, she wrote, had weighed on investor confidence.

Mavuso said direct engagement between business and the government helped resolve the impasse. Electricity minister Kgosientsho Ramokgopa met business leaders shortly after concerns were raised, followed by further technical discussions with his department. The outcome, she said, demonstrated the value of structured government-business engagement in resolving complex policy disputes.

Swartz, however, cautioned that operational gains do not eliminate funding constraints. About 14,000km of new transmission lines are required at an estimated cost of R440bn. Given Eskom’s weak balance sheet, raising sufficient capital internally will be difficult and may require further support from the Treasury. Without clarity on governance and funding structures, private investment may remain hesitant.

If electricity reform was the area of alignment, manufacturing was the major omission.

Mavuso said that Sona failed to address what she describes as rapid deindustrialisation. In the motor sector, Bridgestone closed its Port Elizabeth plant in 2020 while Goodyear announced the closure of its Kariega tyre plant last year. According to the National Association of Automotive Component and Allied Manufacturers, 13 component manufacturers have closed in the past two years. Nissan is selling its Rosslyn plant and Volkswagen has warned of uncertainty at its Kariega facility.

Beyond the motor industry, British American Tobacco South Africa has announced it will close its Heidelberg plant by end-2026, citing the destruction of the legitimate market by illicit trade.

Chinese vehicle brands now account for 22% of vehicle imports. Yet Sona offered no targeted response to import competition, tariff policy or anti-dumping enforcement.

Call for urgent action

Mavuso has called for urgent action: finalising the new energy vehicle policy to enable export-orientated electric and hybrid production; deploying anti-dumping measures where imports are sold below cost; reviewing tariff structures to protect local manufacturing while avoiding unintended damage to assemblers and intensifying enforcement against illicit trade.

Trade diplomacy is another concern. While the president referenced strengthening trade negotiation capacity and expanding missions abroad, Mavuso said that effectiveness — not scale — is the issue. South Africa maintains one of the largest diplomatic networks relative to its size, but too many posts lack deep trade expertise or remain vacant. A professional diplomatic corps aligned with industrial strategy is required to diversify export markets and secure trade agreements that support manufacturing.

Swartz said political and geopolitical risks remain. The 2026 local government elections may test cohesion within the governing coalition, particularly in key metros. The ANC’s 2027 elective conference introduces succession uncertainty that could affect reform continuity. Externally, commodity price volatility and potential trade tensions with the US remain downside risks.

The private sector’s message is measured but clear. Electricity reform clarity shows that focused engagement can resolve policy uncertainty quickly. However, unless similar urgency is applied to logistics reform, manufacturing protection and trade strategy, cyclical tailwinds will not translate into durable, employment-creating growth.

Business welcomed the progress on electricity. It is now waiting for an equally credible strategy to protect and rebuild South Africa’s industrial base.