The present ferrochrome saga points to the need to redesign core components in South Africa’s industrial policy machine. In particular, it shows up the tendency to downplay the problems facing producers until the crisis is undeniable, in part because of the crippling lack of co-ordination across state agencies.
These systemic weaknesses feed into a tendency to rely on the easy way out of subsidies instead of finding ways to tackle the underlying cost structure.
At the end of 2025, South Africa’s ferrochrome exports were almost R20bn lower than at their peak at the start of 2023, in constant rand terms. They had collapsed from almost 1-million tonnes in the last quarter of 2024 to just 270,000 tonnes a year later.
The drop largely reflected the ferrochrome smelters’ reliance on coal-fuelled energy. Electricity, not chrome ore, is the largest single cost for the refineries. But the price of grid electricity has risen nearly 50% in real terms since 2019, with further steep increases planned for the next two years.
A host of depressing reasons explain the escalation in tariffs. The most important is that we are still paying for Eskom’s failure to deliver Medupi and Kusile on time and to cost, resulting in stratospheric financing outlays.
Moreover, misjudged changes in Eskom’s procurement systems have raised its payment per tonne of coal from under a third of the baseline global price to almost half.
Late in 2025, as Business Day reported in December, Glencore proposed an ingenious solution to this problem. It committed to using its own coal, at cost, to fuel one of Eskom’s older coal stations. That would in effect shift its rents from its coal mines to its ferrochrome smelters. Any additional electricity production from the plant would go to other energy-intensive users, reducing costs for a range of other refineries.
Then, in January, the National Energy Regulator of South Africa (Nersa) approved a one-year reduction in Eskom tariffs for the ferrochrome refineries. The cost in foregone revenues is estimated at R10bn. By comparison, in 2025 the department of trade, industry & competition’s entire budget came to R11bn.
The cost won’t fall on Eskom, though. It will get a Treasury subsidy. In other words, for the coming year South African citizens will pay to reduce the cost of electricity for the ferrochrome refineries, further constraining other government services.
Media reports don’t clarify where the Glencore proposal now stands given the Nersa decision. Yet it is obviously the more systemic and efficient solution. It builds on South Africa’s comparative advantages in mining rather than burdening its already stressed tax system.
It would cut the Gordian knot by moving rents from mining to manufacturing — in theory, a longstanding aim of industrial policy; in practice, a policy instrument that has been largely ignored over the past 15 years.
Obviously, neither solution works in the long run because they maintain the dependence on coal-fuelled electricity. As the climate crisis worsens the scope for exporting coal-based products will narrow. The challenge over the longer term is to shift towards renewable energy, which South Africa also has in abundance. That will require far larger investments as well as technologies that are able to regularise the electricity supply from wind and solar.
The ferrochrome story suggests two underlying questions. First, why did it take a year to develop a rescue plan for ferrochrome? Second, why did Nersa and the Treasury come to the party only after Glencore had stepped up?
The electricity subsidy could be beneficial in the long run if it functions as a transition to the implementation of the Glencore plan. But unless handled carefully, the risk is that officials and business will lobby to extend it after 2026 and let Glencore’s transformative approach fall off the table.
In that case, South Africa would once again have opted for a subsidy to maintain established production systems, rather than taking advantage of the opportunity to transform economic relationships.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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