As South Africa enters 2026, a striking irony defines its economic landscape at this point. The country enjoys an unprecedented electricity surplus, with Eskom reporting over 230 consecutive days without load-shedding and significant unplanned outages reduced. Private investments in rooftop solar is estimated at 7.3 GW by late 2025, have bolstered this stability, allowing older coal plants to be mothballed and creating cold reserves exceeding 13,000 MW in some periods (see report here).
Yet, this hard-won reliability comes at a steep cost. Manufacturing sectors like automotive, metals processing, and textiles are in sharp decline, with purchasing managers’ indices (PMI) plunging to levels not seen since Covid lockdowns—dipping to 42.0 in late 2025. The paradox underscores a deeper malaise: surplus capacity masks structural failures that are driving industry away.
Cause of the Collapse of Industry
The root cause lies with Eskom, the state-owned utility burdened by approximately R400 billion in debt, accumulated through years of corruption, inefficient tenders, and a bloated workforce. To service this debt and fund operations, Eskom has relied on steep tariff hikes. Tariffs have increased by around 234% in the last decade. In 2026, households and businesses face further increases of around 12-15%, with NERSA approving adjustments that, while lower than initially requested, still exacerbate already high costs.
Energy-intensive industries, already reeling from global competition, find these prices untenable. Private solar adoption, while alleviating load-shedding, has shrunk Eskom’s customer base, forcing higher tariffs on remaining users to offset fixed costs—an “own goal” that punishes loyal industrial consumers.
This energy squeeze compounds broader regulatory burdens stifling growth. South Africa’s policy framework, designed for redress, often deters investment. Broad-Based Black Economic Empowerment (BEE) policies, mandating racial and gender targets across sectors, face mounting criticism for repelling foreign capital and prioritizing compliance over merit. Over half of South Africans now favor scrapping BEE, according to the South African Reconciliation Barometer, viewing it as benefiting a connected elite rather than broad transformation. Rigid labor laws, high corporate taxes, and extensive red tape—including employment equity quotas lacking clear racial classification mechanisms—further erode competitiveness. These factors create an environment where starting or expanding businesses feels punitive.
Disinvestment Draining Growth Potential
The fallout is evident in disinvestment trends. Mining giants, once anchors of the economy, are shifting new projects abroad, citing regulatory uncertainty and costs. Anglo American’s restructurings and exits have notably reduced foreign direct investment outflows. Steel and metals industries teeter on collapse, while automotive manufacturing—vulnerable to global shifts—sees production contraction. Foreign banks have accelerated exits: HSBC fully withdrew in 2025, transferring operations to local players like FirstRand, following BNP Paribas and others. In 2025 alone, major internationals like IG Group, Bain & Co., and Nielsen joined the exodus, signaling diminished confidence in South Africa’s market.
Compounding this, few genuine growth industries have emerged to replace declining sectors. While fintech and renewables show promise, structural barriers limit scale-up. Banking and finance, traditionally robust, suffer from retreating globals, leaving gaps in expertise and capital. GDP growth forecasts for 2026 hover at a meager 1.3-1.5%, far below potential, constrained by weak investment, political uncertainty, and external pressures like U.S. tariffs.
Is there a Pathway Away From Stagnation?
Where to from here? Without decisive action, industry will continue seeping to more hospitable neighbors like Namibia, Botswana, or even East Africa. Mining disinvestment risks becoming irreversible, and manufacturing’s downward spiral could deepen unemployment—already critically high.
A sensible pathway demands bold reforms. First, energy prices must fall. Partial privatization of Eskom generation or transmission, coupled with competitive wheeling through private grids, could introduce market discipline. Recent electricity reforms opening the sector to private trading in 2026 offer a start, but implementation must prioritize affordable tariffs over debt recovery.
Second, regulatory overhaul is essential. Streamlining BEE toward skills development and genuine entrepreneurship—perhaps phasing out strict quotas—would attract investment without abandoning transformation goals. Easing labor laws for SMEs and cutting red tape could unleash job creation.
Third, catalysts for growth include infrastructure unlocks: faster visa reforms for skilled workers, incentives for green manufacturing (leveraging solar surplus), and aggressive promotion of critical minerals beneficiation. Government-business partnerships, as emphasized in recent outlooks, must drive structural reforms to boost confidence.
South Africa stands at a crossroads. Its energy surplus proves systemic issues can be tackled with resolve. Extending that resolve to costs, regulations, and investment climate could ignite recovery, positioning Africa’s largest economy for sustained growth. Failure to act risks prolonged stagnation, ceding ground to regional competitors. 2026 could mark renewal or further decline catalyst or further collapse.
