Manufacturing in South Africa at Risk
The Manufacturing sector in Africa’s largest economy has continued to see a downward spiral with challenges around high energy and transport costs, as well as onerous policy and labour requirements starting to erode, what was once the manufacturing powerhouse of Africa.
The Government has only today, announced softening of anti-competitive regulations that will now open the way for manufacturing companies to jointly develop independent power supply and to be able to seek collective tariff structures across competing companies. There have also been recent moves to open up private operator licences within the rail sector after decades of decline in rail infrastructure and volume capacity.
The recent closure of metal industry manufacturers and the eminent threat of closures in the chrome industry is indicative of the headwinds that decades of above average energy cost increases, transport tariffs due to rail transport collapse as well as growing wage demands has had on the sector.
Are the latest attempts by the administration all a little too late to turn the decline around?
Lets unpack what the latest ABSA PMI index reveals.
Manufacturing conditions remained strained in December, but firms are upbeat about the outlook for 2026
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) decreased further by 1.5 points to 40.5 points in December 2025, remaining firm in negative growth territory. The drop alone is concerning but taken in the perspective of the index history it drives home a clear slow-down in manufacturing. The 40.5 mark is the lowest level reached by the index in almost six years with the low point of 40.1 reached in February 2020 – right at the start of the Covid era is indicative of how bad the current situation is.
Some of the key factors influencing the index rating in December were the sharp decline in the inventories index, as well as a steep decline in the employment index. This points to the inability of the sector to drive any meaningful growth that would spur further employment as well as doubtful fears of further sales orders that lowered first quarter manufacturing stock inventories.
New sales orders were barely changed from November but are at an ongoing subdued level. While business activity actually improved during the month, it remained below the 50 mark indicating less business activity than the normal trend.
The headline PMI provides a disturbing picture in the manufacturing sector that signals conditions in the sector remained tough. On the up-side, the index tracking expected business conditions in six months’ time saw a positive 18.1 points improvement to 68.8 in December. This is the highest level since the 70.8 reached in September 2024.
Month -on-Month Comparison
Relative to November, the new sales orders index dipped marginally to 35.4 in December, down from 34.6 in November, however far off the 48.8 points in October and 52.9 recorded in September 2025.
The decline in sales was primarily driven by the a drop in the domestic economy, as there were some improvements in export orders; however, these were insufficient to make a significant contribution to a turnaround in demand.
The business activity index increased by 9.4 points to 46.1 in December. While remaining below the neutral level, the increase was a relatively good improvement compared to typical month-on-month movements. The index has however been in contraction for eleven of the twelve months in 2025, highlighting the continued persistence of weak underlying business conditions.
Growth Hurdles Affecting Employment Scope
The employment index saw a large drop-off of 6.3 points in December, falling further below the neutral 50-point mark and remaining in contractionary territory since April 2024. The weak performance in business activity and volatile sales orders continues to limit the scope for hiring, while shortages of specialised skills in certain niche industries also weigh on employment outcomes. The supplier deliveries index remained at similar levels, edging down to 45.1 points in December from 45.5 in November.
The purchasing price index declined further by 4.5 points to 50 in December, the lowest level since late 2009. While the fuel, and particularly diesel prices, increased at the start of December, the stronger rand exchange rate likely helped alleviate input cost pressure. The sharp decline in diesel prices at the start of 2026 is expected to further help contain price pressures in the new year.
Rapid Meaningful Adjustments Required
The data does not lie and there is sufficient evidence here to compel rapid reforms by the administration, if they wish to save further declines in this important employment creation sector of the economy . There is no further room to delay nor time to make small adjustments. The changes must be focussed, provide real value to the manufacturing sector, and they need to happen rapidly for any meaningful turn-around to occur.
