Structural Transformation Along Metals, Machinery and Equipment Value Chain – Developing Capabilities in the Metals and Machinery Segments

South Africa's industrial development trajectory has centered on the mining, metals and energy value chains. The mining and basic metals industries were beneficiaries of favourable electricity tariffs, investment and logistics support aimed at promoting its competitiveness. Subsequently, the post-apartheid state has grappled with how to engage with the main companies, including in responding to global developments. At the same time, there have been confusing signals and measures from different departments and public institutions. While the upstream industries received substantial subsidisation, there has been limited assistance for the downstream industries. The study assessed the status of structural transformation along the metals, machinery and equipment value chain post-apartheid, taking into consideration its links to energy, mining, procurement, and skills policies. In-depth interviews were conducted to gain a deeper understanding of the nature of investment, the impact of policy on business decisions and performance, and how the interaction of industrial policy instruments impact business growth and development. The main findings showed that structural transformation in the machinery and equipment value chain remains limited, despite its importance as the heart of the industrial base in South Africa, not to mention its contribution towards employment and gross value added. This is mainly due to the fragmentation of policy, which – on balance – has provided support and incentives to the upstream sector at the detriment of downstream sectors, together with a lack of support for downstream sectors which liberalised and are increasingly internationalised. While investment incentives have also been offered to downstream sectors, these have not resulted in industry-wide structural change for several reasons discussed in the paper