SEIFSA report flags material risks facing metals and engineering sector in 2026

South Africa’s Metals and Engineering M&E sector is heading into a challenging 2026, according to the latest State of the Metals and Engineering Sector Report 2026 released by the Steel and Engineering Industries Federation of Southern Africa (SEIFSA).

The comprehensive report paints a sobering picture of an industry still recovering from a prolonged downturn while facing mounting structural and global pressures. From rising electricity costs to constrained domestic demand and intensifying geopolitical shifts, the sector’s outlook remains fragile.

Emerging from a Multi Decade Downturn

“Overall, we are emerging from a multi-decade downturn reflected across production, employment and capacity utilisation indicators. The 2025 data reaffirm this trajectory,” says SEIFSA Chief Executive Officer, Tafadzwa Chibanguza.

Latest full year estimates for 2025 reveal that production declined by 1.6%, following a 1.4% drop in 2024. Employment also contracted by 0.43%, reinforcing concerns about sustained job losses in a sector that contributes approximately 5% to South Africa’s GDP.

While the pace of decline may appear moderate, the cumulative impact over several years highlights the structural strain on one of the country’s most systemically important industries.

The Key Risks Shaping 2026

“A number of material risks will shape the sector’s outlook in the coming year, and they require close monitoring,” warns Chibanguza.

Among the most pressing risks:

Electricity tariffs Although load shedding has largely subsided, sharply rising electricity prices have become the dominant cost threat to manufacturers.

Public procurement delays the finalisation and operationalisation of the public procurement framework is critical to unlocking infrastructure driven demand.

Energy and logistics reforms Early reform gains are visible, but they have not yet translated into sustained order books for firms.

Deteriorating municipal services Companies are increasingly forced to self-fund essential services due to local government failures.

Geopolitical pressures Rising industrial policy in major economies particularly the United States and Europe risks trade friction and global value chain disruption.

Public private partnership risks While PPPs are gaining traction, there is concern that financial efficiency could overshadow the need to strengthen domestic productive capacity.

Insufficient Demand the Structural Constraint

One of the most significant challenges facing the sector is weak domestic demand.

“Looking ahead and defining the problem, a central structural constraint remains insufficient demand in the economy. The production capacity exists, but the weak economic environment means that there is no demand.”

The issue is both global and domestic in nature.

“We are operating in a structurally punitive environment for two principal reasons. Globally, countries are turning inward through aggressive tariff and non-tariff measures, constraining export potential. Domestically, fiscal headroom has narrowed significantly, limiting the scale of state-led infrastructure expansion,” says Chibanguza.

Green Shoots Offer Cautious Optimism

Despite the challenges, there are encouraging signals in the broader economy.

South Africa exited the Financial Action Task Force grey list in October 2025, achieved early gains from energy and logistics reforms, saw a flattening yield curve, and received an upgrade from S&P Global Ratings in November 2025, the country’s first ratings upgrade in nearly two decades.

“There are definitely green shoots, and ideally, we should capitalise on these green shots. But the development state has run out of fiscal runway,” says Chibanguza.

These observations align with assessments from the International Monetary Fund, which continue to caution that public debt remains elevated and fiscal consolidation pressures persist.

The Path Forward Structured Public Private Partnerships

With limited fiscal space available, large-scale infrastructure led reindustrialisation cannot be funded by the state alone. Instead, SEIFSA points to structured public private partnerships as a practical solution to mobilise private capital, share risk and strengthen execution capacity.

A key mechanism in this approach is the Credit Guarantee Vehicle developed by National Treasury, designed to improve project bankability and attract investment into infrastructure initiatives.

In addition, unsolicited bids from private sector players offering localised infrastructure solutions could accelerate implementation, provided governance standards and competitive neutrality are upheld.

A Pivotal Year Ahead

As 2026 approaches, the Metals and Engineering sector stands at a crossroads. Structural constraints, rising costs and global trade headwinds continue to weigh heavily. Yet reform momentum and renewed investor confidence offer a narrow window of opportunity.

The decisive question for policymakers and industry leaders alike is whether South Africa can convert green shoots into sustained industrial recovery before structural pressures deepen further.