The South African iron and steel industry needs to reduce its greenhouse gas emissions while supporting the country’s economic growth. However, despite the country’s renewable energy and iron ore resources, the sector struggles to attract investments in iron and steel decarbonisation projects. This chapter provides a brief overview of the OECD Framework for industry’s net-zero transition and describes the implementation process of this Framework in South Africa in 2023-2025, highlighting the stakeholders involved in this project and the key milestones. Furthermore, the chapter presents the status of the manufacturing industry in South Africa through a series of indicators. Lastly, building on these indicators, the chapter justifies the selection of the iron and steel sector for the Framework implementation.
Implementing the OECD Framework for Industry’s Net‑Zero Transition in South Africa
Abstract
The iron and steel sector is a backbone to South Africa’s economy, representing 1.5% of the country’s Gross Domestic Product (GDP) and accounting for around 200 000 jobs (InvestSA, 2025[1]). However, amidst international competition and challenging domestic conditions, the South African iron steel industry struggles to achieve its dual objective: support the country’s economic growth and decarbonise. A paradigm shift is required in financing options and investment opportunities for the sector. A variety of measures can address risks and barriers to make low-carbon technologies attractive for investors and unlock the necessary capital to achieve South Africa’s industrial ambitions.
This country report identifies bottlenecks complicating or constraining finance and investment in South Africa’s iron and steel sector, and provides a series of recommendations and an action plan to overcome these barriers. Specifically, the report seeks to identify solutions that can scale up finance and investment in three low-carbon options: renewable hydrogen-based iron and steel production, carbon capture and use for blast furnaces (BF) and energy efficiency solutions for scrap-based electric arc furnaces (EAF).
The iron and steel sector and the aforementioned technologies have been selected in line with government priorities to decarbonise hard-to-abate industries and reap the benefits of South Africa’s renewable energy and raw materials potential. The identification of barriers, potential levers and recommendations have been informed by a consultative process and regular meetings with international and domestic stakeholders between April 2023 and August 2025.
The report is structured in four chapters. Chapter 1 provides an overview of key indicators relevant to the policy landscape, economic performance and climate and investment-related conditions in South Africa, focussing on the manufacturing industry and the steel sector. Chapter 2 describes possible net-zero pathways to decarbonise the steel sector and presents the results of an economic assessment of the three selected low-carbon options. Chapter 3 illustrate how a series of financial levers can improve the profitability of low-carbon options, building on the economic assessment in the previous chapter. It then explores, more broadly, the main barriers faced to implement the low-carbon projects on the ground in South Africa, and which levers and solutions (including policies, regulations, market-based solutions and financial instruments) could address these barriers. Chapter 4 proposes a series of recommendations to be implemented in the next 5 years to accelerate the decarbonisation of the iron and steel sector in South Africa.
1.2.1. Description of the Framework
The OECD Framework for industry’s net-zero transition: Developing financing solutions in emerging and developing economies (hereinafter “the Framework”) is a step-by-step approach to assist emerging and developing economies to improve the enabling conditions, and identify financing solutions, that can accelerate industry’s transition at a country level, in alignment with the Paris Agreement goals and national objectives (OECD, 2022[2]). The objective of the Framework is to create a conducive environment for investment in low-carbon technologies,1 and enhance the availability of finance to reduce the greenhouse gas emissions of the industry sector (OECD, 2022[3]).
The Framework acknowledges the diverse needs and capabilities of industries across countries and sectors and proposes a flexible methodology that can be tailored to local context. While focussing on policy and financial instruments to stimulate investment in low-carbon technologies, the Framework recognises the importance of a holistic strategy to decarbonise the industry sector that includes for instance the entire industry value chain, the development of infrastructure, and industrial and trade policies.
The Framework does not seek to develop comprehensive sectoral roadmaps but instead focuses on analysing how to enhance the viability of critical technologies that can achieve significant emissions reductions, leveraging policy and financing solutions. While a select number of options will be explored, this does not suggest they are the only pathways to decarbonisation. A broad spectrum of solutions will be necessary for a holistic approach to decarbonising these sectors. However, the implementation of the Framework will concentrate on a subset of these options, offering targeted support for their development and adoption.
The Framework is a collaborative approach with policymakers, industry actors and finance institutions who are contributing or willing to decarbonise the industry and finance the transition (see Figure 1.1). These stakeholder groups benefit from the Framework in different ways: policymakers will gain insight into the cost and benefits of industry transition and the related solutions, ultimately contributing to a better-informed national energy and climate policy making; industry actors will learn about solutions that can help to improve the enabling conditions for low-carbon technology development; and finance institutions will have a better insight into the financing instruments and business models needed for industry transition, which will help them to prioritise and expand their markets (OECD, 2022[2]).
Source: (OECD, 2022[2]).
The Framework proposes a five-step approach with an expected implementation of 12 to 24 months (see Figure 1.2). Pillar 1 of the Framework aims to select an industry scope/subsector (hereinafter the “Focus Area”) through engagement and consultations with key stakeholders (“Step 1”), as well as background research and collection of socioeconomic, industrial, energy and investment data related to decarbonisation of the manufacturing industry (“Step 2”). Pillar 2 presents the analytical core of the Framework implementation, including economic assessment of the low-carbon technologies identified for the transition of the Focus Area (“Step 3”) and the identification of solutions for improving the enabling conditions and financing instruments to overcome the barriers to investment in selected low-carbon technology (“Step 4”). Pillar 3 revolves around the dissemination of the Framework’s outcomes through outreach activities to help stakeholders gain insights about the benefits of the Framework (“Step 5”).
Source: (OECD, 2022[2]).
1.2.2. The implementation of the Framework in South Africa for decarbonisation of the steel industry value chain
The implementation of the Framework is one of the key activities of the Clean Energy Finance and Investment Mobilisation (CEFIM) programme in South Africa. The CEFIM programme aims to support governments in emerging economies in Africa, Latin America, and South and Southeast Asia to enable finance and investment in decarbonisation of industry, renewables and energy efficiency.
Building on the co-operation between the Government of South Africa and the OECD, this Framework supports South Africa’s efforts to realise its transition towards net-zero emissions by proposing practical steps to facilitate the development of market and financing solutions for the net-zero transition of the manufacturing sector, and more particularly the iron and steel industry. The Framework’s objective is to contribute to improving the enabling conditions that impact the investment decisions in low-carbon technologies and enhancing the availability of finance for investments in the iron and steel industry.
The focus area was selected in line with the government’s key priorities and policies, including the Updated Nationally Determined Contribution, economic reconstruction and recovery plan, Just Energy Transition Partnership, investment plan for just energy transition, Steel and Metal Fabrication Master Plan, and Green Hydrogen Commercialisation Strategy. The choice of the iron and steel sector was informed by stakeholder consultations and background research, highlighting that it is one of the main energy consumers and accounts for almost one third of the entire CO2 emissions of the manufacturing industry. The Government of South Africa expressed interest in extending the analysis for other emissions-intensive industrial subsectors, building on the learnings of this first implementation of the Framework.
The Framework brought policymakers, industry stakeholders and finance institutions together to assess the industry’s specific needs and challenges in transitioning to net-zero emissions and support the project’s implementation. Among those, the Department of Forestry, Fisheries and the Environment (DFFE) was the focal point for CEFIM in South Africa, and the Department of Trade, Industry and Competition (the dtic) chaired the different stakeholder meetings and served as the contact point with the Government of South Africa.
These stakeholders met periodically in Project Steering Committee (PSC) and Technical Advisory Committee (TAC) meetings. PSC meetings were comprised by the DFFE, the dtic, the National Treasury, the Department of Science and Innovation, the Banking Association of South Africa and the South African Iron and Steel Institute, which were responsible for setting the work and time plan and overseeing the activities and outcomes of the Framework implementation. Meanwhile, TAC meetings aimed at providing expert reviews and inputs to OECD analysis to help prepare deliverables and resolve challenges.
A total of 10 PSC meetings and 4 TAC meetings have taken place in virtual and in-person format. These meetings brough together over 40 organisations representing government, civil society, industry, developers, financial institutions, international donors and multilateral development agencies. The key milestones of these meetings are summarised in the following table:
Note: PSC: Project Steering Committee; TAC: Technical Advisory Committee
1.3.1. Macroeconomic context
South Africa's economy is on a growth trajectory but is constrained by different challenges including infrastructure shortcomings and insufficient investment. South Africa is a middle-income country with a population of 63 million people and a Gross Domestic Product (GDP) of ZAR 6.8 trillion (USD 381 billion) as of 2023 (World Bank, n.d.[4]).2 South Africa’s economy has recovered to its pre-pandemic levels, but the GDP growth was limited to 0.7% in 2023 and projected at 1% in 2024, due to recurrent power cuts, low productivity, low employment and high public debt. However, recent infrastructure and investment reforms are expected to boost the economy by 1.5% in 2025 and 1.7% in 2026 (OECD, 2024[5]).
South Africa's fiscal balances faced growing pressures in recent years, mainly driven by weakening export performance and currency depreciation. The fiscal deficit remained at 4.6% of GDP during FY 2021/22 and FY 2022/23, maintaining the same pre-pandemic levels (CEIC, 2024[6]). The current account deficit widened from 0.5% of GDP in 2022 to 1.6% in 2023 as the import bill grew due to lower prices for commodity exports and depreciation of the rand. Indeed, the South African rand experienced a significant depreciation of 12.4% against the US dollar, averaging 18.40 rand per dollar between 2022 and 2023. This weakening was primarily driven by a substantial decline in export performance, with total exports falling by 11.5%, from ZAR 207 billion (USD 12 billion) in 2022 to ZAR 185 billion (USD 10 billion) in 2023 (African Development Bank, 2024[7]).
Sovereign debt in South Africa remains high, hindering investment and economic growth. Since the global financial crisis in 2008, South Africa has experienced one of the most significant increases in government debt as a share of GDP, with a 47.2% rise between 2008-2022. This debt accumulation has driven a sharp escalation in debt-service costs, which now absorb over 20% of main budget revenue, creating significant fiscal constraints (Department of Trade, Industry and Competition, 2023[8]). In 2023, debt-service costs reached ZAR 354 billion (USD 19 billion) and they are projected to increase by 30% by 2026/27, further straining public finances (South Africa Reserve Bank, 2023[9]). Additionally, borrowing costs have risen across the yield curve, reflecting investor concerns over South Africa’s fiscal sustainability and the elevated risk premium demanded for holding its debt. As of now, the country's gross debt stock stands at ZAR 5.2 trillion (USD 280 billion), equivalent to 73.9% of GDP, underscoring the pressing need for fiscal consolidation and structural reforms to address this growing debt burden (National Treasury, 2024[10]).
South Africa’s inflation moderated in 2023 but remained elevated in comparison to pre-pandemic levels. Since the South African Reserve Bank (SARB) assumed control of interest rates in 2000, inflation has stabilised but remained persistently high, hindering capital formation and curbing domestic savings. While inflation saw significant declines during the global financial crisis in 2010 and the COVID-19 Pandemic in 2020, it has largely stayed within a range of 4–8% between 2000–2022, exceeding the G20 average (3.5%) (OECD, n.d.[11]). This enduring high inflation is primarily driven by elevated wage and price-setting practices aimed at addressing short-term inflation, coupled with low competitiveness of domestic businesses and entrenched high inflation perceptions among the public (Department of Economic Development and Tourism, Mpumalanga Province, 2024[12]). Yet, 2023 marked a turning point where inflation started to decline. Notably, inflation declined to 5%, down from 6.9% in 2022 and the annual consumer price inflation, measured by the consumer price index (CPI), stood at 5.1%, an improvement from 5.5% in 2022. As of April 2025, inflation has further declined to 2.8%, down from 4.4% in 2024. This decline is largely attributed to tight monetary policy measures implemented by the SARB and a decline in fuel prices, which eased inflationary pressures (Statistics South Africa, 2024[13]).
The manufacturing industry is one of the main drivers of the national economy, contributing 12% to the total GDP in 2022, which equates to approximately ZAR 871 billion (USD 50 billion), despite a significant contraction since 1990. The industry’s share of GDP declined from 24% to 12% between 1990-2010 but has stabilised at 10-15% between 2010 and 2022. Over the same period, however, the real output of the manufacturing sector has nearly doubled, with a significant increase between 2002–2005, and has reached USD 50 billion in 2022 (see Figure 1.3 Panel A). This shift can be attributed to substantial government spending, tax incentives for businesses and infrastructure development projects that the government implemented as a response of the global financial crisis (Chikobvu, 2023[14]). The petrochemical, food and fuel industries accounted for around 50% of real value added to the GDP and 24% of exports from the manufacturing sector in 2018. Furthermore, the iron and steel industry contributed ZAR 18.6 billion (USD 2.4 billion) to the GDP, representing 4% of the manufacturing value added and 13% of exports (Department of Trade, Industry and Competition, 2000-2018[15]).
South Africa’s manufacturing industry builds on its large natural resources, in particular in the mining sector. Mining and mineral beneficiation plays a pivotal part in South Africa’s economy. The country’s mineral reserves are among the most valuable in the world. South Africa has the world’s largest reserves of platinum group metals and manganese, and some of the largest gold, diamonds, chromite ore and vanadium deposits. South Africa’s mining industry is the fifth largest globally in terms of gross domestic product (GDP). In 2018, the mining sector contributed ZAR 356 billion (USD 21 billion) or 7.3% to South Africa's GDP and accounted for 25% of the country's total export earnings (Invest SA, n.d.[16]).
The manufacturing employment has declined since 2008. In 2008, the manufacturing industry employed 1.9 million workers. By 2022, this number had decreased by 15%, bringing employment numbers to 1.6 million workers, which represented 10% of total employment in the country. From these, approximately 12% were concentrated in the food, beverage and tobacco industry; 7% in the chemicals, fertilisers, plastics and rubber industry; and 6.5% in the wood, pulp and paper industry (see Figure 1.3 Panel B).
Note: In Panel B, female labour force in manufacturing is measured in millions (right axis).
Source: Authors based on (UNIDO, 2023[17]; World Bank, 2023[18]; Statistics South Africa, 2024[19]).
Additionally, there still are disparities in employment equity of the manufacturing sector. Despite continuous efforts from the government, employment in the manufacturing sector is still imbalanced. Women comprise one third of the manufacturing workforce, mainly concentrated in the clothing and textiles sector (Magketla, 2024[20]). Also, African labour force accounts for 65% of total employment in the manufacturing, but they only occupy 10% of top management level positions (see Figure 1.4). Numerous policies have been put in place to empower minorities, including the Employment Equity Act of 1998 which aims to eliminate unfair discrimination and promote equitable representation of employees from different race, gender and disability groups in the workplace (Department of Labour, 2017[21]). Furthermore, the Black Industrialists Policy is a national programme aligned with the Black Economic Empowerment policy of South Africa, which seeks to increase the participation of black industrialists in the national manufacturing sector. So far, the scheme has supported 1 614 businesses and created 282 000 jobs (Department of Trade, Industry and Competition, 2024[22]).
Note: The South African Department of Employment and Labour provides statistics for five “population groups”: African, Coloured, Indian, White and Foreign National. The manufacturing employment data are provided in absolute values in Panel A, and in percentage values in Panel B.
Source: Authors based on (Department of Employment and Labour, 2023-2024[23]).
Over the past two decades, the manufacturing sector has evolved into a more capital-intensive industry. Notably, the capital-to-labour ratio in manufacturing has doubled since 2000, increasing from ZAR 1.5 million (USD 80 000) to ZAR 3 million (USD 160 000) of capital stock per employee. This increase, which has largely converged with the ratio of upper-middle income countries, is due to growth in capital-intensive industries, such as petrochemicals, automotives, and the steel and food industries (UNCTAD Stat, 2023[24]). Yet, after the global financial crisis in 2008, the capital-labour ratio of the manufacturing sector started to decrease below upper-middle income countries’ levels (Fortunato, 2022[25]). Since mid-1990s, the manufacturing sector has experienced negative employment growth despite achieving productivity gains (Bhorat and Oosthuizen, 2020[26]).
1.3.2. Energy and climate context
South Africa is still heavily reliant on fossil fuels. South Africa's energy consumption amounts to 62 million tonnes of oil equivalent (Mtoe), i.e., 2600 petajoules, and remains heavily reliant on coal, which accounted for 71% of the primary energy supply in 2022, followed by crude oil at 20% and biofuels and waste at 3%. Natural gas contributed 2.5%, nuclear energy 2%, and wind and solar just 1% to the total primary supply in the same year (IEA, n.d.[27]). The foreseen shortage of natural gas supply is threatening the continuity of operations of large-scale industrial users, with pipeline gas from Mozambique expected to end by mid-2028 and liquefied natural gas (LNG) infrastructure still in development (Nozulela, 2025[28]).
Electricity demand in South Africa has increased by 23% between 2000 and 2023, with coal representing more than 80% of the total electricity generation. Electricity demand in South Africa has grown substantially from 200 terawatt-hours (TWh) in 2000 to 247 TWh in 2023 and is projected to increase further, reaching 256 TWh by 2030 (28% increase since 2000) and a significant 422 TWh by 2050 (111% increase since 2000) (Department of Mineral Resources and Energy, 2024[29]; Bansal, 2022[30]). In 2023, electricity represented 26% of the country’s total final energy consumption (IEA, n.d.[27]). Eskom, South Africa’s national electricity utility, remains the dominant player in the electricity sector, supplying 75% of the country’s electricity, with 84% of its generation sourced from coal (Eskom, 2023[31]).
South Africa is pursuing renewable power development, although the current share of renewables remains limited. Since the mid-2010s, there has been a growing push toward diversifying the energy mix, with renewable sources gaining traction, in particular for electricity generation (Department of Mineral Resources and Energy, 2023[32]). The National Development Plan, Vision 2030 (NDP), introduced in 2014, set a goal of achieving 20.4 GW of renewable electricity capacity by 2030, including 14.4 GW from wind (45.7% of total new capacity) and 6 GW from solar photovoltaic (PV) (19.1% of total new capacity) (Department of Mineral Resources and Energy, 2023[33]). The electricity mix has increased from 1% to 5% between 2011 and 2022, primarily through wind and solar projects (see Figure 1.5) (Department of Mineral Resources and Energy, 2023[33]; Department of Mineral Resources and Energy, 2024[29]). As of 2023, the country had an installed renewable energy capacity of 12.9 GW, with solar power leading at 47% (6.1 GW), followed by wind and hydropower, each contributing 26% (3.4 GW) (IRENA, 2024[34]). South Africa is categorised as the second-best country in Africa for opportunities in renewables manufacturing, such as solar PV or battery material refining, thanks to high manufacturing value added, infrastructure availability and low importation costs (Sustainable Energy for All, 2023[35]).
Note: The percentage shows the share of renewable energy of total electricity output. The spike in 2004 is attributable to a statistical anomaly, resulting from an extended reporting period that covered 15 months—from 1 January 2004 to 31 March 2005—instead of the standard 12 months.
Source: Authors based on IRENA statistics.
South Africa has faced electricity supply challenges since the late 2000s, worsening significantly between 2019 and 2023, with record levels of load shedding and unserved energy. Eskom's Energy Availability Factor3 reached 51% in 2023 and increased to 60% in 2024, compared to a target of 70% and an international benchmark of 78%. Major factors include a dysfunctional management system, aging and deteriorating coal-fired power plants and high debt which has hindered Eskom’s ability to invest in new infrastructure (National Treasury, 2023[36]). In response, the government announced a 2023/24 debt-relief plan covering 60% of Eskom’s debt. In addition, it implemented market reforms, including removing licensing thresholds for embedded generation to enable private developers to invest in off-grid or wheeling projects and providing incentives for rooftop solar PV investments (Cunliffe, 2023[37]).
South Africa remains a significant contributor to carbon emissions. With a coal-dependent energy sector, South Africa is the largest CO2 emitter on the African continent, responsible for over 34% of Africa’s total CO2 emissions, and ranks as the 14th largest emitter globally (IEA, n.d.[27]; World Resources Institute, 2023[38]).4 In 2022, the country emitted approximately 478 Mt of energy-related CO2e, i.e., 7 tonnes of CO2e per capita. The electricity and heat production was the dominant contributor, accounting for nearly 60% of total emissions, driven by the country’s reliance on coal-fired power plants. The transport sector was the second contributor (12%), primarily due to road and freight activities, followed by manufacturing, mining and construction (11%), underscoring the emissions intensity of South Africa’s industrial landscape (IEA, n.d.[27]).
Industry accounts for 38% of South Africa’s total final energy consumption, although the manufacturing sector energy consumption has decreased since 2000. In 2022, the manufacturing industry consumed 11 Mtoe of energy (460 petajoules), marking a decrease of 30% since 2000, notably because of the reduced activity or closure of energy-intensive plants (see Figure 1.6 Panel A). The iron and steel industry was the largest energy consumer in South Africa, using a total of 4 Mtoe (170 petajoules). The chemicals and petrochemicals as well as the non-ferrous metal industries (e.g. aluminium, ferroalloys) consumed 3 Mtoe (120 petajoules) each in 2021 (see Figure 1.6 Panel C) (Statistics South Africa, 2024[19]). Coal remains the dominant energy source in South Africa’s manufacturing industry, contributing to around half of the total energy consumption, followed by electricity, representing more than a third of total energy consumption, and by gas (see Figure 1.6 Panel B). This energy mix has remained largely unchanged since 2000, with little diversification toward renewable energy sources.
The energy intensity of the manufacturing sector in South Africa is among the highest in the world, amounting to 1.72 MJ per 2015 USD of GDP PPP5 in 2018 (IEA, n.d.[27]). The metals industry, which includes highly energy-demanding processes like steel production (via Blast Furnace-Basic Oxygen Furnace and Electric Arc Furnace methods, detailed in the next section), stands out with the highest energy intensity, accounting for 47 MJ per USD of GDP PPP in 2021. Other significant contributors include the chemicals and petrochemicals industry, as well as the non-metallic minerals industry, both of which require vast amounts of energy for processes such as fertiliser production and cement manufacturing respectively (see Figure 1.6 Panel D).
Notes: Panel B: Electricity includes production from renewables and fossil fuels. Panel C: Other manufacturing includes transport equipment and machinery. Panel D: Energy intensity is calculated from manufacturing value added (USD in current prices) and energy consumption (MJ).
Source: Authors based on (IEA, 2024[39]).
Since the early 2000s, the direct emissions from the South African manufacturing sector have almost doubled, reaching 43 Mt of CO2e in 2022. The manufacturing sector’s direct emissions were equivalent to 9% of South Africa’s total CO2 emissions. In the same year, the iron and steel sector was the largest CO2 emitter among manufacturing industries (32% of overall manufacturing CO2 emissions), followed by chemicals and petrochemicals (25%) and non-ferrous metals (10%). Overall, over three quarters of the greenhouse gases emitted by the industry sector were due to energy emissions, followed by industrial processes and product use (IPPU) and waste (see Figure 1.7).6
Note: Panel A: IPPU stands for Industrial Processes and Product Use; total greenhouse gas (GHG) emissions are split as follows for the year 2022: energy: 374 Mt CO2e; IPPU: 30 Mt CO2e; waste: 20 Mt CO2e; and other (including agriculture): 53 Mt CO2e.
Note: Panel B: Subsector emissions in 2021 and 2022 are extracted from proxy data from National GHG Inventory Reports.
Source: Authors based on (Government of South Africa, 2024[40]; IEA, 2024[39]).
1.3.3. Financial market and investment overview
South African financial market consists of the South African Reserve Bank, which regulates banking activities; the Financial Services Bank, regulating non-banking institutions; the Central Securities Depositories Share Transactions Totally Electronic Limited, established as the central securities depository for uncertificated equity securities; and the Johannesburg Stock Exchange (JSE) Limited,7 the stock exchange in South Africa (Lawack-Davids, 2010[41]).
South Africa boasts the most advanced financial system in Africa, characterised by its highly developed banking, bond and insurance markets, which accounted for 380%, 130%, and 68% of GDP, respectively, in 2020 (World Bank, 2022[42]). The system is highly concentrated, with the top five banks controlling 90% of the market.8 The Banking Association of South Africa (BASA) reported that local banks provided ZAR 366 billion (USD 20 billion) for investment in manufacturing, ZAR 215 billion (USD 12 billion) for investment in infrastructure and ZAR 325 billion (USD 18 billion) for investment in sustainable development projects in 2023 (The Banking Association South Africa, 2024[43]). Similarly, the insurance sector is dominated by the five largest life insurance companies,9 holding 71% of total sector assets, while the five largest asset managers10 control 43% of assets under management. The pension fund industry is equally concentrated, with the Government Employees Pension Fund (GEPF) accounting for 41% of total pension assets (World Bank, 2022[42]).
South Africa has the largest African stock market, with a market capitalisation of 300% of GDP (ZAR 20 trillion or USD 1 trillion) in 2022. The JSE hosts around 354 listed companies, including major players such as Naspers Limited, FirstRand Limited, and Standard Bank Group (World Bank, n.d.[44]). The country also ranks second in Africa for private credit as a share of GDP, at 58% in 2021, just behind Morocco at 66%, underscoring the accessibility of financial instruments for consumers (World Bank, n.d.[45]). Additionally, the loan-to-deposit ratio stands at 2.8%, reflecting ample liquidity and a robust reliance on credit (World Bank, n.d.[44]). Despite ranking 84th globally on the Ease of Doing Business index, South Africa remains among the top 10 easiest operating environments in Africa, cementing its role as a regional financial and economic hub (World Bank, n.d.[45]).
In 2023, South Africa ranked as the second-largest recipient of foreign direct investment (FDI) in Africa, following Egypt, with total FDI inflows amounting to ZAR 95 billion (USD 5.3 billion), representing 0.4% of global FDI (UNCTAD, 2024[46]). However, this marked a sharp 43% decline compared to 2022 and an even more significant 86% drop from 2021. The extraordinary spike in 2021 was primarily attributed to a major corporate restructuring, specifically the share exchange between Naspers and Prosus in the third quarter (UNCTAD, 2021[47]). The recent decline in FDI inflows to South Africa is likely influenced by shifting investment patterns within Africa. Indeed, Western and Central African nations have emerged as increasingly attractive destinations, with countries like the Central African Republic and Guinea recording staggering FDI growth of 616% and 345%, respectively between 2021-2023 (UNCTAD, 2024[46]).
Since 2020, domestic investments in South Africa have stabilised, accompanied by an upward trend in 2024. In 2024, investments by the government and public corporations experienced significant growth, reaching ZAR 200 billion (USD 10 billion) and ZAR 122 billion (USD 6.5 billion) respectively, marking an increase of 5–10% from the previous year. However, these levels remain approximately one-third below their peak in the mid-2010s. In contrast, private investments have maintained stable over the past decade, and, in 2024, they increased by 4.5% year-on-year to a total of ZAR 845 billion (USD 45 billion). In 2024, the investment rate was at 14.5%, although it remains well below the 2050 15.3% (see Figure 1.8) (Trade & Industrial Policy Strategies, 2024[48]).
Source: Authors based on (Trade & Industrial Policy Strategies, 2024[48]).
The investments’ share of the manufacturing sector has slightly increased for the last two years. In 2023, gross fixed capital formation (GFCF) in manufacturing reached ZAR 86.7 billion (USD 2.7 billion), marking a slight recovery from the drop to ZAR 75.6 billion in 2021, but still well below the pre-pandemic level of ZAR 104.7 billion in 2019. Overall, the sector has seen an average annual growth rate of 2.7% in GFCF over the past twenty years (see Figure 1.9 Panel A). At the subsector level, the food, beverages, and tobacco, and the coke and refined petroleum industries have seen a substantial increase in GFCF, growing by 30–40% since 2010. In contrast, the chemicals and iron and steel sectors have experienced a decline of 20–25% in GFCF during the same period (see Figure 1.9 Panel B).
Note: Panel A: Investment data is extracted from Gross Fixed Capital Formation at constant 2015 prices.
Note: Panel B: Sectoral breakdown of manufacturing gross fixed capital formation is calculated with proxy data extracted from graph reading. All sectors with values above 50% are grouped under “Other manufacturing”.
Source: Authors based on (Centre for Competition, Regulation and Economic Development, 2023[49]) for Panel A, and (Statistics South Africa, 2024[19]) for Panel B.
In 2023, the JSE introduced a voluntary carbon credit trading market, marking a significant milestone in South Africa’s journey toward a sustainable and low-carbon economy. This platform allows local participants to trade carbon credits directly, fostering a more streamlined and accessible mechanism for offsetting emissions (JSE, 2023[50]). Early 2025, the JSE Ventures Voluntary Carbon Market powered by Xpansiv has facilitated the first trades of carbon credits eligible as offsets against the South African Carbon Tax. A total of 10 000 credits traded at USD 8.25 (ZAR 147) per credit, which is equivalent to approximately 60% of the 2025 carbon tax rate of ZAR 236 (USD 13.1) per tonne of CO2 (JSE, 2025[51]).
1.3.4. Governance of the manufacturing industry sector in South Africa
The governance of South Africa’s manufacturing sector is a multi-stakeholder system that involves numerous government ministries and regulatory bodies, industry associations, trade unions, the financial sector and civil society. Such a populated institutional framework requires effective co-ordination mechanisms to anchor all industry policies, strategies and plans.
Ministries and public agencies play a crucial role in industry and manufacturing development. The Department of Trade, Industry and Competition (the dtic) is the lead ministry whose mission is to create a predictable, competitive, equitable and socially responsible environment conducive to investment, trade and enterprise development. The dtic supports industries by improving their alignment with national policies and promoting competitiveness, trade and investment (Department of Trade, Industry and Competition, n.d.[52]). The Department of Electricity and Energy (DEE), the Department of Mineral and Petroleum Resource (DMPR) and the Department of Forestry, Fisheries and the Environment (DFFE) aim to help manufacturing industries by promoting energy efficiency and overseeing compliance with energy and environmental laws (Department of Mineral Resources and Energy, n.d.[53]; Department of Mineral Resources and Energy, n.d.[54]). Other public institutions include the National Treasury, which manages the funding for industrial programmes and tax policies related to the manufacturing sector; the Presidential Climate Commission (PCC), which aims to oversee and facilitate a just and equitable transition towards low-emissions and climate-resilient industry; and the International Trade Administration Commission (ITAC), which aims to promote investment and employment in South Africa (Government of South Africa, n.d.[55]; Climate Investment Funds, n.d.[56]; International Trade Administration Commission of South Africa, n.d.[57]).
Industry associations and trade unions also play a key role in promoting South African manufacturing industries. The Business Unity South Africa and the Congress of South African Trade Unions are key umbrella bodies representing industries and promoting policy discussions with the government and labour groups, including under the framework of the National Economic Development and Labour Council. Other associations include the South African Chamber of Commerce and Industry, the Manufacturing Circle, the South African Iron and Steel Institute (SAISI) and the National Business Initiative (NBI).
Additionally, there are many civil society organisations (CSOs) involved in South Africa’s industry, such as the Council for Scientific and Industrial Research (CSIR) and Trade & Industrial Policy Strategies (TIPS). These CSOs provide scientific support and data-driven analysis to manufacturing businesses and investors to better understand the challenges and opportunities for industry development, and improve policy implementation in South Africa.
The public financial sector has become crucial in the governance of the manufacturing sector in South Africa. The Development Bank of South Africa is the main South African government-owned development finance institution that provides finance for industry projects targeting decarbonisation and renewable energy generation in South Africa (Development Bank of South Africa, n.d.[58]). In addition, financial and non-financial support is also offered by the Industrial Development Corporation (IDC), which is fully owned by the government and works with the dtic (Department of Trade, Industry and Competition, n.d.[59]).
1.3.5. National strategy, development plans and policies
Aligning South Africa’s climate ambitions with its economic targets may necessitate a transformative role for the manufacturing sector. In its latest Nationally Determined Contribution (NDC) in 2021, South Africa committed to absolute emissions targets ranging from 350 to 420 MtCO₂e by 2030, including emissions from Land Use, Land-Use Change, and Forestry (LULUCF).11 The country also declared its intention to achieve net-zero emissions by 2050 (Department of Forestry, Fisheries and the Environment, 2020[60]). As a carbon and energy intensive economy, reaching these ambitious targets requires significant decarbonisation of the manufacturing sector – especially heavy industry.12 This entails transitioning away from coal and other fossil fuels towards low-carbon energy sources such as renewable hydrogen.
Decarbonisation scenarios are modelled quantitative pathways based on a set of assumptions, designed to achieve a given decarbonisation goal. Depending on their complexity, decarbonisation scenarios may include internally consistent pathways for different variables, such as emissions, energy use, energy supply, energy intensity, economic and sectoral variables (Pouille et al., 2023[61]).
As net-zero targets gain prominence, these scenarios play a critical role in operationalising national targets and advancing the transition to net-zero emissions. They are increasingly adopted by governments, private corporations and the financial sector to assess alignment with global climate ambitions and inform net-zero strategies. By making the link between long-term global warming and emissions pathway, these scenarios serve as benchmarks to evaluate the ambition gap between national commitments, articulated in nationally determined contributions (NDCs) and the overarching goals of the Paris Agreement (Pouille et al., 2023[61]).
The set of scenarios developed by the Energy Systems Research Group at the University of Cape Town in 2021 outline four distinct GHG emissions pathways, differentiated by (i) the projected economic growth rates (i.e. reference growth rate, assuming 2.2% annual GDP growth, and high growth rate, assuming 4.1%)13 and (ii) two policy scenarios:14
In the existing policies scenario, currently implemented measures are taken into account including the National Waste Management Strategy, the committed capacity in the International Resource Plan 2019, and also the retirement of Eskom’s coal plants as planned in the IRP.
In the planned policies scenario, announced policies are assumed to be successfully implemented, including the new capacity in IRP 2019, the Green Transport Strategy, the draft post-2015 National Energy Efficiency Strategy and the Carbon Tax.
Figure 1.10 shows that, under a scenario where planned policies are implemented alongside lower economic growth, South Africa is projected to achieve emissions of 360 Mt CO2e by 2035. This outcome falls within the country’s NDC target range of 350-420 Mt CO2e per year. Conversely, in the worst-case scenario, characterised by the absence of planned policy implementation, emissions could rise to 470 Mt CO2e per year, exceeding the upper limit of the target range by 12%.
Source: (Marquard et al., 2021[62]).
Achieving these goals will require innovation in production processes and policy frameworks that support sustainable industrial transformation. Currently, the government supports the transition towards green manufacturing through a set of cross-sectoral policies, programmes and regulations. In 2023, the country launched the Just Energy Transition Investment Plan (JET IP) to scale up investments in decarbonisation projects across key sectors, including electricity generation, new energy vehicles and renewable hydrogen. The overarching goal is to help South Africa meet its Nationally Determined Contributions (NDCs) and reduce greenhouse gas emissions. As of March 2025, commitments under the JET IP have reached USD 12.8 billion (ZAR 232 billion), supported by several countries and multilateral institutions (European Commission, 2025[63]; JET PMU, 2025[64]). To further accelerate implementation, the JET IP recently launched a Funding Platform aimed at facilitating access to finance for projects aligned with its objectives. This national initiative acts as a matchmaking mechanism, connecting local community initiatives, municipalities, and MSMEs with potential grant funding. Its ultimate goal is to develop a pipeline of viable, bankable projects while supporting local stakeholders in improving project preparation and ensuring inclusivity (Amato, 2024[65]).
South Africa’s Low-emissions Development Strategy 2050 (SA LEDS) lays out a phased roadmap to net‑zero emissions by 2050, promoting policy alignment of existing frameworks, including the National Development Plan, the National Climate Change Response Policy and the Climate Change Act with the Paris Agreement goals. For industry, the strategy prioritises specific technologies such as heat electrification, renewable hydrogen and CCUS for hard‑to‑abate sectors. It also links the tax incentives and other financial tools with the Industrial Policy Action Plan to draw investment into low‑carbon technologies (Department of Forestry, Fisheries and the Environment, 2020[60]). As one of the main industrial strategies, the Industrial Policy Action Plan (IPAP) of 2018/19–2020/21 focuses on promoting competitiveness of key sectors such as metals, chemicals, agro-processing and green industries. It encourages the use of local content requirements to support domestic manufacturing, alongside trade policy measures, including rebates, trade remedies and customs duty adjustments, to protect and stimulate emerging green sectors (Department of Trade, Industry and Competition, 2018[66]). The Climate Change Act, promulgated in 2024, proposes to establish Sectoral Emission Targets (SETs) for several sectors including industry that provide a clear framework for sectors to reduce their emissions. The first round of consultations on the SETs has been concluded in February 2025 by the DFFE. In addition, the Act will allocate mandatory carbon budgets to large greenhouse gas (GHG) emitting companies (Government of South Africa, 2024[67]; Department of Forestry, Fisheries and the Environment, 2024[68]; Department of Forestry, Fisheries and the Environment, 2025[69]). These initiatives, along with other key national policies, play a central role in South Africa’s approach to industrial decarbonisation, as summarised in Table 1.2.
South Africa’s presidency of the G20 in 2025 comes in the context of persistent structural challenges facing its industrial sector, including high energy and production costs, declining competitiveness and the urgent need to transition towards low-carbon manufacturing amid growing global climate commitments. Under its G20 leadership, South Africa is advocating for increased climate finance to support developing countries in their shift to low-carbon economies. This includes efforts by the Energy Transition Working Group to mobilise funding for renewable energy projects and to establish green industrialisation hubs that integrate clean energy production, critical mineral processing and advanced manufacturing.
Additionally, as part of the Trade and Investment Working Group, South Africa’s G20 Presidency prioritises trade, inclusive growth and international co-operation to promote structural transformation of developing countries. One of its key priorities is to advance on a G20 Framework or Pledge on green industrialisation and investments to promote sustainable development. It focuses on promoting mutual benefits of the green transition in a manner that fosters predictable trade, advances value addition and industrial development at source, ensuring shared prosperity and the integration of developing countries in global value chains.
South Africa is the first African country to develop a carbon tax policy. Implemented in 2019, this policy is anchored in the polluter-pays principle, requiring emitters to bear the financial burden of their greenhouse gas (GHG) emissions. The tax is applied to fuel inputs based on standardised emission factors and methodologies aligned with guidelines set by the Intergovernmental Panel on Climate Change (IPCC).
The carbon tax encompasses approximately 90% of South Africa’s total GHG emissions, excluding only agriculture, forestry, land use and waste. To ensure a smooth transition, the policy includes tax-free thresholds, allowances and provisions for carbon offsets during its initial phases. For instance, the industrial processes and product use (IPPU) sector benefits from basic tax-free allowances ranging from 60% to 70% of emissions, with additional allowances and offsets potentially increasing this to a maximum of 95% (Qu et al., 2023[72]). The carbon tax increased from ZAR 159 (USD 8.8) per tonne of CO2e in 2023 to ZAR 190 (USD 10.5) per tonne of CO2e and ZAR 236 (USD 13.1) per tonne of CO2e in 2025 per tonne of CO2e (National Treasury, 2024[73]).
In addition to the carbon tax, South Africa has implemented a range of environment-related levies and taxes at both national and local government levels. These include taxes on transport fuels, vehicle emissions, aviation, specific products, electricity, water supply and wastewater management. Among these, the general fuel levy has emerged as the primary revenue-generating instrument, contributing nearly 84% of the total environmental tax revenue (Qu et al., 2023[72]).
While fuel taxes are relatively high, there remains government support for fossil fuels that weakens incentives for decarbonisation. South Africa's fossil fuel subsidies tripled between 2018 and 2023, increasing from ZAR 39 billion (USD 2.9 billion) to ZAR 118 billion (USD 7.5 billion) (Anna Geddes, 2023[74]). This corresponds to almost 2% of GDP, which is well above the OECD and G20 averages of 0.6% and 0.4% of GDP (OECD, 2023[75]).
1.4.1. Overview of the iron and steel industry in South Africa
Industry structure
South Africa currently ranks as the 28th largest steel producer globally and the second largest in Africa, following Egypt, contributing 17% of the continent’s total steel output (World Steel Association, 2025[76]) In 2024, the country produced 4.7 million tonnes (Mt) of crude steel, representing a 52% decline from its 2006-peak of 9.7 Mt (see Figure 1.11 Panel A).15 Currently, South Africa’s basic iron and steel industry maintains a capacity utilisation rate of around 65% (Steel and Engineering Industries Federation of South Africa, 2024[77]).16 South Africa’s as a relatively old steel production fleet, with a median age of operating assets close to 40 years, compared to a global median below 20 years. There are various routes for iron and steel production (see Box 1.3). Steel production in South Africa primarily relies on two methods: the Blast Furnace-Basic Oxygen Furnace (BF-BOF) route, historically dominant, accounting for 60% of production; and the electric arc furnace (EAF) route (including direct reduced iron or DRI), which has been increasing its share in the last years as industries seek more energy-efficient and flexible production methods (see Figure 1.11).
Notes: Mt=Million tonnes; In Panel A, the graph excludes pig iron and sinter production. Data on steel production by route in 2023 and 2024 is not available as of January 2025; In Panel B, data is from 2018. A=Plate and sheet metal works (6%); B=Roofing and cold forming (5%), C=Packaging (3%), D=Agriculture (2%), E=Electrical Apparatus/White Goods (2%).
Source: Authors based on (Government of South Africa, 2024[40]) and (World Steel Association, 2025[76]) for Panel A; and (Department of Trade, Industry and Competition, 2021[78]) for Panel B.
There are currently 13 steel producers in South Africa, which are mainly situated in the north-eastern side of the country (see Figure 1.12). ArcelorMittal, a global steel and mining company with the largest steel production in the African continent provides around 50% of total crude steel production in South Africa (ArcelorMittal South Africa, 2025[79]). It is the only actor that operates blast furnaces in the country, and has therefore a dominant position in primary steel production. Other steel producers, mainly operating EAF, include Columbus Stainless Private Limited, Scaw Metals and South Africa Steelworks.
Note: DRI: Direct Reduced Iron; F: Flat Products; L: Long Products.
The South African metals and machinery industry employed approximately 224 000 people in 2021, marking a 30% decline from its peak employment levels in 2007. Of the total workforce in 2021, only 20% (44 240) were women, making it the manufacturing subsector with the lowest share of female participation (Statistics South Africa, 2021[81]). Yet, it had the highest share of salaries and wages in Gauteng, KwaZulu-Natal, Mpumalanga and North-West provinces (Statistics South Africa, 2021[81]). Within the broader metals industry, the iron and steel segment accounted for around 31 900 jobs in 2023, or roughly 15% of total sector employment. While basic iron and steel production represents the core of industrial output, it accounts for only about 6% of jobs in the sector. Most employment (approximately 80%) is generated in downstream activities covering indirect jobs, whereas upstream processes contribute just 13% to overall job creation (UNIDO, n.d.[82]).
Steel is an alloy of iron and carbon. It can be produced from iron ore (primary steel) and from steel scrap (secondary steel) via different processes. Steel is produced in a liquid form, refined in secondary metallurgy processes and solidifies in the casting process into slabs, billets or blooms (crude steel). These semi-finished products are either transported for further processing or converted into finished goods through rolling, forming, pressing, cutting and bending. Finished products include coils, sheets, strips, wire, bars, rods, tubes, pipes and rails. Currently, around 70% of steel worldwide is produced through the Blast Furnace-Basic Oxygen Furnace (BF-BOF) route, 25% through scrap-based Electric Arc Furnace (EAF), and 5% via Direct Reduced Iron-Electric Arc Furnace (DRI-EAF):
BF-BOF: iron ores are heated with highly purified coal (coke) in a blast furnace (BF). The carbon in the coke reacts with the oxygen in the iron ore, forming carbon monoxide (CO) and carbon dioxide (CO2), leaving molten iron as the primary product. The iron is then mixed with a small share of scrap (typically 15–25%, as the scrap serves as a cooling agent) in a basic oxygen furnace (BOF) to produce steel. The BF-BOF route is also called the “integrated route”, as the assets for raw material preparation (coke plant, sinter plant), iron production (BF) and steel production (BOF, casters and rolling mills) are all co-located in production sites. In 2023, the global average of CO2 emissions intensity of the BF-BOF route amounts to 2.3 t CO2 per tonne of steel.
Scrap-based EAF: steel scrap is used as the primary raw material and is charged into an electric arc furnace (EAF), where it is melted using high-powered electric arcs. In 2023, the global average of CO2 emissions intensity of the scrap-based EAF route amounts to 0.7 t CO2 per tonne of steel.
DRI-EAF: Direct reduced iron (DRI) can be an alternative iron source and replace partially or fully scrap in the EAF. DRI is produced from the reaction of solid-state iron ore with gaseous hydrogen (H2) and/or carbon monoxide (CO), typically coming from natural gas, and sometimes from coal gasification, the latter being the current process used for DRI production in South Africa. These gases react with the oxygen of the iron ore, forming CO2 and H2O. If clean hydrogen is directly used to produce DRI, this process offers the possibility to produce “green iron” with no or very little CO2 emissions. DRI is then melted in an EAF with flexible scrap quantities to produce steel. The DRI production and EAF can be co-located or in different locations. DRI is chemically reactive and is often be pressed into briquettes, forming Hot Briquetted Iron (HBI), if it is to be transported, in particular to reduce the risk of overheating, fire and explosion. In 2023, the global average of CO2 emissions intensity of the scrap-based EAF route amounts to 1.4 t CO2 per tonne of steel.
The decline in South Africa’s steel production can be attributed to shifting market dynamics. The global steel market faces a challenge of excess capacity, resulting in oversupply, low prices and weak profitability. South Africa’s share of global steel production (excluding China) shrank from 1.3% in 2002 to 0.8% in 2012, and further down to just 0.5% in 2024. Furthermore, a decline in steel consumption per capita in South Africa and an increased reliance on alternative materials such as advanced plastics and metal alloys in manufacturing and construction accentuated the decline in national steel production (Trade & Industrial Policy Strategies, 2024[90]). Moreover, the increasing volume of imported finished steel-containing goods severely impacted the downstream industries such as appliances, automotive and yellow goods, contributing to a lower apparent steel demand in the country. These difficult market conditions have led to the mothballing or closure of several plants since 2000. In the first quarter of 2025, the IDC provided a ZAR 1.7 billion (USD 92 million) bailout to ArcelorMittal South Africa to defer the closure of its loss-making long-steel plant operations to August, which may impact 3 500 direct and indirect jobs17 (Reuters, 2025[91]; Reuters, 2025[92]). Notwithstanding, the wind-down process began in September 2025, after the company announced that they failed to secure a sustainable funding solution (Central News, 2025[93]).
Despite decreasing production levels, the country remains a critical player in Africa’s steel industry, offering a broad array of steel products to meet regional demand. The country manufactures a diverse range of primary and semi-finished steel products, including billets, blooms, slabs, forgings, reinforcing bars, railway track material, wire rods, seamless tubes, plates and hot-rolled, cold-rolled and coated coils and sheets (Government of South Africa, 2024[40]).
The manufacturing and the buildings and construction sectors together account for 96% of total steel demand in South Africa, with steel brought to market in diverse forms for final processing and assembly. Manufacturing, which represents 66% of demand, relies heavily on steel for automotive production, cables, wire products, gates, and the fabrication of tubes and pipes. In the case of the buildings and construction sector, representing 30% of demand, steel is utilised primarily in construction projects as well as light and heavy engineering applications. The mining sector accounts for the remaining 4% of steel demand (see Figure 1.11 Panel B). However, South Africa’s annual steel use only amounted to 70.6 kilograms per capita in 2024, three times lower than the world average of 214.7 kilograms per capita the same year (World Steel Association, 2025[76]).
Trade
The domestic trade balance of South Africa’s iron and steel industry has remained positive over the past two decades, despite declining exports and rising imports. In 2023, the country exported 6.7 Mt of iron and steel products, valued at ZAR 100 billion (USD 6 billion), reflecting an average annual decline of 0.4% since 2001. Ferroalloys and stainless steel products dominated exports, collectively accounting for more than half of total volumes, followed by iron (0.7 Mt) and long steel (0.6 Mt). It is important to highlight that while scrap exports increased between 2006–2014, they have been on a steady decline since 2015 (see Figure 1.14 Panel A). Key export destinations included China (25% of total exports), the United States (17%), and Mozambique (6%) (International Trade Centre, 2025[94]).
South Africa imported 1.4 Mt of iron and steel products in 2023, valued at ZAR 30 billion (USD 1.6 billion), with imports value growing at an average annual rate of 5% since 2001. The main sources of iron and steel products imports in 2023 were China (39% of total imports), Germany (15%), Belgium (7%) and Japan (5%), reflecting South Africa’s reliance on both Asian and European suppliers to meet domestic demand (International Trade Centre, 2025[94]). A significant peak of 2 Mt imports was recorded in 2021 as South Africa aimed to replenish the depleted inventory after the pandemic (South African Iron and Steel Institute, 2021[95]). Flat steel products have remained the dominant import category since 2006, accounting for 1.1 Mt in 2023 (see Figure 1.14 Panel B).
Note: Trade flows include steel and steel products.
Source: Authors based on (International Trade Centre, 2025[94]).
Energy and emissions
The iron and steel sector plays a fundamental role in the decarbonisation of the manufacturing sector. It accounts for approximately 30% of the CO2 emissions in the manufacturing sector, i.e., 2–3% (when accounting only for direct emissions) to more than 5% (when accounting for direct and indirect emissions) of the country’s total emissions. Direct emissions include industrial processes and product use (IPPU) emissions, amounting for 6.3 million tonnes of CO2 equivalent (Mt CO2e) and an additional 1.6 Mt CO2e from energy-related activities (Government of South Africa, 2024[40]). The main energy sources in the South African iron and steel sector are coal (40%), electricity (35%) and natural gas (22%) (IEA, 2024[39]). Steel is vital for achieving the overall country transition, as it is a key material for construction, infrastructure and appliances. Decarbonising the iron and steel industry is therefore essential not only to meet South Africa’s net-zero targets, but also to secure a sustainable future for the country.
South Africa’s steel industry is not only a significant carbon emitter but also one of the most emissions-intensive globally. Producing 1 tonne of crude steel via the BF-BOF route in South Africa emits close to 4.0 t CO2, while the EAF process generates 2.5 t CO2 (see Figure 1.15). Both figures are notably higher than global averages, which stand at 2 t CO2 for BF-BOF and 0.4 t CO2 for scrap-based EAF (World Steel Association, 2024[87]; Koolen and Vidovic, 2022[88]). This is notably driven by a particularly high emission intensity of coke production (for the BF-BOF route) and the high emission intensity of the electricity generated in the country (for the EAF route).
Note: Data for 2018. Scope 1 emissions are defined as direct emissions from the iron and steel sector in a specific country. Scope 2 emissions stem from indirect emissions, related to the consumption of purchased electricity, steam and heat.
Source: Authors based on (Koolen and Vidovic, 2022[88]).
1.4.2. Challenges and opportunities for steel decarbonisation in South Africa
Despite the key role of iron and steel in the South African economy, the sector has faced many challenges in the last decade, making net-zero transition harder to achieve. Domestic production has declined in volume due to decreasing domestic demand and the emergence of new steel markets with more competitive prices (OECD, 2024[96]). Other structural impediments lead to a low profitability of steelmakers in South Africa, notably related to logistics services, electricity supply and trade (ArcelorMittal South Africa, 2025[97]). South African steel producers face strong international competition notably from countries where steel is heavily subsidized. Leveling the playing field is essential to ensure that domestic producers are not undercut by cheap imports (OECD, 2024[98]; SteelRadar, 2025[99]). Given South Africa’s economic challenges, it may be difficult for the country to compete globally while absorbing the cost of transitioning to low-emissions steel production (Department of Trade, Industry and Competition, 2020[100]). However, steel remains a key enabler to decarbonisation, as downstream industries and products depend on its reliable supply, including clean energy infrastructure such as wind turbines and grid infrastructure.
Existing steel production infrastructure in South Africa is outdated, with plants that were designed in the early 1990s for emissions-intensive production methods. Modernising steel facilities and retrofitting current plants to accommodate new low-carbon technologies requires massive investments. This is paired with the high cost of clean technologies, such as CCS, hydrogen-based reduced direct reduction or electrification with renewables (Department of Trade, Industry and Competition, 2020[100]; IEA, 2023[101]; Bhaskar et al., 2022[102]). The scale and the asset concentration of the steel sector make it challenging to implement broad-based or diversified low-carbon investments, especially as a single actor, ArcelorMittal, produces almost all the primary steel and around half of the total crude steel in the country.
South Africa’s coal-dominated power production and unstable power grid poses a significant obstacle to the production of low-emissions steel. The ongoing power crisis, driven by insufficient generation capacity and inefficient infrastructure, has had a detrimental impact on the country's steel producers. In 2023, ArcelorMittal reported a ZAR 448 million (USD 23 million) loss directly linked to load curtailment, exacerbated by high inflation, elevated interest rates, and sluggish economic growth (Maphalala, 2023[103]). This energy insecurity may compel the steel industry to favour less electricity-intensive and lower-cost production routes, such as the continued reliance on existing methods like the BF-BOF route, despite higher emissions.
All these challenges have had major impacts on investment, further hindering the country’s capacity to finance the low-carbon transition of the iron and steel sector. The South African Planning Commission reported in 2020 that the country had experienced a fallout in investments since 2010, further diminishing tax revenues and debt service costs, and constraining new investment opportunities (Bataille, 2022[104]). Furthermore, South African banks have lost their appetite in the steel sector due to high cost of capital and lack of domestic demand (Department of Trade, Industry and Competition, 2020[100]). Without sufficient investment in cleaner technologies and infrastructure upgrades, the sector risks falling further behind on its decarbonisation targets.
However, the country’s abundant renewable energy resources, global demand for low-emissions steel and potential for technology innovation offer significant opportunities. Indeed, South Africa has excellent potential for renewable energy, particularly solar and wind power, which can be leveraged to power EAF and renewable hydrogen-based steel production. A recent analysis of opportunities for renewable hydrogen development in Africa identifies South Africa as one of seven frontrunners in Africa (H2Global Stiftung, n.d.[105]). Moreover, with reserves of high-quality iron ore in the country, South Africa can play a key role in producing and exporting green iron. It could mutually benefit South Africa and countries with a lower renewables potential, for instance in Europe, as the green iron production cost in South Africa could be 17-26% lower than in Germany (Agora Industry, 2025[106]). As global demand of low-emissions steel may grow to over 660 million tonnes per annum (Mtpa) by 2050, i.e., 35% of current steel production, South Africa can position itself as a leading producer and exporter of low-emissions steel, especially in international markets that favour low-emissions steel (McLellan, 2024[107]).
The Carbon Border Adjustment Mechanism (CBAM) of the European Union presents an opportunity to accelerate the decarbonisation of South Africa’s steel sector, but there is a risk to initially affect negatively South African exporting firms. The CBAM is a carbon pricing framework within the EU covering carbon-intensive sectors such as iron and steel, cement, fertilisers, aluminium, electricity and hydrogen. During the CBAM transitional phase, launched in October 2023, European importers only have to report GHG emissions embedded in their imports (direct and indirect emissions), without the need to buy and surrender certificates. The CBAM definitive regime, from 2026, will require European importers to declare the emissions embedded in their imports and surrender the corresponding number of certificates each year. If importers can prove that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted. Some countries, such as Türkiye and Brazil, are considering strengthening domestic carbon pricing to reduce the CBAM exposure of their businesses and to retain carbon pricing revenues domestically (Cornago and Berg, 2024[108]). The CBAM can effectively mitigate carbon leakage, leading to emissions reduction both in European and non-European countries, due to a rerouting of European imports towards less emission-intensive sources (Dechezleprêtre et al., 2025[109]). Meeting CBAM requirements could fast-track South Africa’s decarbonisation and help to green local carbon-intensive value chains. However, in the short term, high-emission countries such as South Africa are expected to experience negative effects from reduced exports (see Box 1.4). In addition, there is a risk that South African exporting firms will initially fail to report emissions adequately and could be exposed to non-compliance penalties passed down by European importers. The country’s iron and steel sector is most at risk to CBAM (more than USD 500 million export value to the European Union in 2021, corresponding to 4% of total South African exports the same year), with chemicals and aluminium exports exposed to negative implications too (USD 400 million export value to the European Union in 2021 for both subsector) (South African Iron and Steel Institute, 2023[110]; Trade & Industrial Policy Strategies, 2024[111]).
South Africa’s commitment to a just transition can attract additional finance for decarbonisation. Through initiatives such as the Just Energy Transition Investment Plan, South Africa can attract additional foreign direct investment (FDI) for industry decarbonisation. The JET IP pledged ZAR 250 billion (USD 13.8 billion) by September 2024 to invest in expanding South Africa’s electricity, just transition, and renewable hydrogen portfolio, all of which are critical for decarbonising the steel industry (Republic of South Africa, 2024[112]).
Europe’s push to cut greenhouse gas emissions by 55% by 2030 is prompting a major overhaul of its climate policies. Central to this transformation is the “Fit for 55” package, which reinforces the environmental ambition of the EU carbon market (EU Emissions Trading System, or EU ETS for short) and introduces the world's first carbon border adjustment mechanism (CBAM) – a levy on emissions embedded in imported products. While the EU CBAM aims to level the playing field in the common market between European manufacturers and foreign producers who face lower carbon prices, its effects will extend beyond the industries it initially targets.
The EU is tightening its carbon market, making it more expensive for companies to emit greenhouse gases. Under the revised EU ETS, the overall cap on emissions of companies subject to the EU ETS will go down faster than before, raising carbon prices for EU producers. Simultaneously, free emission quotas that energy-intensive industries exposed to international competition have received for years will be phased out, meaning these industries will start paying more for their carbon emissions. These higher carbon costs risk driving production—and therefore emissions—overseas, undermining the EU’s economic competitiveness and global efforts to reduce carbon emissions.
To tackle this risk, the EU has introduced the CBAM, which requires EU importers to purchase “CBAM certificates” reflecting the carbon embedded. Initially, CBAM covers iron and steel, cement, fertilisers, aluminium, electricity and hydrogen. Together, these products account for about 3% of EU imports.
It is expected that for the trading partners of the European Union where CBAM-covered production is more carbon-intensive, such as South Africa and India, could experience small negative effects from reduced exports (~-0.20%). Countries with cleaner production: economies like Chile, Mexico and Türkiye, which have relatively low carbon emission intensity of production in CBAM sectors, stand to gain modestly as EU importers shift away from more carbon-intensive sources.
The EU’s Carbon Border Adjustment Mechanism is a first-of-its-kind policy. While OECD analysis indicates it can be effective in reducing carbon leakage, the policy’s ripple effects and implementation require thoughtful monitoring. As other regions consider adopting their own versions of CBAM, the EU’s example offers proof of concept and a cautionary tale about the potential unintended consequences. Balancing ambitious climate targets with economic competitiveness will remain a global challenge for policymakers. As data on CBAM-covered products becomes available, the OECD will continue to analyse the impacts of this novel policy instrument.
1.4.3. Strategy and policies
The steel sector is mainly regulated by the Department of Trade, Industry and Competition (the dtic), which has the mandate to develop and supervise the commercial and industrial policies of the country (Department of Trade, Industry and Competition, n.d.[52]). The dtic works in close collaboration with the Department of Mineral Resources and Energy, the Department of Forestry, Fisheries and the Environment and other relevant agencies to ensure that the steel industry aligns not only with energy and climate policies, but also with a wider set of national frameworks, including trade, industrial development, local content, skills development, and competition policies. The dtic also relies on the collaboration with TIPS and SAISI, which provide technical and capacity-building support to the dtic in steel trade and policy-making (Trade & Industrial Policy Strategies, n.d.[115]). Other relevant stakeholders include the National Treasury and the Industrial Development Corporation (IDC), which provide funding to support to the steel industry, the South African Bureau of Standards, which develops and enforces quality standards for steel products, and Steel and Engineering Industries Federation of Southern Africa (SEIFSA), a national federation representing 16 independent employer associations in the metal and engineering industries.
In 2021, the dtic published the South African Steel and Metal Fabrication Master Plan 1.0 in collaboration with industry stakeholders to revitalise and transform the country’s steel sector. Prior to the Master Plan, South Africa’s policy efforts related to the steel industry were primarily embedded in the National Industrial Policy Framework (NIPF), which outlined the strategic direction for South Africa’s industrial development through successive Industrial Policy Action Plans (IPAPs), including one specifically targeting metal fabrication, capital equipment and transport (Trade & Industrial Policy Strategies, 2024[116]). The 2021 Master Plan aims to promote growth, competitiveness and sustainability in an industry that has faced severe challenges, including declining demand, inefficient infrastructure and unstable energy supply (Department of Trade, Industry and Competition, 2021[78]). More specifically, the Steel Master Plan provides two set of measures:
Growth measures, which include enhancing infrastructure quality and efficiency, localising the steel value chain, promoting exports, enhancing climate resilience and aligning rules and regulations from different departments and government levels to ensure on-time and to-cost execution of projects.
Stability measures, which propose the establishment of a Steel Industry Development Fund, to attract further government funding through the IDC, increase the supply of scrap metal for domestic consumption, invest in research and information dissemination and provide capacity-building to key stakeholders (Department of Trade, Industry and Competition, 2021[78]).
Other key policies include South Africa's Hydrogen Society Roadmap and the Hydrogen Commercialisation Strategy developed in 2021 and 2022 respectively. The Hydrogen Society Roadmap primarily focuses on scaling up hydrogen production, establishing infrastructure, and integrating hydrogen into the broader energy system. Meanwhile, the Commercialisation Strategy emphasises driving domestic demand, fostering innovation and enhancing hydrogen exports (Department of Trade, Industry and Competition, 2022[117]). Both strategies actively promote the adoption of clean steel production technologies, including H2-DRI, CCUS in the BF-BOF route and EAF, all of which are transformative tools for decarbonising high-emission sectors such as steel (Department of Science and Innovation, 2021[118]).
Also, it is important to mention the key role of the Scrap Export Tax Reduction and the Preferential Price System. Both policies favor the localisation of steel production, either by reducing the export tax imposed on scrap metal and promoting international trade, or by giving preferential rates to local scrap consumers below international market prices (South African Revenue Service, n.d.[119]; Department of Trade, Industry and Competition, 2020[120]). Table 1.3 elaborates on the key policies and initiatives implemented by South Africa.
References
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← 1. Low-carbon technologies refer to all technologies that offer a lower or near-zero emission solution to conventional production processes that emit CO2.
← 2. GDP at 2015 USD prices.
← 3. The Energy Availability Factor is the percentage of maximum energy generation that a plant is capable of supplying to the electrical grid.
← 4. The ranking includes individual countries only and excludes regional groupings such as the European Union.
← 5. US dollars of GDP adjusted to the Power Purchasing Parity of South Africa.
← 6. Energy emissions the total emissions of greenhouse gases from stationary and mobile energy activities (fuel combustion and fugitive fuel emissions). IPPU emissions are by-product or fugitive emissions of greenhouse gases from industrial processes, excluding emissions from fuel combustion. Waste emissions account for total emissions from waste management. Other emissions include anthropogenic emissions from agriculture or other sectors (IPCC, 1996[121]).
← 7. JSE Limited was one of the stock exchanges in South Africa, along with the Bonds Exchange of South Africa. In 2009, JSE acquired with the aim to create a unified multi-product exchange.
← 8. The top five banks in South Africa are Standard Bank Group, FirstRand Bank, Absa Group, Nedbank Group and Investec Bank (Ekhator, 2024[123]).
← 9. The top five life insurers in South Africa are Sanlam, Old Mutual Life, Liberty Group, Discovery Life and MML Group Limited (Atlas Magazine, n.d.[124]).
← 10. The largest asset managers in South Africa are Ninety One, STANLIB AM, Coronation, Allan Gray and SIM (Jacobs, 2024[122]).
← 11. The Parties to the Paris Agreement Updated are requested to submit the next round of NDCs, also known as NDCs 3.0, in 2025.
← 12. Heavy manufacturing industries include coke and refined petroleum; chemicals and petrochemicals; pharmaceutical products, rubber and plastics; non-metallic minerals; and basic and fabricated metals, which align with the International Standard Industrial Classification for All Economic Activities’ Divisions 19, 20, 21, 22, 23, 24, respectively.
← 13. The economic growth rate is based on the gross value added (GVA) which measures the value generated by producing goods and services within the country.
← 14. Technical Analysis to support the update of South Africa’s First NDC’s mitigation target ranges.
← 15. “Crude steel” is the name given to steel in its first solid form, when it is cast after leaving the final furnace in a given production process. It includes Ingots (in conventional mills) and Semis (in modern mills with continuous casting facility) (IEA, 2020[85]).
← 16. The capacity utilisation for crude steel production is even lower, around 50% ( (Trade & Industrial Policy Strategies, 2025[125]))
← 17. These indirect jobs only include contractors at the plants. The total impact across the value chain could amount to 60 000 to 80 000 upstream and downstream job losses (The Citizen, 2025[126]).