The Resilient Turn in South African Business and Manufacturing Confidence: A Strategic Entry Point for Investors?

South Africa's business and manufacturing confidence has shown a notable rebound in late 2025, raising questions about whether this marks a sustainable recovery or a fleeting uptick. According to a report by , the business confidence index rose to 44 in the fourth quarter of 2025, three points above its long-term average, driven by improvements in five out of six sectors surveyed. This follows a dip to 39 in Q2 2025, which reflected fragility amid global trade uncertainties and domestic logistical challenges. For investors, the key question is whether this resilience signals a strategic entry point or a precarious rebound requiring caution.

Sector-Specific Recovery: Manufacturing and Retail Lead the Way

The manufacturing sector, which had previously recorded the lowest sentiment at 23 due to trade tensions, saw a dramatic 16-point surge to 39 in Q4 2025, its highest level since 2022. This recovery was attributed to easing inflation, a South African Reserve Bank interest rate cut, and improved global risk sentiment. Similarly, retail confidence climbed to 43, indicating cautious optimism in consumer-facing industries. However, economists emphasize that translating this confidence into sustained output and fixed investment remains a challenge, as infrastructure bottlenecks and electricity reliability persist as critical risks.

Policy-Driven Growth: Industrial Participation Programs and Strategic Reforms

South Africa's government has deployed sector-specific initiatives to stimulate industrial capacity. The National Industrial Participation Programme (NIP), managed by the Department of Trade, Industry and Competition, leverages non-defence public procurement to drive local manufacturing, technology transfer, and SME support. Similarly, the Defence Industrial Participation Programme (DIP) aims to sustain and grow the local defence industry through procurement-linked investments. These programs align with broader industrial strategies emphasizing localization and tariffs favoring domestic industries.

However, implementation hurdles persist. Governance issues, public distrust, linked to historical corruption (e.g., the Arms Deal), and institutional readiness gaps in non-defence sectors undermine effectiveness. The OECD has underscored the need for product market reforms, including a business-friendly regulatory environment and renewable energy investments, to ensure long-term growth.

Risks and Policy Uncertainties: The Expropriation Act and Investor Sentiment

A significant wildcard for investors is the Expropriation Act of 2024, which allows state acquisition of land and property under certain conditions without market-rate compensation. While the Act includes procedural safeguards-such as formal notice, valuation processes, and judicial oversight-critics argue it introduces uncertainty around property rights, particularly in mining and agriculture. The 2025 U.S. Department of State's Investment Climate Statement notes that such policies, combined with corruption and energy shortages, have already made South Africa a less attractive FDI destination.

For mining investors, the Act's implications are nuanced. While it does not override existing mineral custodianship by the state, it adds layers of complexity to tenure security. Proponents argue the Act is essential for addressing historical inequalities, but its potential to deter FDI remains a concern.

Sector-Specific Policies: Mining, Agriculture, and Renewable Energy

In mining, the government is pushing for decarbonization and alignment with global ESG standards, including the EU's Carbon Border Adjustment Mechanism (CBAM). The steel industry, a major emitter, is exploring green hydrogen and low-carbon technologies to meet these targets. Agriculture faces challenges in reducing emissions from cattle-related enteric fermentation, with reforms focusing on water management and climate-resilient practices.

Renewable energy remains a cornerstone of South Africa's transformation. The Integrated Resource Plan (IRP) aims to expand wind, solar, and hydrogen-based solutions to reduce coal dependency and address electricity shortages. The Hydrogen Society Roadmap positions green hydrogen as a strategic export commodity, aligning with OECD recommendations for climate-compatible growth.

Strategic Entry Point? Balancing Opportunities and Risks

South Africa's rebound in business confidence and sector-specific policies present opportunities for investors, particularly in manufacturing, renewable energy, and mining. The manufacturing sector's 16-point surge and retail optimism suggest near-term potential. However, structural risks-such as the Expropriation Act, electricity constraints, and regulatory uncertainty-demand careful risk mitigation.

For investors, proactive strategies are essential. Reinforcing land use agreements, leveraging bilateral investment treaties, and prioritizing sectors with clear policy support (e.g., renewables) can enhance resilience. While the OECD and World Bank highlight the need for structural reforms, South Africa's industrial strategy and climate commitments offer a framework for long-term growth-if governance and institutional challenges are addressed.

In conclusion, the resilient turn in South African business confidence is a promising signal, but its sustainability hinges on policy execution and investor adaptability. For those willing to navigate the risks, the country's sector-specific recovery and strategic reforms may indeed represent a compelling entry point.