In this opinion article, Alboricah Rathupetsane of Stellenbosch University's Centre for Sustainability Transitions argues that South Africa’s Transmission Development Plan presents an industrialisation opportunity.

The closure of ArcelorMittal South Africa’s Newcastle factory is a sobering start to 2025. It is bad news for everyone. It means 3 500 workers losing their livelihoods, the state losing taxpayers, and the manufacturing sector losing valuable capacity. Various reasons were listed for this decision, including weak economic growth, an influx of steel imports and high levels of factory underutilisation.  These all highlight some of the deep underlying problems local industry struggles with. But is there a way to turn this factory death spiral around?

NTCSA to the rescue?

Eskom’s new transmission subsidiary, the National Transmission Company South Africa (NTCSA), is set to undertake a significant build programme to strengthen the grid over the next decade. Various funding models are still being considered. So, it’s important to ask now whether this grid expansion will increase manufacturing sector participation. This concern matters greatly for both local industry and all grid-connected end-users.

South Africa’s steel and iron industry is still the dominant supplier of essential transmission elements like towers, cables and substations. But, it has been on a downward trajectory due to persistent weak demand for steel. As the sector is shrinking, so too will its workforce of over 270 000 South Africans. The CEO of the Steel and Engineering Industries Federation of Southern Africa, Lucio Trentini, suggests using local demand generated by steel projects to support the industry. The grid expansion outlined in the Transmission Development Plan (TDP) is a key chance to do just that.

The NTCSA’s support of local industry is already evident in construction, with over 19 companies signed into panel contracts that pre-qualify them to participate in the engineering, construction and procurement (ECP) stages of powerline construction projects. A panel of 28 local companies was also finalised in November 2024 to build substations. This streamlines the procurement process as only the qualifying service providers and contractors can compete for various projects. Projects using this EPC approach are typically funded through the NTCSA.

BOOTs on the ground

However, the NTCSA cannot depend on its balance sheet to fund the entire programme. As a result, the Electricity and Energy Ministry is now looking at other and additional models to augment the R390-billion needed to expand the grid, with regulations to govern this private sector anticipated this year. To demonstrate this, the Ministry, in partnership with the NTCSA and National Treasury, is launching Build, Own, Operate, Transfer (BOOT) pilot projects that will be procured through the Independent Power Producer (IPP) Office. Despite swimming in acronym soup, this still presents a clear way forward.

This approach is not unfamiliar to emerging economies. Brazil has successfully used the BOOT model to build over 21 000-km of transmission lines between 1999 and 2010. This was contracted over 15 bidding rounds, wherein concessionaires with the lowest bid offers (translating into lower transmission tariffs overall) entered into 30-year contracts.

South Africa is no stranger to auctions in the energy sector. The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) auction mechanism, facilitated by the IPP Office, is a recent and relevant example. If, similar to the REIPPPP, the Economic Development prerequisites for the auction programme require co-ownership/management with local firms, we could see the formation of joint ventures between local and international transmission companies. We’ve seen that these international companies had strong existing value chains from which key items were sourced while giving local industry time to ramp up and learn the ropes. Unlike the REIPPPP experience, however, the transmission components manufacturing industry has been around for decades. Steel lattice towers, for example, have been manufactured locally for over 85 years. But we have lost four of the factories that build these towers over the last two decades. It’s not necessarily easy or affordable to bring back lost manufacturing capacity.

Grid expansion is economic expansion

Idle factories (due to low and unpredictable demand), raw material costs and the inability to compete with global manufacturers have made South African lattice towers globally uncompetitive. However, according to a tower pricing benchmarking study launched in September 2024, the local industry can scale up rapidly (and affordably) if the TDP rollout provides consistent and predictable volumes. The upcoming Steel and Metal Fabrication Masterplan is expected to present a strategy that holistically outlines the conditions that will trigger this greater participation from the South African manufacturing industry.

As we’ve learnt, programmes like this need to carefully balance the requirement for low prices and economic development. Accounting for the latter may require a programme that initially favours economic development through re-industrialisation a bit more. As the local industry grows more confident, its production ability grows and becomes more competitive.

What remains clear is that tackling South Africa’s terrifying de-industrialisation with our already-high unemployment rate requires careful consideration of how major infrastructure projects can be leveraged for increased domestic production, especially in labour-intensive sectors.

Alboricah Rathupetsane is a researcher at Stellenbosch University's Centre for Sustainability Transitions focusing on revitalizing local manufacturing through strategic infrastructure initiatives.