Understanding the Economic Complexity of the MER Sector with a Focus on SMMEs: A Synthesis

The South African economy has experienced premature deindustrialisation, contributing to its long-term economic stagnation with minimal GDP per capita growth over the past two decades. This contrasts sharply with the industrial growth seen in other developing countries, particularly in Asia, which have leveraged industrialisation for rapid economic advancement. The Manufacturing, Engineering, and Related Services (MER) sector, a significant part of South Africa’s manufacturing base, has also seen a decline in its contribution to GDP, employment, and exports. This research analyses the MER sector through the novel and innovative lens of economic complexity and industrial relatedness theory to identify diversification opportunities and address capability constraints. Using a data-centric approach to identify industrial diversification opportunities in the sector, we identify capability constraints hindering the emergence and growth of these industrial diversification opportunities. The findings provide evidence-based industrial policy recommendations to revitalize the sector and, by extension, the broader South African economy. We also provide a unique policy calculus that quantifies the potential economic outcomes that may emerge should the MER sector realise the industrial diversification opportunities identified. In the context of a deindustrialising economy locked in a long-run economic growth trap, there is a clear policy imperative to bring about the growth and diversification of the industries within the sector.