The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has welcomed the government’s infrastructure investment drive, which it expects will provide a boost for SA’s down-trodden metals and engineering (M&E) sector. It has warned, however, that sustainable policy interventions are needed.
In its State of the Metals and Engineering Sector Report 2020-2022, released on Friday, Seifsa said the M&E sector was not immune to the effects of the pandemic in 2020 and also suffered the devastating economic impact of lockdowns. The sector is a crucial supplier of inputs into major sectors such as construction and other manufacturing sub-industries. Seifsa represents 1,223 companies employing about 167,000 employees.
Seifsa chief economist Chifipa Mhango said the industry faced significant obstacles over the past year.
“The impact of lockdown measures led to a decline in the production of products such as steel, one of the key sub-sectors within the M&E sector, as well as a significant drop in its trade. Global commodity prices are influenced by production in this sector and lockdown measures significantly affected the prices,” Mhango said.
The report shows that production levels in the M&E sector fell to their lowest levels in April 2020, dropping 70.7% year on year due to the lockdown restrictions implemented in March 2020. Sales also dropped to their lowest level, falling 69.3% year on year in April 2020.
Seifsa reported employment in the overall manufacturing sector remained on a downward trend, with the M&E sector shedding 25,857 jobs during the lockdown period.
A R791.2bn allocation for public infrastructure spending, as announced in the budget speech this week, is expected to be a boost to industry. The rollout of Covid-19 vaccines as well as other investment incentives for the manufacturing sector provide a platform to bring business confidence back to much higher levels and return industrial activity to full production, Seifsa said.
Even so, Seifsa projects growth of 0.8% for M&E sector production in 2021 and 0.9% for total manufacturing.
The government faces challenges, too, in the implementation of infrastructure-related projects, said Seifsa. “Among other notable factors has been massive corruption in the tender processes, insufficient capacity and skills, especially at provincial and local government level, as well as mismanagement of financial resources within state-owned entities (SOEs).”
In a bid to address this, the government is reviewing regulation and policies and introducing reforms. “For the M&E sector, such developments are imperative as lack of project implementation has affected demand conditions,” Seifsa said in its report.
The organisation noted that many of the largest obstacles for the industry existed prior to 2020. These included rising energy and logistical costs, unreliable energy supply, limited raw material supply, exchange rate volatility, subdued demand, and rising imports.
“It is, therefore, critical that the government supports the recovery of the sector through sustainable policy interventions, including the speedy implementation of the steel master plan [a department of trade and industry initiative] and other supportive measures,” Mhango said.
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