Way back in the mists of time ArcelorMittal (Amsa, formerly Iscor), SA’s only primary steelmaker (it makes steel out of its constituent minerals) was Enemy Number One at the department of trade & industry. Its then-minister, Rob Davies, so despised the company that he forbade Eskom from buying pylons made from Amsa steel.
The ANC wanted lower “developmental” prices on locally made steel, but Amsa wouldn’t budge. Then, one day in 2015, Lakshmi Mittal, the Indian steel tycoon who bought out Iscor in 2003, swooped in for a meeting at the Union Buildings with then president Jacob Zuma. There’s no record of their talk, but the results were electrifying. Davies dropped his opposition to Amsa and imposed stiff import duties to protect it.
Davies has been replaced by a force of nature — trade, industry & competition minister Ebrahim Patel. A man possessed and empowered by President Cyril Ramaphosa, he has crashed a wave of restrictions and duties over SA industry in the past year that has left the steel, aluminium, scrap metal and textile sectors gasping.
In the economic recovery plan published in 2020, Ramaphosa said localisation was key and aimed to “reduce the proportion of intermediate and finished goods, improve the efficiency of local producers and develop competitive sectors”. Which sectors, he wasn’t too sure about. The performance agreement he signed with Patel merely obliges the minister to find “a minimum of 20 products for localisation”. Patel can do what he wants.
And he is, with alarming consequences for many established industries. In 2020, in a series of regulations, he banned the export of all scrap after big users complained scrap dealers were exporting for higher prices. Today scrap is almost impossible to export until local users have decided what they want and it is transported to the user at the dealer’s expense. The result is millions of tonnes of scrap are now hidden from view in containers or warehouses as dealers would rather sit on their wealth than give it away at prices they regard as unfair.
Hardly a month goes by now without a government gazette publishing new Patel orders. The last one of 2020, on December 31, imposed a 15% import duty on all imported aluminium sheet, strips and plate. More recently, after complaints about unfair competition from truck builder Bell Equipment, duties are being seriously considered against imports of heavy trucks.
Costs will rise if they are imposed, so expect job losses on the mines and at Barloworld, one of the biggest Caterpillar dealers in the world, and at major users of Komatsu vehicles. Bell wants its competitors charged an extra 10% import duty. Scaw Metals got the scrap regulations it asked for. Hulamin got the duty it asked for. Amsa got the duties it asked for on hot rolled coil in 2020. The odds on Bell getting the duties it wants have to be good.
Regulations have also been published on how imported textiles may be used and sold that are so complicated they cannot but increase the costs of compliance. Now you cannot get a rebate on the duties you paid to import textiles if you do not participate in the central bargaining council of your sector, or if you plan to export the clothes you make out of them. Pity Lesotho.
Basically, Patel’s “re-industrialisation” instinct is to protect what is already on the ground, no matter how inefficient and no matter how expensive its products are as a result. I have no doubt he will be forced at some stage to begin controlling the prices of the poorly run businesses he is now “saving”. Price controls always signal the arrival of industrial policy failure.
He is protecting businesses in which the ANC has a political interest (Amsa) or in which the department he leads, by way of the Industrial Development Corporation (IDC), which reports to him, has equity. Scaw Metals, owned by the IDC, is SA’s biggest user of scrap. Hulamin, controlled by the IDC, is SA’s biggest producer of rolled aluminium products.
There will be industries where duties make some sense and others not. In metals, it is a loser’s game. While these companies form the superstructure of the new industrial economy Patel wants to build, they employ very few people and their products are common as muck. Hulamin has 2,000 employees and its share price has collapsed under IDC control. No more than 2,000 people at Amsa are involved in actually making steel. But Amsa’s ageing kit means almost everything it produces is expensive.
At companies such as roofing supplier SS Profiling just outside Brits, owner Theunis Duvenage is fuming. He uses hot rolled coil and the galvanised sheet made from it. The duties protecting Amsa, which can’t supply enough product to the market, are hurting. The entire SA steel fabricating industry, which employs almost 500,000 people, is bleeding.
“We would be better off without a primary steel producer,” he says. “We could import from around the world at the most cost-effective prices but they want us to buy from Amsa. This is costing us our market in Sub-Saharan Africa.”
Patel is determined to make steel in SA but the facts, on primary steel at least, are against him. Steel is a commodity just as the rocks we dig out of the ground are. The world is over-supplied. It’s a buyer’s market. It’s the value you add that matters.
And making steel isn’t labour intensive. One person on a computer can control the casting of 10,000 tonnes of steel. If Ramaphosa’s idea is to create labour-intensive manufacturing as a transformative driver, we should get into the stone tools business.
Sadly, the ANC is seized with Afrikaner nationalist success in building things such as Eskom and Iscor in the first place. They want to do it all over again, but the Afrikaners did their industrialising on the back of dirt-cheap black labour and, in turn, dirt-cheap electricity.
Neither is coming back. Amsa’s blast furnaces and continuous casting machines are now 70 years old. Mittal won’t replace them. So to protect this dinosaur, we will have to keep prices artificially high for years.
As the president gets up to deliver his state of the nation speech on Thursday, he should look again at what he plans to say about localisation. Used as a blunt weapon, it threatens to turn us into the siege economy apartheid used to run on.
It is all very well to fight for an industrial future. It’s another to insist that the state should design, interfere and direct every twist and turn of it. But that is what he is stuck with now. He will not hear the low, moaning sound of manufacturing job losses because it is happening at small companies bashing metal together in all parts of the country, often for export.
What Ramaphosa and Patel should be doing is finding ways to set enterprise free in SA — to remove restrictions, not add more. We will need energised, not protected, businesses, to pull out of the pandemic when it ends. When she delivered her budget at the beginning of February, Indian finance minister Nirmala Sitharaman took an axe to import duties on steel and copper and on textiles, to help local user industries. “Less government,” she said, “more governance.”
Small and medium enterprises and other user industries, she said, “have been severely hit by a recent sharp rise in iron and steel prices. Therefore we are reducing customs duty uniformly to 7.5% (from between 10% and 12%) on semis, flats and long products of non-alloy, alloy and stainless steels.”
She will have more success with that approach. On a healthy playing field, the growth and transformation of our economy is irreversible and desirable. If it has to come at the cost of saving companies that cannot compete, while imperilling the future of those who don’t have a voice at the policy table, we will still be talking about growth and transformation in 2050.
• Bruce is a former editor of Business Day and the Financial Mail.
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