Such is the swirl of SA politics that it would have been easy to miss the announcement last week by ArcelorMittal SA (Amsa), formerly Iscor, our last remaining primary steel producer, that it was planning to “consolidate” its operations because of low demand. The company said profits to the end of 2022 had fallen more than 60%.
The decision tells me two things. First, Amsa will not be able to survive in its current form. Second, trade, industry & competition minister Ebrahim Patel must now explain to a raft of busy and creative steel importers he has hammered in the past three years by imposing heavy import duties on hot-rolled steel to protect Amsa, why they have had to suffer.
Not that he will bother. Patel’s entire proposition as minister has been to promote localisation and discourage imports and thereby somehow re-industrialise SA, while “transforming” it.
But this new retreat by Amsa shows up the Patel industrial doctrine for the intellectual deceit it is. It is easy to promise (and to persuade President Cyril Ramaphosa) that if we could just give local business a break from import competition it would find its feet, a host of new black industrialists would set up businesses and the gears of SA industry would begin to turn again.
Patel is the ultimate flatterer. Ramaphosa would have loved his spiel and all the master plans and promises. Sadly, little has gone well. Covid happened, and then the KwaZulu-Natal violence, and then the floods, and now load-shedding.
Amsa, which Patel has striven mightily to protect, made a strong profit in 2020/21, the first year of Covid. This was mainly done by shutting down the blast furnaces at its Vereeniging integrated plant and selling from its stockpile behind the safety of safeguard duties imposed by Patel, which at their height reached 18%.
Having made money by not making any steel in 2020/21, it now seems that actually making the stuff again has not turned out so well. How long can this go on?
I’m sure things are difficult in steel. Covid and then Ukraine changed everything. With SA’s electricity troubles pounding the economy, Amsa shut one of its blast furnaces again last November. It has just restarted. Then it shut down an electric arc furnace in Vereeniging after starting up a blast furnace in Newcastle. There is not enough demand for long products like beams and rebar.
This chimes with what we know about the poor state of the president’s much-vaunted infrastructure programme. For most of last year companies you would have expected to be riding the infrastructure boom, like cement-maker PPC, reported there was simply no discernible demand.
What business does in conditions like that is just what Amsa is doing now — hunkering down. Jobs go. The politicians go on as if nothing has happened, but the facts speak for themselves. The ideological trench Patel does his work from may make for pretty speeches about a magical future economy, but events are not in his hands.
Many of those CEOs who signed up to his many master plans from 2019 onwards have precious little to show for their enthusiasm now. Whenever I see someone tweeting about how SA could be a big player in hydrogen, or batteries, or solar panels or cannabis, I move right along. What they are about to tell me is that under absolutely ideal, perfect and undisturbed circumstances some grand plan might work. Who needs that?
“The fact,” says Gerhard Papenfus, leader of the National Employers Association of SA (Neasa), an industry body with a large membership in the steel and steel fabrication businesses, “is that steel is a problem. The industry (in SA) is in a slow decline. The free flow of steel is being inhibited and that’s killing the market slowly but surely.” Steel is being made more expensive by trade barriers so people are simply using less.
Papenfus is now fighting an attempt by Amsa to squeeze more protection out of Patel, this time for an additional duty of 41% on top of the standing 10% on all steel imports, on galvanised coil thinner than 0.45mm, which would include, he points out, many specifications Amsa doesn’t even make.
No-one knows how many jobs steel fabricators in SA have had to shed to keep Patel’s localisation promises to Ramaphosa true. Thousands, easily. Traditionally the fabricators have imported steel and added value to it before exporting their products — from window frames to ceiling components. People leaving little firms don’t make a sound.
But government is impenetrable. It thinks the “private sector” is 50 big companies and banks all paying top wages, when in fact it is thousands and thousands of small businesses. What happens to them? A paper from Ramaphosa’s most senior infrastructure official, former Tshwane mayor Kgosientsho Ramokgopa, tells us.
A detailed list of immediate actions he urges on Ramaphosa to take includes: “Make it mandatory for all major projects to be accompanied by a legally enforceable localisation and industrialisation charter.”
What rubbish! We are trying to re-industrialise to make and sell the things we are good at. The things we need to re-industrialise are often made better and cheaper elsewhere. So what? Let entrepreneurs import what they need. Then give them work and they’ll fix this place.
• Bruce is a former editor of Business Day and the Financial Mail.
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