Government attempts to save ArcelorMittal South Africa (Amsa) with tariff increases is killing South Africa’s downstream steel industry, with dire consequences for industrialisation and economic growth, says the CEO of the National Employers’ Association of South Africa (Neasa), Gerhard Papenfus.
“Companies are going to manufacture their products in China,” he says. “It’s no longer competitive for them to manufacture them in South Africa. This is the story.”
The 52.34% tariff on steel imports announced by the International Trade Administration Commission of South Africa (Itac) earlier this month means these companies can no longer compete, says Papenfus, who represents about 1,800 businesses employing 65,000 workers in the engineering sector.
“We will wipe out downstream manufacturing in South Africa. I hear it from business after business, I see how it happens. If you want to impose a duty you do it on the finished product, not the sourced initial steel product. Because then the downstream is no longer competitive and for them it’s the end.”
The question for him is why the government, which in addition to the latest tariff continues to pour billions into Amsa, is so invested in saving “this corpse”.
“Are they busy nationalising Amsa? Is that what this is about? Does the ANC want a state-owned primary steel producer? But why? If there’s no downstream, no longer any customers for your primary steel producer, what are they going to do with it?”
Amsa is a lost cause, he says. It is 100 years old and can’t compete with modern mills. Even the parent company is not investing in the South African operation.
What about Amsa’s turnaround plan for the flat steel business?
“It’s obviously not working. All they’ve got now are import duties and R3.5bn in the last 12 months invested in Amsa by government. And now they’re going back to government and saying, ‘unless you help us ...’”
The government gave Amsa R3.5bn after it said a hefty bailout was all that could stave off closure of its long steel plants. Now, in a market update two weeks ago, Amsa says this might happen anyway.
It cites a drop in market demand but Papenfus says this will continue to fall no matter how much the government gives them. “Of course there’s a drop in consumption. Their customers have gone, they’ve killed them.”
Of course there’s a drop in consumption. Their customers have gone, they’ve killed them
— Gerhard Papenfus, National Employers’ Association of South Africa CEO
Amsa’s inability to supply steel at affordable prices while effectively preventing its customers from importing are major contributors to the decline of its customer base, he says.
“Their mother company doesn’t want to invest here, they’re not putting any money into this thing. It can’t be saved. The more government intervenes with huge tariffs the more devastation it will cause.”
Is there a need to protect the local industry from cheap imports flooding the country?
“Those cheap imports are used by our manufacturers to compete with the rest of the world,” Papenfus says. “What’s the point of an Amsa that depends on high import tariffs and government bailouts when there’s no downstream?”
Amsa says closing its long steel plants will cost 3,500 jobs but Papenfus says the downstream steel industry has lost about 250,000 jobs since 2008.
“If Amsa says 3,500 jobs will be lost that’s news. But I can tell you that today at downstream plants across the country people have lost their jobs, and tomorrow it will happen again, and the day thereafter and the day after that. Companies are retrenching every day.”
The impact of the latest tariff on downstream jobs will be “severe”, he says.
“In the last few days one company after the other has told me they’re calling it a day. I had a call this morning from a factory owner to say they’re going to close shop in South Africa, they’re going to China. They’re no longer competitive, they have to close shop and move.
“I can tell you if that applies to one, it applies to everybody. Some say they’re too small to move, they’re just going to sell for whatever they can get, retrench their workers and that’s the end of the story for them,” Papenfus says.
The 3,500 jobs the government is so worried about at Amsa are a tiny percentage of the total job losses the tariff intervention is already causing in the whole country.
He calls the idea that Amsa is necessary for industrialisation “deluded”.
“If you want to industrialise give the downstream affordable, reliable steel,” Papenfus says.
“That is how you industrialise. It’s not about having a primary steel producer. There are many successful downstream steel industries in countries around the world without primary steel producers. Only a few countries have primary steel producers. How the hell do their downstream steel industries survive and thrive? They import it.”
The government talks about industrialisation, but industrialisation is not about pumping billions into projects that will never be profitable or self-sustainable in a misguided attempt to achieve transformation goals, he says.
The ANC’s transformation policies force it to do things that are inimical to a free market business environment and industrialisation.
“They close the door on those they don’t see as the direct beneficiaries of transformation, but in the process they hurt everyone,” Papenfus says.
“The moment you interfere with the market it will go south every time. Industrialisation implies a free market working according to market principles and the dynamics of the market.
“Government wants to try an alternative. Show me anywhere in the world where an alternative has worked. Show me a single socialist country with a vibrant industrial base. There isn’t one.”
The government does not see that its attempts at control of the economy mean there will be no growth or industrialisation, Papenfus says.
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