STEEL INDUSTRY

AMSA on life support

by Gerhard Papenfus

Dear employer

If there is one thing that AMSA’s announcement of its imminent shutdown of its long steel business illustrates, it is the fact that protectionist duties cannot save any company from eventual demise. If a business is not competitive, the market will eventually spit it out.

Government may interfere and, on the basis of its own objectives, or even hidden agenda, try to protect that business, but it will always only delay the inevitable. Once a business is the beneficiary of government-supplied life support, more specifically import duties, the support-dosage will have to be constantly increased, to the point where it is no longer sustainable, when the price of protection becomes too high. At that stage the life support will be terminated, which, in the instance of import duty-interference in the market, will leave behind a trail of destruction.

Government support of uncompetitive entities will always cause immediate harm to those not benefitting from the protection. In the case of AMSA, the protection of this monopolistic antiquated steel mill, resulted in severe prejudice to the steel downstream - AMSA’s clients. These downstream businesses, as a result of duty-enforced increased steel prices, became increasingly uncompetitive, resulting in higher prices throughout the value chain.

Although the duty-beneficiary may appear to initially benefit from the protection, this evil cycle will result in unforeseen market powers that will eventually come back to haunt, not only the beneficiary, but the entire value chain. There are no long-term winners in the wicked protectionist regime.

While it may only be AMSA’s long steel business to be mothballed for now, the same fate will eventually befall its entire business. There is no long-term prospect of them succeeding, unless they become competitive, but that will require substantial investment (which they have been unwilling to make thus far) as well as time – a luxury their customers do not have.

Gerhard Papenfus is the Chief Executive of the National Employers' Association of South Africa (NEASA).

For more information

NEASA Media Department

media@neasa.co.za

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