STEEL INDUSTRY: Patel shoots blanks with his grand plan to lasso prices.

PATEL SHOOTS BLANKS WITH HIS GRAND PLAN TO LASSO PRICES

First Published in BusinessLive on 25 May 2022

 

by Peter Bruce

 

Parts of this article has been highlighted by NEASA’s Media Department.

 

It must be wonderful to be left wing. Your every thought is good and true, every expression perfectly formed and to the point, your logic flawless. There’s no arguing with you. You know everything.

 

So it was when trade, industry & competition minister Ebrahim Patel set about his self-bestowed task of re-industrialising SA alongside President Cyril Ramaphosa, who continues to cheer him on. They were of one mind: while the arrival of Covid-19 was indeed a financial disaster and human catastrophe, it was nevertheless the perfect platform from which to “transform” the whole economy.

 

This was a crisis not to waste! The country would be set to rights and made a place of decent work at a minimum wage. Job-destroying imports would be substituted by local production. Sector after sector in the economy was drawn into a “master plan”. CEOs lined up to sign and wave the patriotic flag. Critics who warned this was going to lead to higher local prices (of, for example, chicken) were dismissed.

 

But, as is common in stories of the Left leading history, it has begun to founder, its champions led astray just as the sirens of Greek mythology lured seamen to their deaths. There were survivors. Odysseus saved his men by stuffing their ears with wax.

 

Sadly, there’s no helping Ramaphosa. Enraptured by the siren Patel, he has flicked the wax away. And behold, just look at the balance of payments. We’re winning! But that is not the work of newly cast SA steel bridges in Ethiopia.

 

It is the work of an old economy from the time of colony and apartheid. There’s a commodity price boom. We dig up rock as always, and ship it out as always, and we are saved. Even the very poor are given a shekel. The taxman gets more than he ever imagined, and the fiscal deficit stops rising. Our ratings outlook improves.

 

But Russia invades Ukraine and a new monster appears. Inflation. By the time you see it, it’s too late. Very soon petrol will cost R25 a litre. If you’re a control freak, how do you stop prices rising?

 

I’ve seen a draft of an agreement the department of trade, industry & competition is offering businesses that benefit from the import and anti-dumping duties Patel imposes. It’s a sweet deal (not) — you get the anti-dumping duties you want (we just did 150%-plus to Chinese and Indian spades and forks) but in return you have to promise not to increase prices, not cut jobs, and commit to investment in plant, site upgrades and R&D for three years.

 

“Agreement between department of trade, industry and competition and (blank)” the draft reads. “Whereas, the dtic, with key stakeholders, developed a (blank) sector desk that can drive towards a competitive, dynamic and inclusive industry and which is able to provide a stable platform for investment, growth and job creation; and Whereas, the Company have [sic] committed to the development of local (blank) sector capabilities. The Parties hereby agree to cooperate on the matters set out herein under:

 

“Purpose: 1.1 The parties to this Agreement seek to strengthen working relationships to give effect to the objectives of the (blank) sector development between industry, labour and government.

 

“Tariff adjustments: The parties note that the (blank) on behalf of the (blank) manufacturers has applied to the International Trade Administration Commission of South Africa (ITAC) for the implementation of anti-dumping duties on imported (blank) originating from (blank), classified under tariff subheading (blank) in order to ensure the competitiveness, building and development of the local (blank) sector capabilities.

 

“The Company acknowledge [sic], in the event that duty is granted, that it commits to the following: The company commits that price increases will be driven by cost-based increases and undertake to not increase its margin by more than the Consumer Price Index yearly …

 

“The Company anticipates that it could increase its current production output by (blank). If this is obtained, the Company undertakes to create jobs that would lead to (blank) new employment over the next three years …

 

“The Company undertakes to not retrench any permanent employees during this period of lower activity caused by Covid-19 and the lower levels of activity …

 

“The Company plans to invest R (blank) over the next three years in Plant, machineries and building to support the manufacturing of (blank), including a site layout upgrade to facilitate throughput of materials and products …”

 

There’s more, but you get the point. It’s just embarrassing, but this is where industrial policy has wound up — in a dead end with a minister trying to barter (that’s putting it politely) his way into investment.

 

But the more control Patel gets, the more he needs. He needs to control literally every aspect of manufacturing, all the time, or nothing works. That’s because the entire proposition of localisation is untenable. This is not 1822.

 

As he reaches now, in the face of inflation, to control prices — the last-gasp saloon — Ramaphosa must surely understand his man has failed. If he doesn’t, or if the ANC doesn’t, Patel won’t stop until there’s not a sustainably working factory left in this country.

 

The CEOs who signed up to this ludicrous dream are about to find out they’re the statues, not the pigeons.

 

Peter Bruce is the former editor of Business Day and the Financial Mail.

 

Image Credit: Leila Dougan

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