STEEL INDUSTRY: SA STEEL SHORTAGES: THIS IS WHAT NEEDS TO HAPPEN

STEEL INDUSTRY

SA STEEL SHORTAGES

THIS IS WHAT NEEDS TO HAPPEN

by Gerhard Papenfus

As a result of steel shortages, the steel industry finds itself in a dire situation.

Some of South Africa’s steel merchants and end-users have already placed large orders with international mills to compensate for AMSA’s current inability to meet local demand. It remains to be seen to what extent these imports will satisfactorily address the shortages in the domestic market.

There are, in certain quarters, a fear that when AMSA departs from the steel market, it will cause an upheaval in the industry. The response to this is twofold:

• there is a general consensus that AMSA, without the benefit of duties, will not close down, and that they will simply make a commercial decision to stop being a primary steel producer and start importing from AMSA international, which is still the world’s largest steel producer; and
• when AMSA ceases being a primary steel producer, it will cause some initial disruption, but South Africa’s steel merchants are entirely capable of filling that void.

However, as long as AMSA is artificially sustained and protected by means of duties, steel merchants cannot efficiently and sustainably adopt that role.

Government’s traditional skepticism of the role of the private sector, and its ideological compulsiveness to interfere in matters best left alone, is costing the steel industry dearly; in fact, it is throttling the industry into extinction. This is crippling South Africa profoundly, especially in light of the fact that manufacturing is the only area of business that can be ramped up rapidly in order to generate jobs.

Government’s interference, by facilitating AMSA’s monopolistic dominance, denies industry role-players their right to source internationally, negotiate the best price for steel and reduce input-costs, and as a result, the entire value chain, up to and including the end-consumer, suffers.

In order for the steel industry to be normalised, the following actions need to be taken without any further delay:

• the control, facilitated by Government, that AMSA has over the steel industry, must be wrested away once and for all;
• all duty protection of AMSA needs to be scrapped; if AMSA can survive this and play a role as a competitive and reliable primary steel producer, local customers will welcome AMSA with open arms;
• any limitations on imports have to be scrapped. AMSA will have to prove its worth in an open and free market;
• Government has to come to terms with the fact that only vibrant competition and an effective private sector can successfully deal with the challenges the steel industry is facing;
• Government has to let go of its grip on the industry by virtue of, among others, the enforcement of duties to prevent imports and allow the private sector to handle its own affairs; and
• Government has to facilitate the implementation of effective rail and port facilities, by means of mobilising the capabilities of the private sector.

It is the interference in the affairs of this industry by Government, by means of the bargaining council system, which resulted in entirely unrealistic wages – especially in respect of low-skilled workers – and the enforcement of import duties to protect an unproductive and uncompetitive AMSA, that has caused the industry to find itself in a continuous downward spiral.

A decision by Government to allow private sector role players to, unhindered, do what they do best and for Government to do what they are supposed to do, namely, to facilitate infrastructure improvements in respect of rail and ports, simply cannot be delayed. This in itself will create many jobs – more than that which AMSA will lose if they downscale their activities.

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