Amsa is ‘killing’ SA’s downstream steel sector, Neasa warns

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JEREMY MAGGS: Now you would have read that South Africa has sharply increased import tariffs on a wide range of steel products, in some cases pushing duties to the maximum levels allowed under World Trade Organisation rules. Government and the trade authorities say the move is necessary to give a battered local steel industry breathing room against a surge of cheaper imports, particularly from China.

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But downstream manufacturers are warning that protecting primary steel producers could come at a punishing cost to fabricators, to engineering firms and construction players, and job creation further down or along the value chain. In that respect, I want to talk to Gerhard Papenfus, who’s chief executive of the National Employers’ Association of South Africa (Neasa).

Gerhard, welcome to you. So government, as I understand it, says the steel tariffs are a rescue measure for an industry that’s been under siege for a long time. But you’re suggesting that they may do more harm than good. Where’s the disconnect in thinking here?

GERHARD PAPENFUS: You see what’s happened here, the government started introducing duties in 2015. Lakshmi Mittal visited Jacob Zuma at the Union Buildings, and all of a sudden, a different approach was adopted. Now, just before that, the Minister of Trade and Industry, the minister at the time said South Africa must have a developmental price for steel, and the 5% duties that prevailed at that time were scrapped.

Then there was the visit by Lakshmi Mittal in 2015, and they started within months. The first duties came in 10%. The duties are now roughly 80%. What has happened is the decline of the industry began at that moment. That was the beginning of the end. So when they say they do this to help the industry, they’re not helping the industry. They are helping themselves.

Gerhard Papenfus, CEO of Neasa. Image: Supplied

There are only two institutions that get helped by this. One is the state that gets money through the duties, it’s a tax, and secondly, ArcelorMittal South Africa (Amsa). Now, the question is, do we have to keep Amsa alive? There are many role players that say, no, we can survive. In fact, Amsa is becoming an obstacle. Kill the thing, there are voices that say, just kill the thing, let them die.

Because what is happening with the downstream is the downstream is killed to keep Amsa alive. The downstream has lost, in the last five years, 110 000 jobs. That’s a decline of 24% in jobs and I think 1300 businesses have closed. That’s in the last five years and that will accelerate. This is not helping. This will only accelerate the decline. So when they say that they’re helping. That’s a cover-up. They’re not helping.

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JEREMY MAGGS: Gerhard, you’re effectively saying then, if I understand you, that we should let the primary steel capacity keep shrinking. But surely if local steelmaking collapses or diminishes, downstream manufacturers then become dangerously dependent on imports, don’t they?

GERHARD PAPENFUS: Well, here’s the issue, what is the problem with imports? Let me just use an example. If a company started making cell phones and we say, no, you can’t compete with the iPhones and so on of the world. And they say, no, but we want to make it. What we do is we bring in a duty against the import of iPhones.

Why can’t we import steel? That’s the question. If there’s an abundance of cheaper, good quality steel in the world, why don’t we import it?

Why must we have a primary steel producer? That’s the question. Now, there will be people who say, no, no, no, we need it. There are many people, thousands of downstream businesses that say, why can’t we import it?

There are problems at the ports. There are problems with rail. We understand that. But protecting Amsa doesn’t solve the problem. Amsa is the problem. Protecting Amsa is the problem. That is the main problem.

JEREMY MAGGS: Gerhard, is there not a danger that cheap imported steel can hollow out South Africa’s own industrial base? So it may lower costs in the short term but if local mills and fabricators can’t compete with subsidised or dumped imports, they simply cut production, shed jobs or close altogether.

GERHARD PAPENFUS: We need affordable, good quality raw material. That is the beginning of everything. When that price increases, you lose your customers. First of all, Amsa’s customers are disappearing. We say 1300 businesses were closed in the last five years. So their customer base is dying. The customer base that remains, what is the problem with them? They can no longer buy steel. The steel is too expensive. South African customers cannot afford the steel, the product that’s manufactured, and we’ve lost our exports to sub-Saharan Africa.

I’ve had a steel manufacturer in my office this morning. He says his business primarily was exporting to sub-Saharan Africa. There is nothing of that left. Not a single percentage. Nothing.

He has lost all of that. We are no longer competitive. So the result of the duties, the price of steel, is that we know that the downstream will die.

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Now, here’s the thing, if there is affordable, quality steel in the world available, why not make use of that? So, there were plans in 2014, a steel company in China wanted to build a steel plant in South Africa. That plan was scrapped in 2014. But a plant has now been erected in Zimbabwe, and we are already importing from that plant.

We need good quality raw material for the industry to survive. We do not need an Amsa. Amsa is killing the downstream. Keeping that animal alive is the problem. We think the thing must go.

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JEREMY MAGGS: So just a quick one in conclusion then, given that the import tariffs have been increased, what is your immediate plan as a body to oppose that? Where do you take this strategically?

GERHARD PAPENFUS: Well, companies must find a way around this. There is actually no plan. Amsa is a monopoly and everything is built around protecting that monopoly. We don’t see how to change that other than trying to convince government to adopt [a new] policy towards this thing, adopting a sound industrial policy. But we cannot see that happening at the moment. This is all as a result of poor industrial policy.

JEREMY MAGGS: Thank you very much indeed. Gerhard Papenfus is chief executive of the National Employers’ Association of South Africa.