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OPINION: State policies not helping SA’s ailing steel sector

BUSINESS LIVE / 17 JULY 2019 - 05:05 / GERHARD PAPENFUS

Job losses at ArcelorMittal SA highlight deindustrialisation and discrimination against small businesses

The potential loss of 2,000 jobs at ArcelorMittal SA (Amsa) is getting much media attention. That is justifiable.

Every job lost has a huge adverse effect on the individual, even more so in the current declining job market.

Amsa, majority owned by the world’s largest steelmaker of the same name, is discussing with unions the slashing more than 2,000 jobs to cope with cheap imports and rising costs. The group employs about 9,000 people.

The steel industry’s loss of 100,000 jobs over the past decade and hundreds of thousands of jobs over two to three decades did not get enough attention. That is because it happened gradually and was spread nationally.

The result of deindustrialisation policies was not as spectacular as the loss of 2,000 jobs in one workplace, but much more devastating. The gradual effect of the slow poison, which systematically wrenched the life out of SA’s small, medium and micro-sized enterprises (SMMEs) simply wasn’t newsworthy.

One cannot ignore the role of the spectacular growth of the Chinese economy and its impact on global trade including its influence on the steel markets. China’s steel exports represented about 16% of all steel exported globally in 2017, according to US government agency International Trade Administration.

However, much of SA’s pain is self-inflicted. In SA the steel industry is more a victim of government policies, which resulted in a relentless, devastating process of deindustrialisation.

SA’s steel output declined 10.3% year on year in May. That compares with a the global crude steel production growth of 5.4%, with China's output rising 10%, India 5.1%, the US 5.4%, Brazil 2.9% and Egypt by a hefty 19.8%.

Granted, some countries such as France, Spain and Turkey also suffered declines in crude steel production, but not remotely on the scale experienced by SA, which owes its production solely to Amsa.

One of the main culprits is SA’s bargaining council dispensation, or the Metal and Engineering Industry Bargaining Council (MEIBC), which unashamedly discriminates against small businesses, or SMMEs, especially with regard to conditions of employment.

The provisions in the Labour Relations Act, which establish the framework for this SMME-hostile and job destroying dispensation, confirm the fact that there is neither the political appreciation nor desire to create a dispensation in which SMME’s can flourish, which is a prerequisite for reigniting industrialisation and creating jobs.

The SMMEs are Amsa’s customers. As they decline, so does Amsa’s market. In 2015, the year SA narrowly missed a textbook recession, small businesses suffered when the government made a 180º turn and introduced a 10% customs duty on steel.

This was followed by a further 12% safeguard duty, to protect Amsa against the import of cheaper, better quality steel. The impact on the steel downstream sector was immediate and severe. No longer was it possible to buy the best steel at the best price. Downstream steel manufacturers were forced to buy from Amsa, which was precisely the purpose of the duties in the first place.

It was difficult for SMMEs to survive, let alone compete or prosper, under the MEIBC’s wage dispensation. The added burden of the duties made it almost impossible.

It needs to be kept in mind that the duties protect a foreign-owned, 70-year-old Amsa steel mill. With its antiquated production methods and electricity burden – which is 60% higher than that of a modern steel mill – it cannot compete with global competitors, both in terms of price and the quality of steel.

The steel downstream and the SA consumer bears the brunt. Retrenching 2,000 workers will bring temporary relief to Amsa. However, without addressing the underlying factors which caused their dilemma in the first place, the gradual decline will continue.

Rescuing the SA steel market will require both tough operational decisions by Amsa and bold policy decisions by government.

• Papenfus is the CEO of the National Employers’ Association of SA (NEASA). He writes this in his personal capacity.

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LINK : https://www.businesslive.co.za/bd/opinion/2019-07-17-state-policies-not-helping-sas-ailing-steel-sector/

Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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