uring the SONA as well as the 2020 Budget Speech, Government’s support of Treasury’s ‘Economic transformation, inclusive growth and competitiveness’ policy document was reiterated.
In this policy document Treasury confirms its stance that trade policy is a key component of South Africa’s industrial policy package. It states that the International Trade Administration Commission (ITAC), which currently administers South Africa’s trade policy, considers trade measures on a case-by-case basis, which means that trade policy evolves on a ‘piecemeal’ basis through applications to ITAC, which, according to Treasury, lends the process to an inherent bias towards larger firms.
The 2015 introduction of import- and safeguard duties, aimed at protecting ArcellorMittalSA (AMSA), serves as a case-in-point. After Mr Rob Davies, the previous Minister of Trade and Industry, withdrew a 5 percent import duty (protecting AMSA) - on the basis of the de-industrialisation impact on steel manufacturing - Mr Lakshmi Mittal, the London based owner of ArcelorMittal International, visited then-President Jacob Zuma in South Africa.
What transpired in that secret meeting is the subject of speculation, rumours and conspiracy theories. It, however, resulted in a lucrative BEE deal and the introduction of 10 percent customs duties and soon thereafter a further 12 percent safeguard duties. This intervention constituted a 180-degree unjustified about-turn and a perfect example of ‘piecemeal’ intervention.
It may be this type of intervention, which favours a monopoly, but is harmful to the remainder of an industry, that caused Treasury to recommend that ITAC should be capacitated to enable it to conduct a broader value chain analysis of the impact of submissions and to be proactive in addressing the current biases of trade policy. Treasury also recommends that there should be consistent monitoring and evaluation of industrial policy interventions (such as the steel duties protecting AMSA). This is currently not done.
The South African steel downstream is compelled, as a result of the steel duties, to buy AMSA’s more expensive steel, while often being subjected to unreliable supply conditions. AMSA, with its 60 year old mill, less efficient and outdated steel production facilities, together with electricity- and transport constraints, simply cannot compete with modern steel mills - both in terms of price and quality. Eighty percent of world steel production facilities are less than 15 years old.
The fact that the South African steel downstream does not have access to high technology and cost-effective input material, has largely contributed to the process of de-industrialisation plaguing manufacturing in the country.
During the first week of February 2020, a fire broke out at one of AMSA’s key production facilities. That resulted in a shutdown lasting a week. However, this incident is not an exception. As a result of AMSA’s antiquated plant, it has experienced frequent production failures over the course of the last few years. Incidents of this nature aggravate backlogs and the strain on the steel downstream as a direct result of the current duties.
The Department of Trade, Industry and Competition is called upon to, without unnecessary delay, implement the proposals regarding ITAC and trade policy contained in the Treasury document. Although ITAC has given an undertaking to review the duties on steel products, this cannot be done in the ‘piecemeal’ manner as in the past. At the same time, the steel industry can no longer afford to carry the burden of protecting AMSA.
Therefore, considering the bloodbath in the Industry, both in terms of companies being put under business rescue, business closures and consequent job losses, all duties protecting AMSA should be suspended until ITAC is capacitated to give full effect to Treasury’s proposals.
This is a press release by Gerhard Papenfus, Chief Executive of the National Employers’ Association of South Africa (NEASA). He writes this in his personal capacity.