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First published in BusinessDay on 22 February 2021
by Mat Cuthbert
Parts of the article have been highlighted by NEASA's Media Department
Over the course of the past two weeks, Peter Bruce has crafted two well-considered columns relating to the steel industry and the heavy-handed regulatory approach of trade, industry and competition minister Ebrahim Patel (“Steel yourself for Ebrahim Patel’s price controls, a loser’s game”, February 10, and “Bend the knee and smite your rivals for an easy ride”, February 17).
He raises some key issues such as the government’s posture towards ArcelorMittal SA, the scrap metal industry and Patel’s “re-industrialisation” instinct to protect existing players on the ground.
The government’s relationship with ArcelorMittal is nothing more than a classic case of corporate welfare. This includes a range of customs and safeguard duties, bailouts and legislation designed to sustain its monopoly over the primary steel industry. Every time I have alluded to this in the portfolio committee, Patel has flatly denied that they receive special treatment — yet I ask, where is the R4.6bn they committed to upgrading their archaic plants?
It is clear that the department of trade, industry and competition has failed to hold ArcelorMittal to account on the conditions set in 2016 when the Competition Tribunal ordered it to pay R1.5bn fine for price-fixing.
Instead, we’ve seen it close down plants and shed jobs from Saldanha to Newcastle as it implemented its restructuring plan. When I quizzed the department's director-general about what his view was on ArcelorMittal having registered profits on the back of job losses, he responded by saying “Even Donald Trump thought it important to retain a primary steel capability in his country, therefore we should too”. A rather obscure answer to a perfectly valid question.
The result of all of this is downstream steel consumers and producers are forced to buy overpriced, poor-quality steel because government and ArcelorMittal say so. It is well known that it is often much cheaper and easier to import steel from other countries, yet Patel resists the temptation to place his faith in the free market instead of the state.
The question, then, is why not focus more on the downstream steel industry where there is more potential for growth and increased competition? I argue that the Downstream Steel Industry Competitiveness Fund should be more adequately capacitated in terms of both financial and nonfinancial support so it can begin to play a role in restructuring the industry.
Notwithstanding the issues faced by the steel industry, the worst kind of punishment has been meted out to the scrap metal industry in the form of the price preference system, which does not allow for scrap metal to be exported unless it has been offered domestically for local beneficiation, for a defined period and at a price discount.
Throughout the last year, I have been inundated with calls by scrap dealers who have had to retrench staff and, in the worst cases, close down their operations because of the two-month ban the International Trade Administration Commission (Itac) issued on scrap metal exports, due to review of the price preference system compounded by the effects of a hard lockdown.
Post the review, it was announced that the department, in conjunction with the Treasury, would pursue an export tax, which the DA argued against on the basis that it would add further red tape to an already over-regulated industry. When I raised this issue with Patel in 2020 and warned of potential fallout in the industry, he accused me of being a lobbyist and said that he would relish beating the price preference system and export tax naysayers in court again.
As Bruce rightly points out, “What Ramaphosa and Patel should be doing is finding ways to set enterprise free in SA — to remove restrictions, not add more”. However, I’m sad to inform him that this not possible as long as Patel is minister. From the industry masterplans to the attempts to regulate everything that walks (inclusive of open-toe shoes), the man swears by Soviet-style central planning of the economy. He tries to speak like a pragmatist but his actions say communist.
Unless Patel undergoes a Damascene conversion, I don’t see a pro-growth agenda being put onto the table during the remainder of his tenure.
Mat Cuthbert, MP, DA trade, industry & competition spokesperson.
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