The potential loss of 2000 jobs at Arcelor Mittal South Africa (AMSA) is receiving much media attention. That is justifiably so; every job lost has a huge adverse effect on the individual, even more so in the current declining job market. Losing one’s job places any individual in a desperate dilemma.
The Steel Industry’s loss of 100 000 jobs during the last decade and hundreds of thousands of jobs over two to three decades did not get sufficient attention. That is because it happened gradually and was spread nationally. The result of de-industrialisation policies was not as spectacular as the loss of 2000 jobs in one workplace, but much more devastating. The gradual effect of the slow poison which systematically wrenched the life out of South Africa’s SMME’s simply wasn't newsworthy.
One cannot ignore the role of the spectacular growth of the Chinese economy and its impact on global trade, among others, the steel sector. However, over and above the global impact, in South Africa’s case the pain is self-inflicted.
How do you otherwise explain that, while global crude steel production increased by 5.4% year-on-year in May 2019 (China’s output increased by 10%, India’s by 5.1%, the USA’s by 5.4%, Brazil’s by 2.9% and Egypt’s by 19.8%), South Africa’s output declined by 10.3%.
Some countries (France, Spain and Turkey) also experienced a decline in crude steel production, but not remotely on the scale experienced by South Africa - in effect by AMSA, South Africa’s sole steel producer.
In South Africa the Steel Industry is a victim of policies which resulted in a relentless, devastating process of de-industrialisation.
One of the main culprits is South Africa’s bargaining council dispensation [which in the Steel Industry culminates in the Metal and Engineering Industry Bargaining Council (MEIBC)], which unashamedly discriminates against SMMEs - especially with regard to conditions of employment. The provisions in the Labour Relations Act, which establish the framework for this SMME-hostile/job destroying dispensation, confirm the fact that there is neither the political appreciation nor political desire to create a dispensation in which SMME’s can flourish - which is a prerequisite for igniting industrialisation.
The unvalued SMMEs are AMSA’s customers. As they decline, so does AMSA’s market.
In 2015, under this severe economic situation, AMSA turned against its own customer base. That is when government made a 180-degree about-turn (after a visit by the owner of AMSA International to former President Zuma) and introduced a 10% customs duty, followed by a further 12% safeguard duty, to protect AMSA against the import of cheaper, better quality steel. The impact on the Steel Downstream 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 seventy years 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 South African consumer carries the brunt.
Retrenching 2000 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 South African steel market will require both tough operational decisions by AMSA and bold policy decisions by government.
This opinion piece is by Gerhard Papenfus, Chief Executive of the National Employers’ Association of South Africa (NEASA). He writes this in his personal capacity.