The Minister of Trade, Industry and Competition and the Crony Capitalists

by Gerhard Papenfus

The goal of the South African Minister of Trade, Industry and Competition is clearly not to stimulate trade, promote industrialisation or even prevent unscrupulous competition, as it should be, but rather to promote a particular ideology and support vested interests, for the sake of the ANC’s race-based economic transformation agenda, regardless of the all-round devastation it is causing to every aspect of the South African economy. 

The focus of this article is the Minister’s nationalist/socialist interventions in the steel industry, where he has continued to actively facilitate the industry’s downward trajectory. 

Perhaps Ebrahim Patel cannot be blamed for the foolish introduction, by Minister Rob Davies in 2015, of import duties to protect the monopolistic Arcelor Mittal SA (AMSA), a move still severely felt by the steel downstream. However, this intervention, which is throttling AMSA’s clients and is a self-destructive, suicidal plot that will eventually lead to AMSA’s own demise, has been retained by Minister Patel, regardless of the obvious and continuous harm to the steel industry.

While AMSA was Rob Davies’ “special project”, Patel’s latest “special interest” is the protection of mini steel mills, in which the Industrial Development Corporation (IDC), which also resorts under Patel, is heavily invested. Of no less importance is the fact that any investment by the IDC is accompanied by severe B-BBEE demands. These investments are not driven by financial logic, but ideological, race-oriented transformation fantasies. 

The few mini-mills under Patel’s care are heavily dependent on low-cost steel for their survival. In order to support these mini-mills, Patel,  with the stroke of a pen, sacrificed the scrap metal recycling industry by introducing a ban on the exports of ferrous and copper scrap. 

The impact of this ban on the scrap metal recycling industry was immediate and severe. However, not only is the scrap metal recycling industry affected, but almost the entire steel value chain, potentially also leading to the closing of AMSA’s Newcastle operation, which will have devastating consequences, among others, thousands of job losses. 

Crony capitalism is defined as “a pejorative term used in political discourse to describe a situation in which business profits from a close relationship with state power, either through an anti-competitive regulatory environment, direct government largesse, and/or corruption”. 

Does Patel’s intervention to benefit these mini-mills, which is causing direct and severe prejudice to the scrap metal recyclers, and probably the whole steel industry, not fall slam dunk within the definition of crony capitalism? Will these ‘capitalists’ survive without the intervention of the state? If not, then they are a burden on the taxpayer and should not be here in the first place. 

And then there is a further question to the Minister of Trade, Industry and … “Competition”: is this “project” of his and his department, apart from breaking all possible free market principles, not the epitome of anti-competitive?

The solution is glaringly obvious - let us revert to 2015 and remove all duties and state-driven interventions introduced since then, in order for the steel industry to reach equilibrium. This may cause interim upheaval, but it is the least harmful, and the only viable solution in South Africa’s low-growth economy.

Gerhard Papenfus is the Chief Executive of the National Employers' Association of South Africa (NEASA).