Minister Ebrahim Patel’s plan for the steel industry falls …
How is it possible that in South Africa, with a left-wing government, we end up with an industrial policy almost indistinguishable from that of Donald Trump, the right-most president in recent American history? It turns out: quite easily.
First published in the Daily Maverick 168 weekly newspaper.
I read the South African Steel and Metal Fabrication Master Plan 1.0 this week after Ludovico Sanges, the managing director of steelmaking company Duferco, wrote about the plan in Maverick company. His overall commentary was sort of a partial welcome to the shot, writing “near but no cigar.”
I think he was a little nice. The plan focuses very heavily on two things – location and pricing. The steel industry in South Africa has some success, but it is under pressure from China after the United States and the European Union imposed restrictions on Chinese steel, which encouraged the Chinese to unload more steel in other countries, including South Africa.
The overall philosophy of the plan reminds me of the Trump administration’s “buy local” agenda. The highlight of Trump’s approach was his encouragement to boycott Harley-Davidson motorcycles. Ironically, Harley-Davidson’s decision to increase production outside of the United States was a consequence of something Trump himself did, imposing high tariffs on steel products in 2018.
The steel master plan smacks of the same kind of beggar-thy-neighbor Trumpist commercialism. The basic idea is so old, so simple, and so wrong that you might think the world would have passed it by now. But somehow for politicians, responsible as they are to local workers only, the idea of insisting on the local use of locally made products is as pervasive as the politics itself.
The problem is that as soon as you impose a rule like this, you need an inspection service to enforce it. Locally made steel is, after all, indistinguishable (more or less) from foreign made steel. The plan states that “the industry stakeholder proposal for an effective compliance investigation unit, supporting the SABS and other state bodies such as the Auditor General and underpinned by accountability and significant penalties, can solve this problem ‘of escape of designated products. You can quickly see where it’s going: what started as a seemingly simple idea now includes some sort of police force.
And to “encourage” import substitution, Commerce and Industry is studying “a pre-surveillance system”, which requires permits so that industry can “track imports and plan for import substitution.” So we now have an inspection service and a permit system.
Then, of course, there is Black Economic Empowerment. Transnet, the report points out, “identified the role of intermediaries in purchasing as a problem. Intermediaries increase the cost by taking a margin but adding no value ”. The reason Transnet uses intermediaries is “generally to comply with BBBEE requirements”, according to the report. We are all deeply shocked by this discovery.
And then, last but not least, there’s Eskom, whose rising costs have strained the entire supply chain, from top to bottom.
Some of the main figures in the industry have endorsed the report, including ArcelorMittal CEO Kobus Verster and Columbus Stainless Steel CEO Johan Strydom. The unions also approved it, notably the general secretary of Numsa, Irvin Jim, and the deputy general secretary of Solidarity, Marius Croukamp. And, of course, the Minister of Trade and Industry, Ebrahim Patel, whose idea is.
But is left out Duferco, a user of imported steel to produce local products. “Duferco is forced to import the hot rolled coil (HRC) because ArcelorMittal South Africa (Amsa) is the only local supplier, and Duferco was unable to reach an amicable agreement with Amsa, which remains a unreliable supplier beset by delays and supply problems… We strongly contend that the considerable enrichment of imported HRC that we undertake should be more than sufficient to qualify as localization.
There is a huge irony here. Duferco imports steel, manufactures products and exports these products. These products are not taxed, and it is very competitive in international markets. “It makes no sense that rights prevent this competitive, high-quality product from being available in the local market,” Sanges writes.
I have no problem with the modus operandi of Patel’s “master plan”; the intentions are obviously good – as are some ideas. I just wish he didn’t fall for Trumpist traps in the process. The plan should smooth the way for trade rather than increase bottlenecks. DM168
This story first appeared in our weekly Daily Maverick 168 which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest dealer, please click here.