The Department of Trade and Industry is to launch an incentive scheme to support the metal and engineering sector, which has been severely affected by electricity price hikes and slowing demand in the mining sector.

The new incentive was announced by Trade and Industry Minister Rob Davies during his budget vote speech in the National Assembly on Tuesday. He said the incentive would cost R500m this year and is meant to mitigate the effects of the import tariffs on steel on the downstream sector.

The department is particularly concerned about the decline of foundries, which, if allowed to continue, would result in de-industrialisation, and wants to stabilise the sector. The incentive, which will be matched against investments, aims to enhance competitiveness in the whole value chain and will be tied to supplier development, in certain cases.

"As we have shown with our clothing and textiles programme, judicious use of incentives and other industrial policy tools can stabilise sectors in distress and position these for growth," the minister said in his speech, adding that the incentive was very significant.

Davies explained during a media briefing ahead of his speech that the government had been forced to protect steel producer ArcelorMittal with import tariffs to preserve local steel production in the face of a global steel glut.

If SA’s biggest steel producer had closed down, it would have had knock-on effects on the downstream sector and resulted in job losses. However, the tariff increases had had a negative knock-on effect on the downstream metals sector; the incentive is intended to support the downstream industry.