Covid-19 hurts sugar and steel industries’ recovery plans
Trade, industry and competition officials said that Covid-19 and the lockdown had delayed the implementation of various measures meant to stabilise the sectors
Efforts to revive the ailing sugar and steel industries — which jointly contribute close to R500bn to SA’s GDP — have been scuppered by Covid-19 and the subsequent lockdown measures meant to control the spread of the disease, parliament heard on Tuesday.
The local sugar industry generates an income of about R14bn a year and is responsible for at least 350,000 jobs. The sector is in dire straits due to a number of serious challenges, including the significant decrease in local demand due to the sugar tax and the continued reduction of the industry’s share of the local market because of imports.
Similarly, the steel industry, which contributes about R470bn to the economy or 15% of GDP and employs 1.5-million people, has also been in a state of decline in recent years. This has been attributed to, among others, low domestic demand as a result of reduced infrastructure spending and a depressed global market.
Briefing MPs’s trade and industry portfolio committee on the challenges facing the sugar and steel industries, department of trade and industry officials said that Covid-19 and the lockdown had delayed the implementation of various measures meant to stabilise the sectors.
Speaking about the sugar industry, the department’s chief director of agro-processing, Ncumisa Mcata-Mhlauli, said the meeting to sign off and implement the industry masterplan was delayed due to the lockdown. Trade, industry and competition minister Ebrahim Patel recently gazetted the master plan, designating it a priority supplier in SA.
Mcata-Mhlauli said the health crisis and the subsequent closure of ports had led to market interruption, and the closure of some traditional markets for SA sugar. Furthermore, controlled shopping hours during the hard lockdown, the prohibition of operation of local users of sugar, such as restaurants, had left many industry players facing huge losses.
“Sales of sugar industry downstream products, for example, alcohol and furfural remain constrained by the regulations and impediments at local and international ports. Due to travel restrictions labour cannot move freely between provinces, creating shortages in certain key categories [such as] cane cutters,” Mcata-Mhlauli said.
On the sugar tax, Mcata-Mhlauli said engagements with the SA Revenue Service and the industry were ongoing. Opposition parties and the industry have argued that the sugar tax is impeding efforts to revive the sector.
The government introduced a tax on sugar-sweetened beverages in April 2018 as part of its efforts to improve the health of South Africans and reduce the related cost implications for the public and private healthcare systems.
On the steel sector, the department’s Umeesha Naidoo said reduced infrastructure spending had decreased demand for steel. Naidoo said Chinese and global overcapacity and overproduction is resulting in low prices of primary steel value added products.
Naidoo said the pandemic and the lockdown had accelerated the effects of low demand, over capacity, weak balance sheets and liquidity challenges impacting the viability of an industry that was already in distress.
Steel prices are forecast to fall while domestic steel consumption is expected to be below 3.3-million tonnes for 2020, a 26% drop, down from 4.5-million tonnes in 2019. Measures implemented to support the sector include relief funding for companies in distress, support for SMMEs, tax relief and limiting imports to enable companies to ramp-up production to supply domestic markets.
FF Plus MP Jaco Mulder said the future of the steel and sugar industries would be in serious jeopardy if the government did not lift its “irrational lockdown regulations and put healthy business principles before ideology”.
“The luxury of subsidising impractical government policy and noncompetitive practices is not sustainable because taxpayers have been stripped of their income and the country's reserves are low too.”
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