Four steps to fortifying SA’s ailing steel industry
A recent study by Oxford Economics confirms what we all intuitively understand: steel is one of the backbone industries on which economies are built and jobs created.
Our product is used to make the objects that make a modern society work — without steel, manufacturing would simply be impossible. That means steel has an unusually long and influential value chain, creating value and jobs across its own supply chain and then into the whole economy.
The research shows that for every dollar of value added within the steel industry, a further $2.50 of value is added by companies across the globe that supply the industry. Every two jobs in the steel sector translate into 13 more jobs across its supply chain. In SA, steel creates 190,000 jobs directly.
But the steel industry also influences the entire economy. Because steel is a key input in many other industrial sectors, steel supports jobs in the industries that make steel-based products and that use them. The big steel-consuming industries contribute about 15% to our GDP and employ 8-million people directly and indirectly.
A flourishing domestic steel industry is something worth having from a myriad viewpoints. It creates jobs within its own supply chain and supports the creation of still more in industries that use steel or steel products. Manufacturing is the catalyst for economic growth and job creation, and it starts with steel.
These are complex issues, and it is a cause for optimism that business as a whole is working together with the government to play its part in resolving them
Strategically, it makes sense not to rely on steel imports because otherwise one’s “steel ecosystem” is perpetually at the mercy of global geopolitics and trade cycles.
The SA steel industry has been in steep decline since 2010. Among the many reasons for it is a dramatic increase in the amount of cheap imported steel — 250% between 2000 and 2016, mostly from China, which led to the imposition of tariffs to protect our primary producer. This has led to a reduction in imported steel, but imported finished goods are still being brought in, at the expense of the local manufacturing sector.
Another major factor is the weakness of the SA economy. The causes for the weakness include poor infrastructure, underperforming state-owned enterprises, ineffective labour legislation and a calamitously dysfunctional educational system — not forgetting the effect of corruption.
All these factors drive negative sentiment, further perpetuating a downward spiral. These are complex issues, and it is a cause for optimism that business as a whole is working together with the government to play its part in resolving them.
To strengthen the steel industry and those industries it supports, the following specific actions are needed:
- Use tariff protection to support the local steel ecosystem. Tariffs can be a powerful weapon or hugely destructive, depending on how intelligently they are used. We believe tariffs should not be used to protect the primary producer, thus harnessing the power of the market to make it maximally competitive and thus able to supply the raw material the industry needs at the best price. Rather, tariffs should be used to protect finished goods produced in SA. This maximises the accelerator effect the steel industry has on the economy as a whole by ensuring the greatest number of jobs are created. We all saw the carnage that not protecting our garment-manufacturing industry caused and the effect on jobs.
- Develop an effective “Buy SA” campaign. To complement tariff protection of finished goods, efforts to get people and companies to buy local should be ramped up. This means initiating a properly resourced and credible programme to identify and promote goods made with SA steel. This approach has worked well in the car and other industries, and would tap into the high levels of patriotism and optimism that, against all the odds, exist, as the #Imstaying social media movement attests.
- Fix the transport system. Rail transport needs to be improved radically so raw material and finished goods alike can be moved efficiently around the country. Doing this immediately improve the state of our road network and promote internal trade. Efficient bulk transport is essential to many industries, not just steel. In addition, an upgraded transport system would consume a lot of steel, further strengthening the industry. The government’s role should be that of a catalyst: it does not have the money for this kind of investment, but the private sector would jump at it, given the right conditions.
- Upgrade ports. Once we have a solid domestic consumer base for finished goods made using our own steel, we need to be able to export it efficiently. The ability to export goods efficiently would help to make us globally competitive as a country, despite the long distances to our major trading partners. Let’s control what we can by becoming very efficient and cost-effective.
With the right kind of government support, companies such as ours can expand the role they play in supporting economic growth. This includes providing training, extending credit and holding stock so smaller customers don’t have to tie up capital in inventory, and supporting small businesses that use steel with better terms and advice.
The domestic steel industry is one of our economic crown jewels, with the potential to help lead the economic recovery we all so desperately want and need. It can be revitalised, but every year we delay taking these actions will reduce its capacity to do so as skills and capital move into other industries, often in other countries. To reverse the decline in our steel industry, we must act now.
• Benfield is Group CEO of Macsteel.