Navigating Globilization and Protectionist Measures in the Structural Steel Industry

From the outset, I would like to emphasize that I am not an economist, a marketing guru or a specialist engineer but have become a generalist over the last five years. Not by choice I might add, but by the circumstances in which the steel industry finds itself. Our worlds have been changed by low economic growth, commodity cycles, political intervention, China, protectionist measures, world events and the list just goes on and on. 2017, I hope will bring the needle back a little but it may not.

We have to be experts in local politics, world events and their impact, engineering, finances, phycology, EQ and more (EQ is for the Italian temperament). Having watched a number of the presentations at Davos, the beauty of technology today, one struck me in particular, a panel discussion where Singaporean academic Kishore Mahbubani discussed how Singapore adapts to a rapidly changing environment in a multipolar word.

There is great uncertainty on how the world will respond to Brexit and a Trump presidency. What impact will this have on our construction markets and ability to compete and export? Can we have some protection to level the playing fields from competing country government subsidies and maintain our ability to compete on the international stage or is it “all or nothing” approach?

This piece is not intended to be a great academic work but to get us thinking about our place in the world and how we as the SAISC need to evolve into a body that can change very rapidly to the environment in which we find ourselves.

Let’s focus on the steel supply chain for a moment and steel construction in particular but we could just as well refer to a number of manufacturers in the steel industry. We have local and international clients with very different approaches to investment and returns. Some long term and some short. We have government and private companies. Government clients are political animals by their very nature. In South Africa in particular, policy and ideology have become levers in their procurement and investment decisions. From a private point of view government policy and the horizon is important. Bad policy leads to an investment holiday. This can just as well apply to any country you are living in. So we have a situation where some business can evolve for local conditions but others may have to export, globalize and or relocate.

Once we move past the client and we get to architecture and design. We now find ourselves in an environment where many firms have globalized.  They have offices and staff all over the world and can lever their expertise and costs to suit.  The barrier to entry or opportunity to globalize is found in building regulations, design codes and standards.  The great move to modern technology and building information modeling lends itself to a global approach. What happens when design is global and procurement is not.  The SAISC now has to deal with many international design codes and it needs to evolve to cater for the needs of a global industry designing buildings in South Africa, Africa, and the world.

The steel mills find themselves in a storm where we have too much capacity around the world. Some countries have modern mills which are efficient and others well, the less said the better. Government subsidies have had a significant impact on distorting the steel supply chain. So price is a major determinant, but quality and new materials should be a benchmark we are willing to consider. From a global perspective many of our design and construction firms have become used to procuring from anywhere in the world. Can we turn the clock back? Barriers in the form of tariffs are common place and are likely to stay with us for at least the next 5 years. (The GM of a German steelmaker recently gave a 5 to 7 year horizon.) In addition to this many countries are introducing non-tariff barriers in the form of specialist codes and standards.

Civil Contractors, Structural Steel Fabricators and Component Manufacturers are also impacted by the environment. We have projects that can be designed anywhere in the world today to different codes and standards. This impacts on the input material and the standards to which a company has to manufacture. The impact of tariffs can be significant and the response of countries to tariffs on downstream goods will impact on exports.

So an inability to get the balance right can impact on the supply chain and can ultimately destroy an entire industry.

We can’t put Pandora back in the box. We have to recognize that we have to evolve and do it quickly. Our major challenge will be to influence stakeholders to embrace rapid change and react quickly.  This includes government departments.