The “Politics” of Steel

At present, business in South Africa is ‘marking time’ as it awaits the outcome of the elections due to take place on 8 May. For the South African steel construction industry, the fervent desire is that the post-election dispensation will go a long way towards resolving the crisis in which the industry currently finds itself.

This is according to Paolo Trinchero, CEO of the SAISC, steel industry veteran and a dedicated lobbyist for and champion of ‘all things steel’.

It is the sincere hope and expectation of steel industry representative body the SA Institute of Steel Construction (SAISC) that post-election public sector policymakers will view the steel value chain as the pivotal contributor to the South African economy that it is; and will take into consideration the ‘larger picture’ – adopting a more holistic view of the steel construction industry.

Since 1956, the South African Institute of Steel Construction (SAISC) has represented all facets of the steel construction industry – as well as those parties with an interest in the use of steel in all the sectors of business and society as a whole.

“Since our inception in 1956, the mission of the SAISC has been to promote the well-being of all our stakeholders in the local steel industry – upstream, midstream and downstream.,” Trinchero points out, adding that a key example of this is the lobbying and designation, localisation and downstream tariff implementation which the SAISC spearheaded in recent years.

Steel forms the foundation and pillars upon which any modern economy is built; and, as such, is essential to every single industry sector.  “In its most simplistic form, consider agriculture: no steel – no tractor – no food. Certainly from a broader pan–African perspective, without a healthy local steel industry, we will not be able to integrate and develop either South Africa or the rest our continent,” Trinchero comments.

He explains that what the steel sector – and the country as a whole – urgently needs is effective policy that will generate confidence in the viability of South Africa. This, in turn, will boost competitiveness when it comes to attracting foreign direct investment – translating into projects which will, in turn, stimulate the consumption of steel in all industries and walks of life.

“What will engender real confidence is if potential investors can see that in South Africa after the May 2019 elections, there is actually some improved cooperation between government, the private sector, and labour, to sustainably grow the industry,” he adds.

However, in today’s acutely constrained trading environment – with the top five construction companies in various stages of economic distress, and many businesses adopting the ‘life-boat’ mentality of ‘every man for himself’ – one has to ask what the root economic causes are for the current crisis in the steel construction industry?

Trinchero explains that the current ‘perfect storm’ scenario is essentially a combination of  an exceptional increase in costs, coupled with very low demand: “In the past decade South Africa has experienced soaring electricity prices combined with uncertainty of supply – as starkly illustrated by the recent nightmarish bout of load shedding which has seen many businesses on the brink of collapse. In addition, transport – the literal arterial lifeblood of the economy – comes at a cost which tends to render us uncompetitive on the global stage.

 “Furthermore, our labour costs have been rising faster than the rate of inflation,” he adds.

These factors combine to make running a competitive steel mill – as well as downstream steel businesses in South Africa – problematic to say the least.

“These challenges have had a ‘knock-on’ effect, impacting the downstream steel sector adversely and – in a harmful and vicious cycle – this sector’s distress is also detrimental to the primary steel mill; as well as several other smaller steel ‘mini-mills’ struggling to grow and succeed in the current economy,” he points out.

However, South Africa needs a competitive supply of steel – otherwise, the downstream sector will inevitably look to foster their competitiveness by importing rather than buying locally. However, the benefit of imports is comparatively short-term, explains Trinchero, as, in the long-term, it has a negative effect on job creation.

“Again this has a knock-on and vicious cycle effect: with fewer people working, fewer people are able to afford products which are made of steel,” he elaborates.

Regarding finished goods, it is of great importance that sustained attention is given to fostering the well-being and prosperity of the downstream steel sector – the ultimate manufacturers of finished steel goods. Without a healthy downstream sector, the demand for steel will be severely weakened.

In South Africa, one cannot discuss imports without also debating the issue of tariffs and safe-guarding duties. From the point of view of the SAISC, the imposition of tariffs can be a useful trading mechanism – but has to be done with a very high level of competence and careful thought – so that it is balanced and ultimately well-policed.

“What we certainly do not want to see in South Africa is the dumping of sub-standard ‘grey” goods from other parts of the world,” he continues.

“To return to policy considerations: in order to kick start our economy, we need clarity on mining policy, including what the implications of the Mining Charter will be for local business. We have significant mineral resources in South Africa, and if mining gains momentum, it will stimulate manufacturing which will consequently create the need for more construction using steel.

However, the roadmap to recovery cannot end there, he emphasises.

“We need to see an infrastructure pipeline for the construction sector, and repairs and maintenance to keep manufacturing facilities, power generation and other critical sectors operational. We need real measures in the form of accessible, realistic government incentives to assist companies in the revitalisation phase.

From the SAISC’s perspective, we are also engaged in doing all we can to foster increased cooperation with sectors allied to the steel industry, such as mining and manufacturing. It is only through greater networking and collaboration, and mindset which considers all opportunities, big and small – that current industry contraction will eventually turn into expansion,” he asserts.

“In summary, while these are the non-partisan views of the SAISC, broad stakeholder consultation indicates that they are also shared by many within the local steel sector,” says Trinchero.

“We trust that once the election results have been announced, our government will take very prompt and firm steps to implement the measures required, and ensure the future sustainability and prosperity of the steel construction industry and, consequently, South Africa as a whole,” he concludes.