Minister Ebrahim Patel’s plan for steel industry falls into the Trumpist trap

First published in the Daily Maverick 168 weekly newspaper.

I read the South African Steel and Metal Fabrication Master Plan 1.0 this week after Ludovico Sanges, the MD of steel fabrication company Duferco, wrote about the plan in Business Maverick. His overall comment was a kind of partial welcome of the plan, writing “close but no cigar”.

I think he was being a little kind. The plan focuses very heavily on two things – localisation and tariffs. The steel industry in SA has some pockets of success, but it is under pressure from China after the US and the European Union imposed restrictions on Chinese steel, which encouraged the Chinese to offload more steel in other countries, including South Africa. 

The overall philosophy of the plan reminds me of the Trump administration’s “buy local” programme. The high-water mark on Trump’s approach was his encouragement of a boycott of Harley-Davidson motorbikes. Ironically, Harley-Davidson’s decision to increase its production outside the US was a consequence of something Trump himself did, imposing hefty tariffs on steel products in 2018.

The steel master plan smacks of the same kind of Trumpist beggar-thy-neighbour mercantilism. The basic idea is so old and so simple and so wrong, you might think the world would have moved beyond it by now. But somehow to politicians, responsible as they are to local workers only, the idea of insisting on local use of locally made products is as ubiquitous as politics itself. 

The problem is that, as soon as you impose a rule like this, you require an inspectorate to enforce it. Locally made steel is, after all, indistinguishable (more or less) from foreign-made steel. The plan says “the proposal by industry stakeholders for an effective Compliance Investigation Unit, supporting the SABS and other state bodies such as the Auditor-General and backed up by meaningful accountability and penalties, can address this problem” of the evasion of designated products. You can quickly see where this is going: what started as a seemingly simple idea now includes a police force of sorts. 

And to “encourage” import replacement, Trade and Industry is investigating “a pre-surveillance system”, which requires permits so industry can “track imports and to plan for import replacement”. So now we have an inspectorate and a permit system. 

Then, of course, there is Black Economic Empowerment. Transnet, the report points out, has “identified the role of middlemen in procurement as a problem. The middlemen increase the cost by taking a margin but adding no value”. The reason Transnet uses middlemen is “usually to comply with BBBEE requirements”, the report finds. We are all deeply shocked by this discovery.

And then, last but not least, there is Eskom, whose rising costs have put a strain on the entire supply chain, top to bottom. 

Some of the leading characters in the industry have endorsed the report, including ArcelorMittal CEO Kobus Verster and Columbus Stainless Steel CEO Johan Strydom. Trade unions have also endorsed it, including Numsa General Secretary Irvin Jim and Solidarity Deputy General Secretary Marius Croukamp. And, of course, Trade and Industry Minister Ebrahim Patel, whose idea this all is. 

But left out is Duferco, a user of imported steel to produce local products. “Duferco is forced to import the hot rolled coil (HRC) because ArcelorMittal South Africa (Amsa) is the only local supplier, and Duferco has been unable to come to an amicable agreement with Amsa, which remains an unreliable supplier beset by delays and supply problems… We would strongly argue that the extensive beneficiation of the imported HRC we undertake should be more than enough to qualify as localisation.”

There is a huge irony here. Duferco imports steel, manufactures products and exports those products. These products do not attract duties, and it’s very competitive on international markets. “It makes no sense that duties prevent this competitive, high-quality product from being available on the local market,” writes Sanges.

I have no issue with Patel’s “masterplan” modus operandi; the intentions are obviously good – as are some of the ideas. I just wish he wasn’t falling into Trumpist traps in the process. The plan should smooth the path of commerce rather than increase the choke points. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.