Low domestic demand and a depressed global market are taking their toll on SA’s steel sector — and no easy answers seem on hand to offer relief.
As is the case with other sectors, steel’s woes have left a trail of job losses. Between 2007 and the second quarter of 2019, the metals and engineering industry lost about 49,000 jobs — 38,000 of those in the metals sector. Over five years, the metals sector has shed about 16,000 jobs, according to the Steel & Engineering Industries Federation of Southern Africa (Seifsa).
"The job losses are a huge concern," says Seifsa chief economist Michael Ade, who believes companies need to start exploring markets beyond SA — and beyond Southern Africa.
"We are encouraging companies to take advantage of the African Continental Free Trade Area agreement [AfCFTA]," Ade says. "There is no demand locally because of various factors, including the constrained economic environment and fiscal consolidation."
Ade believes the East African Community (Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda) offers growth prospects for the local industry — as do West and Central Africa.
"The AfCFTA allows [local companies] to explore markets with which SA has no existing trade agreements — for instance, there is no agreement with Central and West Africa," he says. "Within the paradigm of the AfCFTA, we will be able to explore those markets."
To this end, Ade says SA should develop an implementation plan for the AfCFTA, which is meant to stimulate intra-Africa trade by bringing down costs through the reduction of tariffs.
But trade expert Catherine Grant Makokera, of Tutwa Consulting, says while the AfCFTA should in theory provide opportunities for the local steel industry, it is not likely to be a solution in the short term.
The AfCFTA allows member states to phase in reductions on tariffs over at least five years, she explains. But if countries designate steel as a sensitive industry, it may take even longer to reduce tariffs — if at all (countries may exclude some products from the agreement entirely).
"The details of the tariff schedules are still being negotiated and we won’t have a definitive answer for the steel industry for at least another few months," Grant Makokera says.
So while the pact has the potential to stimulate trade, it remains to be seen if it will live up to expectations. Already, she says, there are signs of momentum slowing, as the AU struggles to provide support for related negotiations.
"The AfCFTA is not just one agreement but is a framework that will cover many agreements negotiated between individual countries and customs unions that do not have trade arrangements in place," she says.
But while Grant Makokera has low short-term expectations, several downstream steel companies are optimistic about the prospects of increased intra-African trade.
The downstream sector in particular is taking strain from the downturn in SA’s economy. Not only is it feeling the effects of tariff protection for primary producer ArcelorMittal SA, but the lack of industrial activity and infrastructure development has resulted in slow local demand for steel products — and made the option of new export channels into the rest of Africa a welcome alternative.
Nicolette Skjoldhammer, chair of the Southern African Institute of Steel Construction (SAISC) and MD of steel company Betterect, is optimistic about the possible expansion of the SA steel industry.
"I truly believe that as an industry we are strategically and geographically so well positioned to service the requirements of the African continent, as we have a wealth of knowledge, experience and understanding of doing business not only locally but [across] Africa," she says.
Skjoldhammer says 80%-90% of Betterect’s turnover in the current financial year has come from exports into Southern and Central African markets. "We have seen a huge increase in African projects, and the SA industry is perfectly situated not only geographically but also with an enormous knowledge base to service this market."
SAISC CEO Paolo Trinchero says the body wants to be involved in growing the steel industry in the rest of Africa, given opportunities in the mining, infrastructure, commercial projects and housing sectors. As it stands, the region already accounts for 47% of SAISC’s steel-related exports.
However, he warns that SA should be careful that other countries don’t simply import products from outside Africa, and reroute their imports to SA duty-free. "We need to ensure that we develop close linkages between countries so that both sides benefit," he says.
Others are even more measured. For example, Arun Chadha, group CEO of steel major and value-added steel processor Allied Steelrode, does not expect the AfCFTA to be a silver bullet. He believes it is the price of steel that is the key to unlocking markets — and SA companies have outpriced themselves.
"Due to the reduction in volumes and costs of manufacturing going up, our per-ton cost has risen substantially. We face imports challenges from China, Turkey and India daily," he says.
"We see Chinese mini-mills springing up in every country we trade in. This reduces our export volumes. It is not only protection on imports [into other African countries], but also the capacity to monitor the continent that would help. I do not share the view that this agreement will open doors."
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