A country in need of infrastructure, and a steel sector in need of demand …

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DUDUZILE RAMELA: Let’s focus now on a report on Moneyweb published today about the state of South Africa’s steel industry – from cutlery and kitchenware to aerospace and railway industries, among other things.

Read: South Africa steel needs demand not belligerence, regulator says

This versatile material has been the cornerstone of modern industrial economies. In South Africa, ArcelorMittal last year shut a steel mill, citing competition from so-called mini mills that use scrap metal as their feedstock rather than iron ore.

The company has demanded that government end a 20% tax on the export of scrap which, it says, reduces the cost of the material for its rivals.

Industry regulator, the South African International Trade Administration Commission [Itac], is of the view that a balance must be reached. Here to tell us about this balance is Ayabonga Cawe, the Itac chief commissioner.

A very good evening to you and thank you very much for joining us. How did we get here?

AYABONGA CAWE: Well, good evening to you and good evening to your listeners – and thank you so much for having us. How did we get here? I think that story has a history that spans much, much longer than both you and I have been alive.

But what in essence we’re dealing with here is a challenge that is not unique to South Africa.

I think, for the listeners, it’s worth understanding that you have a crisis of chronic overcapacity in the global steel market.

That means you have installed machinery in many steel plants across the world that can produce much, much more steel than the world can realistically – with the current pattern of purchasing power – absorb.

So many of the debates we are having here in South Africa – whether those are about the instruments needed, the tariffs, [anti-] dumping measures, or even export control measures that some players have lamented, and whether indeed those are adequate or not – all have to contend with this, given the overcapacity which is occurring at a time when key consumer markets across the world are putting up protective measures.

You would have seen the Americans over a year ago put into place national security tariffs on steel, which were in play in the first [US President Donald] Trump administration.

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You’ve now also seen the United Kingdom and even the EU considering transitioning their safeguard measures to permanent tariffs at around 50% in the case of the EU. And the question is steel that would have been destined for those markets – were does it now go?

I think absent of us resolving the challenges of demand in our own economy, where fixed investment levels are much, much lower than what the NDP [National Development Plan] would have targeted, we are faced with a similar challenge here.

It’s not enough to just say you resolve that challenge by doing away with particular measures; we have to contain both the supply side and the demand side.

DUDUZILE RAMELA: Let’s expand on that, because you’ve responded directly to export-control measures coming from some sectors of the industry. You believe in the response that we should focus on the supply side. How do you see this balancing or at least helping to balance the equation?

AYABONGA CAWE: Well, on the demand side, I think the issue is about export control measures like the price preference point system, or even the export tax on scrap – which is aimed at ensuring competitive and reasonable access to feedstock material for electric-arc and induction-arc furnaces – on the supply side.

But on the demand side we need a rapid and an aggressive infrastructure programme.

And I think the right signals have come out – whether that’s the State of the Nation Address or the budget, or even some of the commitments that have been made in many of the budget votes that are likely to come to the houses of parliament.

But it’s where the rubber hits the road that’s going to be important, and the extent to which many of those large infrastructure programmes are going to be able to absorb the massive amounts of steel that at the moment are not being absorbed.

And, of course, also do their fair share in ensuring that you don’t see a situation where relatively cheaper imports are able to gobble up whatever demand there might be.

DUDUZILE RAMELA: As you rightly mentioned, in the budget this year [National] Treasury earmarked some R1 trillion for public sector infrastructure spend. And as you mentioned again, it’s where the rubber hits the road. Will we realise some of these efforts being done in the background to sort of balance the equation?

What do you then say to some sectors of the population who say, year in and year out, we spend so much money on infrastructure projects that at times are not realised. You’ll find that embedded in some of the reports like the report of the Auditor-General, where monies don’t necessarily go where they’re supposed to go, where infrastructure is concerned.

AYABONGA CAWE: It’s deeply troubling, deeply troubling, Dudu. If you if you just look into the stats, historically there has always been – from the left in the society – a sense that the private sector is on an investment track.

But if you look at the main capital spenders in the public service – municipalities and state-owned companies in the last decades – and you compare their planned capital expenditure to their actual capital expenditure, you’ve seen significant underspending, whether on bus or rapid-transit systems, whether on the upgrade of rolling stock in the rail locomotive sector, whether is the expenditure that has been driven by the large utility Eskom and many of the other state-owned companies.

And if you look at, for instance, the Section 71 reports under the Municipal Finance Management Act, those are challenges in not just allocating money for capex but actually in expenditure of the money that has been allocated.

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So we’re deeply worried about that because what it indicates is that execution, and the institutional challenges in executing on infrastructure, are creating a considerable challenge.

And [this is] effectively leading to an outcome where not only is growth under-shooting, but also where many of the product markets in the built environment – whether steel, cement, glass or aluminium extrusions and so on – do not get the demand that they ideally ought to have.

I think that all of these are interconnected challenges that really do require considerable intervention. I also think the reforms that we are hearing about are crucial, but these reforms need very quickly to begin to register an uptick in execution against the government’s infrastructure plan, broadly defined.

So I think it quite encouraging that the regulations issued, for instance on Friday by the Minister of Finance, in line with the Procurement Act of 2024, are beginning to indicate certain procurement process-related improvements that are aimed at ensuring that you expedite completion and procurement on infrastructure projects.

We certainly hope that those will also ensure, where necessary, that local content is a due consideration in line with what Section 20 of the Procurement Act indicates.

But what’s clear to us in the steel sector is that, absent of resolving the demand question, you cannot resolve the issues confronting the national steel issue solely by saying ‘Do away with certain measures that effectively have supported certain sections of the steel sector’.

Take, for instance, our exports of steel. In the context of the carbon border adjustment mechanism, where there is a requirement of a transition from an emissions perspective to effectively do away with the regulation of scrap as a critical material [which] would be to kind of ‘cutting your nose [off] to spite your face’ in a context where you are hoping to export considerably more levels of greener steel into that prevailing export market at a time where that export market is subject to greater restrictions, as I indicated earlier.

So I think we need to find a balance. And my concern, and what we are lamenting, is that a lot of the discussion has at times been unnecessarily combative, has been subject to a bubbling belligerence which I think clouds the broader policy discussion we should be having from a national perspective that asks how you transition and, in doing so, transition with different steelmakers that are using different technological platforms.

DUDUZILE RAMELA: How do you find each other, because in South Africa you speak of localisation? And South Africa to that end has an industrialisation agenda. To achieve that there are a number of master plans, including the Steel Master Plan.

How do you find each other, because I’m on the dtic [Department of Trade, Industry and Competition] website and I can only see the 2019 one, which speaks to the Master Plan 1.0? So I’m not sure if there is a current one. This one also speaks to a number of stakeholders being involved in this. How do you find each other?

AYABONGA CAWE: We will find one another in the Steel Master Plan. You would know that we have been working as a commission on a review of the steel sector.

One of the preliminary findings was published in the [Government] Gazette. Emerging from that review has been the constitution of a Section 14 committee that will include labour and business to deal with all of the challenges and even opportunities out there confronting the steel sector.

So we will find ourselves in the age-old tradition of dialogue. We’re not going to win this thing, as I say, through potshots and comebacks …

We will continue to discuss and dialogue and ensure that we find our way to a clear line of march and a roadmap to not just the resuscitation of our sector, but to build a thriving and a vibrant steel sector, faced as it is with headwinds – whether those are import competition, low levels of demand or even a technological shift that our sector has to undertake, and the industrial upgrading it has to undertake.

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So we are not despondent and we will find one another. I think we have to get where an observation is made that some of the reflections may be unhelpful. We must say that and candidly do so.

But in saying this, it does not displace the purchase and the importance we place on dialogue. We will continue to dialogue.

And I think the Steel Master Plan continues to be a space for us to find one another – and in doing so we will make use of every tool at our disposal.

One of these tools has happened to be tariffs, or even trade-defence instruments, or even export controls in line with Section 6.

But I think we need a multiplicity or a concert of measures, rather than any one sole measure or the eradication of any one measure as the sense that that might be the blue pill that the industry needs.

DUDUZILE RAMELA: Fair enough. You mentioned import competition. That piqued my interest because this is not a problem that is specific to the steel industry. The textile industry, for instance, is also bemoaning cheap imports. What is the work that you’ve been doing as Itac around that, please?

AYABONGA CAWE: Well, I’ve indicated that we’ve been working on the steel review.

We issued our preliminary findings of that review towards the latter part of last year and it is before the policymakers, who will ultimately make a decision in relation to the recommendations that have been made as part of that process.

The preliminary findings issued had been on a few fronts. One has been on specific products we had identified in our verifications of industry raising duties to their boundaries.

The other element has been the placing of certain steel products that have a human safety element to them under import control. And a few other considerations as well.

So I think all of these seen as a whole are about ensuring that the domestic industry has favourable terms of accessing the demand we have.

But we have to grow that pie of demand. And I think that’s the point – that, absent of us doing that, you are unlikely by merely instituting trade measures to deal with the scale of the challenges that we have.

DUDUZILE RAMELA: Ayabonga Cawe, thank you so much for your contribution. Ayabonga Cawe is the chief commissioner at Itac.

#country #infrastructure #steel #sector #demand