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Response to “opinion piece” by Gerhard Papenfus

By 11th May 2016Sep 20th, 2019No Comments

To his credit, Mr Papenfus stated in his introductory sentence that he could not “claim to fully understand what’s currently happening in this space and the reasons for it.” Thankfully, owing to its considerable expertise in a number of areas, including its in-depth knowledge of the sector, SEIFSA is able to offer a more nuanced, properly contextualized explanation.

To start with, the MEIBC data on employment numbers do not cover the whole sector and are totally accurate.

The metals and engineering sector (M&E S) is, indeed, in deep trouble and in a life- and-death struggle to stay in business. The decline in employment numbers has been severe over the last 10 years, but not nearly as dramatic as alleged by Mr Papenfus. Ten years ago, the sector employed 400 000 people and last year (2015) the number stood at 370 000, which means a loss of 30 000 people over a 10-year period. During 2015 the sector lost 11 100 jobs, with 7000 lost during the last quarter of the year. This does seem to indicate a deepening crisis, but again not one as dramatic as alleged.

The global challenge and the flexibility needed to survive in this post-commodity super-cycle era is a challenge facing the whole world. It is difficult to see how the MEIBC is, or can be the solution, to this global challenge.

Roughly 50% of the M&E S’s production is exported, with the basic metals (steel and non-ferrous) and metal products components of the sector being the most successful in this regard. Although also under threat of imports of subsidised products of up to 25% below production costs, this is a worldwide phenomenon, causing so much friction between China and the USA (for example) that meetings to resolve the issue had to be abandoned for fear of violence amongst delegates of the two countries. Was the “better option” to sacrifice another 30 000 to 50 000 jobs by allowing these products to overrun the SA M&E Sector?

M&E S products that are further down the value chain (i.e. more value added) have been under even more threat and had more protection (albeit at or below the bound rates) than the basic metals upstream. So, with more protection and under more threat of subsidised products, they had to survive – and many did not.

It is also hard to understand how the MEIBC had any influence over the 50% of the M&E S market domestically. All three of the sector’s biggest customers (namely construction, mining and the auto sectors) have been under severe strain over several years, and there seems to be no light at the end of the tunnel. Compounding the problem is that the South African M&E S producers’ share of the SA market peaked in 2002 at 68%, and declined since to 48%, or by about R110 billion worth of production and 80 000 job opportunities. Neither the MEIBC nor ArcelorMittal had anything to do with that.

Low investment in new technology caused by the difficult economic circumstances in the M&E S is universal in the SA context. The national investment data for the sector shows this beyond doubt. Investment peaked during 1991 and 1996, and then almost “fell away” by half since 2000 and has not recovered since. This is a perennial problem throughout the sector and not only an ArcelorMittal problem. Longer-term survival of the M&E S as a whole will also depend on investment resuming.

Protection is but a short-term solution and is, indeed, inflationary. The efforts to try and find a balance between up and downstream producers in terms of protection occupies the Department of Trade and Industry, the International Trade Administration Commission (ITAC), the Department of Economic Development and, indeed, the business organisations in the sector that understand the dynamics properly.

South Africa cannot allow any of the 370 000 people still employed in the sector to lose their jobs. And, the policy approach cannot be that “developmental prices” upstream will cause development downstream – clearly, it has not worked. The alternative (cluster/sectoral) approach is clearly demonstrated by the Automotive Production and Development Programme (APDP) and clothing sector policies. A more sectoral approach to policy will, in the words of Trade and Industry Minister Rob Davies last week, be more evident in the latest Industrial Policy Action Plan iteration that my very well be released this week. It is our view that all rationally thinking minds are applied to this policy issue at the moment.

Regrettably, the short-sighted and xenophobic statement by Mr Papenfus that “Mittal is a foreign asset” is a specific example of the general view/misconception that “SA can go it alone’. The reality is simply the opposite: the country needed and needs foreign investment like any developing economy. We can do with much more – and not less- foreign investment. Very few of the significant companies in the M&E S do not have foreign partnerships or some form of foreign ownership. This type of investment is one of the very answers to the investment problem stated earlier.

There may be many things wrong with many institutions in the country, and the MEIBC has its fair share, but to elevate that to THE problem to be solved is disingenuous. It is also a great pity that some players would elect repeatedly to hurl criticism at anything and anybody and not to be part of the policy discussions to find a way to renewed investment and growth in the country.

It is our humble view that, in order to reach its true potential, South Africa needs all stakeholders to work together collaboratively. By all means let us differ when we have to do so, but, more importantly, all of us must be involved in the process of searching for lasting solutions.

That is why we introduced the Southern African Metals and Engineering Indaba, which takes place at the IDC Conference Centre on 26-27 May 2016 and where all these and other matters will be discussed. We invite all who are interested in being part of the solution to register to attend. More details can be found on www.meindaba.co.za.

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