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Premature Deindustrialisation?

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Premature Deindustrialisation?

15th March 2019

By: Terence Creamer
Creamer Media Editor

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Despite the ongoing transition to one where industrial activity is increasingly supported by digitalisation, automation and artificial intelligence, primary steel production remains something of a bellwether for the state of a country’s industrial development. Likewise, the steel intensity of an economy is seen as a good indicator of its state of industrialisation, owing to the material’s widespread use in everything from buildings to trains and infrastructure to mines, factories, automotives and planes.

While South Africa has a relatively well-developed primary steel sector, a recently published response to a Parliamentary question brought home the pressure the sectors has been under for more than a decade. The answer arguably also underlined the notion that South Africa may well be in the throws of what is termed ‘premature deindustrialisation’ – a phenomenon that is also reflected in the relative decline of manufacturing’s contribution to gross domestic product.

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The question, which was posed to Trade and Industry Minister Dr Rob Davies by Elsabe Ntlangwini of the Economic Freedom Fighters, was straightforward and to the point: How many tons of steel has the country produced in each of the past 15 years?

In a two-page response, Davies answered the question with the aid of two figures and an accompanying narrative. All three exhibits pointed to 15 years of decline. A table included in the reply depicts a sustained decrease in crude steel production from 2004 to 2018. It shows that yearly production fell from 9.4-million tons in 2004 to only 6.3-million tons in 2018.

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Admittedly, the 2018 figure represented a slight recovery from the 6.1-million tons and 6.2-million tons recorded in 2016 and 2017 respectively. Nevertheless, it’s nearly one-million tons lower than the 7.2-million tons produced in 2013, probably as a direct result of the closure, in 2015, of Highveld Steel & Vanadium. The mill remains mostly closed, with only the heavy-structural portion of the plant having been reopened, using primary inputs supplied by ArcelorMittal South Africa.

Davies said that, apart from weak demand, a major cause of the decline has been the influx of steel imports, which adversely affected the profitability and capacity use rates of domestic steel producers. “This trend has been aggravated over the years by massive global excess capacity, high production costs and aged plants.”

The protection offered to the primary producers in recent years has curtailed imports to some extent. Demand, on the other hand, has remained weak, partly because downstream steel fabricators have not received similar levels of protection. While some of these businesses are battling to remain competitive against legitimate competitors, others are facing unfair competition.

South Africa’s processes for combating unfair competition are, however, too cumbersome and slow to respond timeously. As a consequence, firms that should be protected either die trying to secure protection, or quietly capitulate. This surely has to change if the country is serious about stemming the deindustrialisation tide and repositioning itself as the industrial economy envisaged in the National Development Plan.

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