Man cannot live on bread alone, the gospel teaches. Nor too can steel mills survive on tariffs alone. More is often needed. Reflecting on the long cycle of economic stagnation from the 1870s to the end of the 19th century, British economist John Atkinson Hobson suggested that a key crisis that confronted heavy industry was the “under-consumption” it could (and often did) give rise to.
“The root evil of depressed trade is under-consumption,” wrote the British economist John Atkinson Hobson in the early 1900s.
Describing the factory-wide illustration of weak demand conditions, Atkinson painted an image that took the shape of “idle machinery, closed factories, unworked mines, unused ships and railway trucks”.
He could have been describing the iron ore mines and steel mills of modern-day South Africa, where employment in the basic iron and steel sector declined by more than 27,000 jobs between the last quarter of 2009 and the corresponding period last year. This as imports took up a larger share of a narrowing base of demand for intermediate input materials.
Not only have imports grown as a share of this demand over this period, so too has fixed investment spending on things that contain steel — the frames, chains, machinery, bridges and so on — not kept in tow. The local steel lobby, the South African Iron and Steel Institute, says local demand takes up just over 4Mt of steel, 30% below demand levels in 2008.
This context is important to “locate” the amendments to a range of steel tariffs that were published by the finance minister last Friday following a recommendation from the International Trade Administration Commission. The review, undertaken over a 60-week period (including weekends and public holidays), highlighted a few features about our market worth.
First, considering the new rebates that were recommended, it is apparent that employment, demand and volume losses over the last two decades have also coincided with a narrowing of the product diversity of what the local industry produces.
This can be seen in the introduction of further rebates for heavy sections, certain flat (sheet, coil and plate) steel and other material used to make a diverse set of goods. Material that goes into the coil and plate used to make electrical appliances (hot-plate stoves and fridges, among others) to welded fittings used in the water sector through to tube and piping products used in the mining and construction sectors.
Second, while significant employment losses have been registered in primary steel, notable employment gains have been registered in downstream cast and fabricated products segments. While having regard for the crisis confronting primary producers attributable to low demand and chronic overcapacity in key product segments, the commission recognised the need to support this downstream segment through competitive pricing of input material.
Notwithstanding considerable agitation for duties beyond the bound rates by wire product, bar and rod, and rope and cable producers, the commission recommended on the balance of evidence duty increases to the bound rate, in part to strike such a balance — while widening the scope of rebate measures available to downstream users and retaining many alloy input materials at free of duty.
Third, tariffs alone will not support the revival and ultimate advance of the steel industry. A “symphony” of policy instruments is required, many residing in the domain of lending, research and development support, a review of the path of administered prices, and the development of technical infrastructure standards.
There is also a need to strengthen import controls and surveillance measures to monitor certain categories of products for their price-dampening effects and any harmful impacts on human, animal or plant life or health.
Demand-side measures such as targeted “designations” for public procurement would also aid the effort. Further, strengthening the quality of dialogue and planning within and across the steel sector with social partners (business, labour and government) is also an important role that the mooted “section 14 committee” will be seized with, once appointed.
While tariffs help, they are not the proverbial “blue mercury” pill to treat all ailments confronting the South African steel sector. They are, however, a crucial instrument working alongside others in a symphony. To assist the sector not only to survive, but to thrive and expand.
- Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity
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