The team of ministers in Davos considering a R1bn bailout for ArcelorMittal SA (Amsa), led by trade, industry & competition minister Parks Tau, have stated matter-of-factly they have met the Mittal family and help is around the corner.
Given the impact the winding down of Amsa’s long-steel plants in Newcastle and Vereeniging — estimated at 3,500 direct and 25,000 indirect jobs — will have, the ministers spoke as if the looming bailout is something everyone will fall over themselves to welcome. They’ll be surprised.
Questions abound. Is this about Amsa being too big to fail? This concept became en vogue during the 2007-2008 financial crisis caused by predatory lending, even though it had its roots in the 1980s. Economists differ on whether companies, mostly banks, that are deemed too big to fail are, in fact, deserving of such help.
What’s the point of becoming a behemoth if you’re unable to manage your growth, they argue. Others, like Paul Krugman, say it’s not really the size of firms or even their impact when facing collapse that matters — the root of the crisis is the failure of regulation. In Amsa’s case, its profitability seems affected, in part, by regulations relating to mini-mills.
Our Business Times lead today reads: “The scrap preferential pricing system allows mini-mills to buy scrap at discounts of up to 40% on international prices, and the 20% export duty on scrap metal further advantages mini-mills over integrated steel producers such as Amsa.”
As Krugman argued in a different context, we can’t have it both ways. If we encourage mini-mills, we must know what the effect will be on big firms such as Amsa and be at peace with it. The government does not have the luxury of waking up to so-called unanticipated consequences. That’s just lazy thinking.
But a billion-rand bailout will get tongues wagging, especially when the criteria used to offer this firm help aren’t clear. Some will say, “Ah, but this is a foreign firm and we have locals that are forced to shut down without Tau and his colleagues batting an eyelid.” Indeed many, if not all, state-owned enterprises are wasteful and corrupt, but finance minister Enoch Godongwana correctly told us in two budget speeches there would be no bailouts for them. For him and Tau to now entertain Amsa, they must explain why the policy departure is necessary and what limitations are in place.
All this happens as Tau tries to explain the R100bn Transformation Fund, which, of course, must succeed. How do we make sure this too isn’t just a scheme for the connected few of the ruling GNU?
There is much that is unknown about the help Tau and other ministers are trying to put together for Amsa. Is it a loan, a grant or an exchange that will see the government owning shares in the big firm?
Some have claimed, “Even where they were making profits, they were not investing in plant upgrades. If we were to do all these things, what guarantee do we have that next year they are not going to come and say 'give us more'?”
Did Amsa mismanage, even a little bit, its own funds? How do Tau, Godongwana and colleagues ensure our taxes are not mismanaged once handed over to a private firm? What happens if the firm still goes under a year or two from now? Is it merely a case of 'well, we tried'?
All this happens as Tau tries to explain the R100bn Transformation Fund, which, of course, must succeed. How do we make sure this too isn’t just a scheme for the connected few of the ruling GNU?
I am certain many of us appreciate the government’s over-eagerness to woo investors. Unemployment is rampant, inequality is stubborn, and many have found it easy to resort to crime to put food on the table, endangering us all. The need for us to transform the economy is a constitutional mandate around which not much has been achieved.
Tau and his colleagues have an opportunity to reimagine how this is done in a short time. If the idea is to, among others, rescue foreign firms that are strategic, or too big to fail, that may well be the thing to do. But too many questions are in the air. Whose firms get rescued and whose firms must die without even asking for help?
Tau must tread carefully, explaining his steps to those who are too big to fail and those who are trying their best but are unable to meet him in icy-cold Davos.
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