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To Rebuild the Economy, Look to the Foundations

Macsteel’s CEO Mike Benfield believes that revitalising the domestic steel industry is not only possible, it is essential if the economy is to regain a growth trajectory and create jobs.  Here are his suggestions on four critical steps that should be implemented to fortify the local ailing steel industry and position it as a key driver of economic recovery.

A recent study by Oxford Economics confirms what we all intuitively understand: steel is one of the backbone industries on which economies are built and jobs created. Our product is used to make the objects that make a modern society work—without steel, manufacturing would simply be impossible. That means that steel has an unusually long and influential value chain, creating value and jobs across its own supply chain and then into the whole economy. 

The research shows that for every $1 of value added within the steel industry, a further $2.50 of value is added by companies across the globe that supply the industry. 

To put it in terms that should resonate particularly strongly in this job-hungry country, every two jobs in the steel sector translate into in 13 more jobs across its supply chain. In South Africa, steel creates 190 000 jobs directly. 

But the steel industry also influences the entire economy. Because steel is a key input in many other industrial sectors, steel supports jobs in the industries that make steel-based products and that use them. The major steel-consuming industries contribute about 15% to our GDP, and employ 8 million people directly and indirectly.

The overriding point I want to make is that a flourishing domestic steel industry is something well worth having from myriad viewpoints. It creates jobs within its own supply chain and it supports the creation of still more in industries that use steel or steel products. Manufacturing is the catalyst for economic growth and job creation, and it starts with steel. 

The virtue of self-sufficiency

At a strategic level, it obviously makes sense not to be reliant on steel imports because otherwise one’s “steel ecosystem” is perpetually at the mercy of global geopolitics and trade cycles. 

However, the steel industry in South Africa has been in steep decline since 2010. There are a number of reasons for this, among them a dramatic increase in the amount of cheap imported steel—an increase of 250% between 2000 and 2016, mostly from China, which led to the imposition of tariffs to protect our primary producer (largely). This has led to a reduction of imported steel but imported finished goods are still being brought in, at the expense of the local manufacturing sector.

Another major factor is the weakness of the South African economy itself. This weakness is based on multiple factors, including poor infrastructure, under-performing state-owned enterprises, ineffective labour legislation and a calamitously dysfunctional educational system—not forgetting the impact of corruption. All of these factors drive negative sentiment, further perpetuating a downward spiral. These are obviously hugely complex issues, and it is a cause for optimism that business as a whole is working together with Government to play its part in resolving them. 

To strengthen the steel industry and those industries that it supports, a number of specific actions are needed: 

Use tariff protection to support the local steel ecosystem

Tariffs can be a powerful weapon or hugely destructive, depending on how intelligently they are used. We believe tariffs should not be used to protect the primary producer, thus harnessing the power of the market to make it maximally competitive and thus able to supply the raw material the industry needs at the best price. 

Rather, tariffs should be used to protect finished goods produced in South Africa. This maximises the accelerator effect that the steel industry has on the economy as a whole by ensuring the greatest number of jobs are created. We all saw the carnage that not protecting our garment-manufacturing industry caused and the impact on jobs. 

Develop an effective “Buy South Africa” campaign. To complement tariff protection of finished goods, we need to ramp up efforts to get people and companies to buy local. This means initiating a properly resourced and credible programme to identify and promote goods made with South African steel. This approach has worked well in the automotive and other industries, and would tap into the high levels of patriotism and optimism that, against all the odds, exist, as the #Imstaying social media movement attests. 

Fix the transport system

First and foremost, rail transport needs to be improved radically so that raw material and finished goods alike can be moved efficiently around the country—this will immediately improve the state of our road network and promote internal trade. Efficient bulk transport is essential to many industries, not just steel. 

In addition, an upgraded transport system will consume a lot of steel, further strengthening the industry. We should recognise that Government’s role should be that of a catalyst: it does not have the money for this kind of investment but the private sector would jump at it, given the right conditions.

Another key area is to ensure that ports are upgraded. Once we have a solid domestic consumer base for finished goods made using our own steel, we need to be able to export them efficiently. The ability to export goods efficiently will go a long way towards making us globally competitive as a country, despite the long distances to our major trading partners. We can’t change geography, but let’s control what we can by becoming both very efficient and cost-effective. 

With the right kind of government support, companies like ours can expand the role they play in supporting economic growth. This includes providing training, extending credit and holding stock so that smaller customers don’t have to tie up capital in inventory, and supporting small businesses that use steel with better terms and advice. 

Our domestic steel industry is one of our economic Crown Jewels, with the potential to help lead the economic recovery we all so desperately want and need. It can be revitalised but every year we delay taking these actions will reduce its capacity to do so as skills and capital move into other industries, often in other countries. To reverse the decline in our steel industry, we must act now.