SA manufacturers fear they are paying the price for Pretoria's cosy relationship with Beijing

South Africa's steel and associated industries have called out the government for how it is approaching its relationship with China, with some arguing that local manufacturing finds itself on the losing end of a one-sided contest.

Gathered at the Metals and Engineering Industries Ministerial Conference held in Johannesburg this month, China was a major theme raised by industry players, though some said Beijing shouldn't be simply used as a scapegoat for local failures.

The concern is that the government has committed to helping uplift local industry, but at the same time, major contracts are awarded to Chinese entities while South African manufacturers continue to bleed.

The metals and engineering sector is in decline amid poor demand due to slow economic growth. Turning the knife, however, is indecision and long procurement processes in government, budget cuts across state entities, lack of maintenance, and proactiveness in general, said Elias Monage, president of the Steel and Engineering Industries Federation of Southern Africa (Seifsa).

Echoing the sentiment of other delegates and speakers, Mike Benfield, CEO of Macsteel, said: "The Chinese are a problem, of course ... hot rolled coil is US$440 a tonne ... that's not sustainable," he said.

"Yet, South Africa is very dependent on Chinese aid. It's hand in glove. I think as industrialists in South Africa, we've seen the Chinese threat and yet the government is looking at China as a benefactor, a supporter, a funder."

But this isn't for free, Benfield cautioned.



'We are the pig'

Mervyn Naidoo, CEO of Actom – the largest manufacturer of electro-mechanical equipment in Africa – pointed to the now notorious Transnet contracts to procure 1 064 locomotives, many from the China Railway Rolling Stock Corporation.

He added: "South African companies never really succeeded in those contracts, because in my mind, there was never intent to localise.

Another glaring example, as was previously reported by local media, is the Kusile power station, which was constructed with imported structural steel, while just a few kilometers away, the Highveld Steel plant went out of business, taking critical local jobs with it.

Tumi Tsehlo, CEO of Dynamic Fluid Control, a valve manufacturer, noted the recent state visit to China earlier this month, which resulted in an "all-round strategic cooperative partnership".

"We must be very clear about what the goals of the agreement are and relentlessly and unapologetically pursue the interests of South Africa in this relationship," he said, adding: "We, as business, are the pig that provides the pork on the breakfast table... we are not the chickens that only contribute the eggs. We are heavily invested in the country and are committed to being productive partners in addressing the challenges in this country".

Neels van Niekerk, executive chair of International Steel Fabricators of South Africa, however, cautioned against using China as a scapegoat.

He pointed to Australia, which is a major exporter of iron ore to China, having allowed its own steel industry to disappear. "It is up to the government and us together to work out a plan to protect not only the steel-making industry but to be competitive," he said, adding: "Go to Australia and see how you lose something permanently, we must be wary".



Tariff considerations

South Africa's primary steel industry has been afforded protection against a flood of cheap Chinese steel through anti-dumping duties, which have been implemented in recent years.

In June this year, a new, provisional 9% anti-dumping duty has been applied on imports of hot-rolled steel products for a period of 200 days, with more or higher duties likely to follow. This is despite outcry from downstream manufacturers about the adverse impact this has on their businesses, in part due to lack of access to competitively priced steel locally.

But Naidoo and other participants agreed protectionism is a short-term measure, and not a solution for the long-term sustainability of the metals and engineering industries.

Dean Macpherson, minister of public works and infrastructure, said there is an equal burden to carry by the industry - with major players not having invested in upgrading operations despite this being a requirement in return for previous tariff protections.

He said: "There is no one, including myself, who's saying we should give up on the steel industry. But there's got to be a workable plan that doesn't solely rely just on tariff protection. Because tariff protection is not enough for an industry. There has to be a greater coming together of the downstream sector and the actual producing sector of steel to find a long-term sustainable solution".



No capacity

Samantha Graham, deputy minister of electricity and energy, said it is evident that South Africa does not have the capacity to challenge China on its own.

"We need economy of scale if we are to make industrialisation a viable option for South Africa. And for that, we need to create an industrial base that can challenge China," she said.

"We need to do this as Team Africa, as equal partners to the developed world, but also driving inter-African trade so that internal African trade becomes the primary driver of economic growth and job creation on our continent. Unless we transition from the mindset of competition with our African neighbours to a mindset of collaboration, our continent will continue to be treated by the rest of the world as a junior partner."

Benfield added that the industry is itching to get moving. But it requires sincere insights into how the new government plans to proceed. "We would like a sense of transparency of what South Africa needs to look like and how it will operate going forward - so that we can invest," he said.