OPINION PIECE: WHAT’s BEHIND THE STEEL LEVIES?

Is this a case of steel capture?

According to Minister Rob Davies, Minister of Trade and Industry, South Africa has ‘no choice’ but to impose emergency safeguard tariffs on certain flat hot-rolled steel products – this follows the 10 percent customs duty introduced in 2015/16. According to the Minister:-

• South Africa needs the duties to ensure that it maintains primary steel manufacturing because, according to the Minister:

• if we ‘let go’, then there will be a huge knock-on effect for the Industry as a whole, because, says the Minister;

• the Industry does not have the capacity to import.

Safe to say that there are many knowledgeable role players in the Industry who do not share the Minister’s views, debating the merits of his excuses to blatantly prejudice the downstream is not the purpose of this brief; the purpose hereof is rather to judge his decisions against historic events.

On 26 September 2011 Fin24 reported, among others, the following:

“CONTROVERSIAL AMSA BEE DEAL CANNED

• The controversial R9.1bn empowerment deal between ArcelorMittal SA and a firm that includes a son of President Jacob Zuma and the Gupta family has fallen through.

• The BEE transaction was unveiled in August last year and aimed to transfer 26% of Amsa’s shares to black investors and staff.

• Structured so that all the assets of Amsa would have been transferred into a new company, the deal would have seen 21% of the company held by a special purpose vehicle controlled by the Ayigobi Consortium led by Sandile Zungu and 5% held by an employee share ownership scheme that will benefit about 8 500 Amsa staff members.

• Shareholding of the Ayigobi Consortium is in turn held 75% by strategic partners including several of Imperial Crown Trading’s (ICT) shareholders as well as Mabengela Investments, which is led by President Jacob Zuma’s son Duduzane Zuma.

• The deal was highly criticised for targeting those who were politically connected”.

Then, on 12 June 2015, Fin24 reported, among others, the following under the heading:-

“ARCELORMITTAL ASKS SA FOR STEEL PROTECTION

• ArcelorMittal South Africa has asked the government to impose a 10% import duty on steel and in return it may offer shares to black empowerment partners, a newspaper reported on Sunday.

• Shares in the unit of the world’s largest producer of steel are trading around their lowest levels in more than a decade and the company has said South Africa’s high labour costs, poor rail infrastructure and slowing economy have forced it to consider cutting back operations and jobs.

• The Sunday Times reported that steel baron Lakshmi Mittal was in South Africa in June, where he briefed President Jacob Zuma’s government on the challenges in the steel industry and asked for intervention to counter cheap Chinese imports.

• ArcelorMittal has not made a profit in the past five years and in exchange for protection from steel imports, the newspaper reported that Mittal would be prepared to offer shares to black South African consortiums.

• ‘We are at a stage where the major shareholder understands that we need an ownership deal and we are putting plans in place to do one. However, you need an industry that you can invest in’, O’Flaherty [previous Amsa CEO] said.”

The 10 percent customs duties were indeed introduced in 2015/16 and since that did not have the required effect, a further 12 percent safeguard duties is now envisaged.

What the Steel Downstream insists to know:

• Is there a bona fide need for these duties? The International Trade Commission Administration (ITAC) has already found that the safeguard duties are not in the public interest, a fact simply ignored by the Minister.

• Why did Government’s stance of initially opposing any form of protection, change to one of being in favour of protection – and that after the meeting between president Zuma and Lakshmi Mittal?

• To what extent did these Black Empowerment deals play a role in the decision to introduce these duties? Was it to make this deal attractive to the Black Empowerment partners?

• Who benefitted from the subsequent Black Empowerment deal?

• Is the Steel Downstream now paying for something that could have been avoided?

• Is the Steel Downstream being exploited to benefit a few?

This opinion piece is by Gerhard Papenfus, Chief Executive of the National Employers’ Association of South Africa (NEASA).

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