Preserving the South African steel industry is pivotal for growth

Emerging from a tumultuous past ten years into a consolidated future, ArcelorMittal South Africa outlined its results and objectives at an event in Sandton, Johannesburg on September 6 2016.

Addressing the conference, ArcelorMittal South Africa chairman Mpho Makwana described the legacy and history behind the company, saying that in ArcelorMittal, South Africa had a heritage of 103 years of steelmaking.

“For many years, having a steel mill was deemed to be a good economic asset, with a sound foundation for industrialisation,” said Makwana.

In present times, steelmakers compete with lighter metals and complex regulatory matters. One has to step back and say: is there something we can learn and something we can achieve to succeed more sustainability in this tough trading environment?”

Makwana said that what inspired ArcelorMittal to invest in the two editions of the Economic Footprint Study (AMSA Factor) was an endeavour to create a common framework or language through which we could engage all our key stakeholders so that we can engage and communicate transparently.

“We play a critical role in South African manufacturing and in the economy of South Africa. The critical success in achieving our country’s infrastructure investment aspirations as articulated in the NDP rests on a reliable local supply of steel, bricks and mortar. In the Factor Report we articulate how our corporate strategy is poised to support the successful implementation of SA’s NDP/Vision 2030,” he continued. “Our current contribution to GDP remains at an estimated 1.5% GDP. Despite a very tough economic trading environment, our value-chain supports up to 190 000 jobs.”

According to Makwana, steel plays a crucial beneficiation role for the country’s iron ore, adding R24.3-billion in value to its raw materials base. It also underpins several other key industries such as agriculture, construction, automotive and mining, with these top five industries contributing 15% of South Africa’s GDP and employing some eight million people.

“The sustainability of these sectors, as well as the role of steel therein, have far-reaching implications for our economy which behests our industry and government to sustain the partnership forged so far.

“When faced with dealing with all these challenges and the added challenge of Chinese imports, we fostered this spirit of partnership on basis of a broader strategic partnership moving forward as well as making a more meaningful contribution to South Africa Inc, concluding the agreement with the Competition Commission in terms of the R1.5-billion fine was part of that package.

“While this settlement has been published as a new thing, it is a matter of the past — as much as 10 to 13 years ago bad practices that culminated in these practices of poor market conduct were curbed a decade ago already. Our quest is now about how we move forward as a responsible citizen.

“If we look at the overall industry from a global perspective, it is cyclical and has been in the low phase of the cycle since the global economic crisis of 2008. In terms of BEE and transformation, an estimated R29-billion circulates in our supply chain, in terms of preferential procurement and enterprise development, this presents opportunities for black-women-owned entities and similar players to get closer to our suppliers. We have a dedicated programme of monitoring our top suppliers to become BBBEE compliant.

“My wish, as an example, is to have a factory where 100 people make knives and forks or where our products such as creative décor are made with our steel products — made possible by our Enterprise Development Programme.

When questioned about how happy he was with the level of transformation within the group, Makwana responded by saying: “Given the unfortunate history of our country’s past dispensation before 1994, one can never be fully satisfied with any large South African company; however, I am reasonably satisfied with ours. If we can get to where 30 to 40% of our executive is black, I would say we have made good progress. Looking at our Executive Team today I believe we are on track towards that.

“We are still on a journey. We are soon signing a BEE agreement that means we can tick the box on ownership and put that to bed.

“If we can also put 40% of our supply chain in the hands of women, I would also celebrate that as a remarkable achievement: we will make a contribution. We do need more brands that are inspired to use our steel.

On this journey it is imperative that the company’s competitive advantage be blended with the Nation’s quest for globally competitive brands that are manufactured with pride in South Africa. We already have the Proudly South African brand, but we need to really develop a Made in South Africa brand.”

Describing the importance of manufacturers using South African steel products, Makwana emphasised the importance of the role the company plays in the communities that surround it, not just from a social responsibility and skills development point of view, but how towns like Vereeniging, Saldhana and Newcastle are embedded with the sustainability of the company.

Protection and investment

Diminishing demand from the mining sector in particular was mentioned by ArcelorMittal South Africa chief economist, Chifipa Mhango, in his feedback on the entity’s latest Factor Report, used as a gauge on how the companyis perceived by its stakeholders.

“For the steel growth demand to be sustainable in the future, we need a minimum growth rate of at least five percent,” said Mhango. “Costs are also rising with the added challenges of China dumping products in Africa, particularly along the coastal countries. China is a very aggressive new player and we need to enact protection at a government level point of view.

“There is the added issue of an aging population in terms of skills base, which reveals the need for more investment in these in the future. What we are doing to improve as an industry player is to proactively address and invest in skills and education.”

Mhango summarised the impact steel manufacturing has on the country, saying: “Analysis based on ArcelorMittal South Africa’s footprint shows that every 1000 tonnes of steel produced locally adds R9.2-million to the GDP, provides three jobs directly and three jobs indirectly economy-wide. It enables domestic procurement spend of R5.3-million, of which SMME spend of R0.5-million beneficiates R5.2-million of value and contributes R0.13-million in taxes,” he concluded.

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