There are pockets of success in various sub-sectors, e.g. the wire industry, which produces 40% of South Africa’s steel industry exports (export performance is shown in Annexure A). The dtic export promotion programme should enhance and build on such winners to support a greater export effort. Even with the wire industry that has been able to maintain some export footprint, capacity utilization remains below 60%, having peaked in 2003. The work of the National Foundry Technology Network has shown that foundries have been affected, amongst other factors, by the administrative and cost burdens of compliance with the environmental laws on emissions. The challenge is greater especially where they supply to the auto OEMs, as compliance is unavoidable, both in terms of the law and the need to comply with the international pressures towards green and clean technologies. The requirement for investment in new foundry technology, materials and processes seems unavoidable. The IDC is heavily exposed to the industry and has taken up much of the role of the banks in assisting new ownership or new companies. It has been argued that some of its past investment decisions were focused on individual projects in the absence of a broader strategic focus on the industry. Now that an industry plan is in place, the IDC is committed to aligning its investment activity with the Master Plan and to promoting an industry-focused approach, taking account both of the need for competition and the current over-capacity in sections of the steel industry. The underlying problem is the lack of demand from an economy which has not been growing sufficiently fast. The lack of domestic demand has been aggravated by an increased market share from imports, both of primary steel and of value-added products. The global glut in steel production and the well-financed and coordinated export effort by especially Chinese companies into Africa has also affected the export markets. It is the view of many manufacturers that the South African banks have reduced their appetite for lending to the steel and engineering industry. The cost of capital in South Africa is suggested as a key constraint and has been raised as an issue affecting competitiveness by many companies. The cost of capital in Europe and the USA is lower than in South Africa, which impacts competitiveness and disincentives investment in new enterprises. IDC funding has sought to address this, though in some cases it is more expensive than the banks, because it sources its capital primarily from the banks, which means that its cost of on-lending is higher than that of the banks. The volatility of the exchange rate has also meant that the forex risk has to be priced into international project bids, which affects the competitiveness of these bids.
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The South African Steel and Metal Fabrication Master Plan 1.0
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