It is reported that South African and international insurance companies have substantially reduced or withdrawn credit insurance for companies in South Africa and withdrawn it for customers in other African countries. This has affected both sales in South Africa and exports into Africa, including SADC, which is a natural market for South African goods. Some companies have invested to make themselves more efficient, to innovate in products and processes and to use the latest technology. However, much of the industry has under-invested in both plant and skills. The lack of demand and volume has led to the shutting down of capacity in the industry and the closure of lines making special steels and other niche products. There has been substantial loss of jobs in the industry. Despite this, much of the industry still has excess capacity and consolidation in the current environment, where the industry is contracting, is viewed by many industrialists to be inevitable. The industry is very fragmented. The consequences are that there are few companies with deep pockets and the industry associations have been weakened and cannot speak for the whole industry on policy matters. There is also a lack of good information about the industry. The adopted government Master Plan processes and methodology are based on a social compact between workers, industry and the government. To develop a social compact with concrete commitments in an industry which is very fragmented, requires that industry associations are rebuilt so that they can provide an effective service to the industry. Measures to support the industry, ranging from tariffs to access to incentives, have had a mixed effect. In some cases, firms are able to point to the positive impact of public measures, but given the challenges the sector faces, a rethink is necessary. In some cases, public policy measures need to be accompanied by clearer reciprocal commitments by industries (business and labour); and in other cases, the state needs to be more agile in monitoring impact and dealing with efforts to circumvent the objectives of the policy measures. ITAC is committed to investigating more closely the effect of tariffs and the compliance with reciprocal commitments. Through the Public Preferential Procurement Framework Act (PPPFA), government has designated a wide range of steel and steel products for local production when procured by government, the SOEs, municipalities and other public bodies. However, there is evidence of evasion of the designations in favour of imported products. The SABS has committed to taking on a key role in checking compliance with localization policies, but will require to substantially increase its capacity and reduce its costs to do this effectively and on the scale required by the infrastructure programme. There are a number of government agencies which play an important role in supporting the industry. Some key institutions are in need of further capacitation: the SA Bureau of Standards is of vital importance for localization, import protection, professionalization of the domestic industry and exports, but has lost some of its technical capacity: this impacts on its international reputation. The National Regulator for Compulsory Standards is another important agency which needs to be operating at optimal levels. Trust and confidence levels between the public and private sector are critical. All sides have legitimate concerns. Trust deficits between government, industry and the unions must be addressed if there is to be an effective social compact to save and grow the industry. Equally important, confidence in the economy must be rebuilt if there is to be investment and growth in the industry and if jobs are to be retained and created. There is uncertainty about input costs and policy. The uncertainty in the cost and security of supply of electricity, in particular, is a deterrent for investment and confidence. The cost and lack of availability of rail and port services is another significant deterrent. The level of equity transformation in the sector is uneven. Low BBBEE points amongst upstream producers has resulted in low BBBEE procurement scorecards for downstream processors. This (and other factors) sometimes result in users of steel and steel products preferring to import through BEE middlemen, who do not add production value but take a margin. It also means that many downstream companies, including Black-owned companies, do not obtain public sector contracts because they are not sufficiently highly-rated on some aspects of the BEE scorecard. Discussions are proceeding with a forum of Black industrialists to develop an effective transformation strategy that avoids unintended consequences and maximises positive impact. Small and medium enterprises in the steel and engineering industry generally are part of the supply chain for larger enterprises and their funding and growth must be seen in that context. Small businesses rarely grow in a vacuum. A strategy to build Black industrialists must be based on a strategy which involves the whole supply chain and takes into account the interdependencies of the large and small enterprises.
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The South African Steel and Metal Fabrication Master Plan 1.0
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