Happy 2025. There are early signs that the South African economy will grow steadily this year, which is good news for companies. Let’s hope there will be fewer liquidations this year.
South Africa was a manufacturing powerhouse in the 1980s. This was predominantly driven by the success of the South African Iron and Steel Industrial Corporation (Iscor), which was later bought out by ArcelorMittal. The company profited hugely from China’s infrastructure-building programme of the early 2000s. However, loadshedding proved to be a massive millstone around the company’s neck.
With many countries abandoning resource-heavy projects, the need for commodities such as copper and iron is fading. This was a major contributor to ArcelorMittal’s decision to downsize its South African operations. However, this may hurt the economy.
Greater impact
The News24 article points out that, as ArcelorMittal South Africa (AMSA) prepares to shut down its long steel production at the end of the month, with up to 3 500 employees affected, the broader steel industry fears a far greater impact will be felt in the downstream industries, with more than 100 000 jobs at risk.
This was aired during an information session hosted by XA Global Trade Advisors on Wednesday, where some industry players raised their concerns over the potential domino effect AMSA’s decision may have on them. Neels van Niekerk, executive chair of the International Steel Fabricators of South Africa, said the “real damage” will come later.
“As the convenor of the 18 formal associations using steel in South Africa, including auto and construction etc …, our estimate [is that this] will result in [the loss of] 100 000 plus jobs… we believe that the trend all over the world – when the primary steel production goes, the value-added soon follows… so that’s where the real damage comes.”
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The article adds that, earlier this month, AMSA announced it would shut down the long steel business – the main operation being the integrated steel plant in Newcastle – in the face of various challenges, including high power and rail costs, low economic growth, a flood of cheap imports and a scrap export policy and preferential pricing system which has stoked steel production from mini-mills and created fierce competition for AMSA.
Despite engaging Government on these issues for a year, no relief was forthcoming, and the steelmaker eventually made the difficult decision to close the loss-making business down.
Automotive sector challenges
Another News24 article points out that carmakers in South Africa are imploring the local unit of ArcelorMittal and the country’s trade minister to work together to delay the planned closure of steel mills this month.
Associations representing both automotive component makers and car manufacturers — including Volkswagen and Toyota — said in near-identical letters seen by Bloomberg that they need at least a year to source alternative steel supplies.
The article adds that shutting the steel mills could result in plant closures and job losses in their industries, they said.
“The absence of this reliable local steel supply could lead to line stoppages, plant closures and volume cuts, jeopardizing both the sustainability of component suppliers and original equipment manufacturers,” National Association of Automotive Component and Allied Manufacturers Chief Executive Officer Renai Moothilal said in a statement sent to Bloomberg. He confirmed the authenticity of the letters.
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Steel imports could be 25% more expensive, he said. The impact on local supply chains could see 3,000 jobs lost immediately, and a further 13 000 jobs over time, Moothilal said, The auto industry employed more than 116,500 people directly last year. The automotive industry accounts for about 5.3% of South Africa’s gross domestic product and cars and auto components account for 15% of exports. Stellantis, Ford, Mercedes-Benz, BMW and Isuzu also make cars in South Africa.
Too far gone?
Government will argue that it has made significant strides in eradicating loadshedding, and these efforts are boosting the economy. It’s hard to argue against this. However, did the Energy Crisis impact companies to the point of no return? Even companies as massive as ArcelorMittal?
The counterargument to the Government narrative is that when companies needed stability the most, it was not there. For resource-heavy companies, there is little consolation in having energy stability at a time when commodity demand has slowed to a trickle. Further, companies still have to deal with a Logistics Crisis, which makes exporting a significant issue.
ArcelorMittal shutting down its South African operations is a major blow. But how badly did the Energy Crisis impact the company? Patience is a virtue, provided there are genuine actions to address the challenges you ask the other party to be patient about.
The Mystery Practitioner is an industry commentator focusing on the shifting dynamics and innovative thinking that BRPs and turnaround professionals must embrace to achieve business success.
