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Enforcing local procurement rules would help offset weak demand

Seifsa CEO Kaizer Nyatsumba reflects back on 2018 and offer insight into prospects for the metals and engineering sector n 2019. Camera Work & Editing: Nicholas Boyd

Seifsa chief economist Dr Michael Ade provides a preview of Seifsa’s flagship ‘State of the Metals and Engineering Sector Report’, to be published on February 8. Camera Work & Editing: Nicholas Boyd

14th December 2018

By: Terence Creamer

Creamer Media Editor

     

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Steel and Engineering Industries Federation of Southern Africa (Seifsa) wants government to take decisive action in 2019 to ensure that departments and State-owned companies (SoCs) honour their obligations to purchase designated steel products from domestic manufacturers.

The organisation is also urging government to finalise the mechanism for monitoring whether the designation element of the Preferential Procurement Policy Framework Act is in fact being implemented.

More than 20 products have been specifically designated for local procurement by the Department of Trade and Industry, including several steel-intensive products such as railway rolling stock, power pylons and buses, as well as value-added steel products such as fabricated structural steel, frames and structural pipework.

In addition, a minimum local content threshold of 100% has been specified for primary steel products such as plate, sheets, galvanised and colour coated coils, wire rod and drawn wire, sections and reinforcing bars.

Some of the designations have been in place for over five years, but Seifsa CEO Kaizer Nyatsumba tells Engineering News Online that the procurement rules are not being adhered to by a number of departments and SoCs.

As a result, the policy objective of using public procurement to support the domestic manufacturing and reindustrialisation is being undermined at a time when domestic industry is also facing intense import competition.

Seifsa chief economist Dr Michael Ade reports that weak domestic demand is again worryingly apparent in the economic data being analysed for inclusion in the 2019/20 edition of Seifsa’s flagship ‘State of the Metals and Engineering Sector Report’, to be published on February 8.

Ade says the ongoing flouting of the designations by government departments and SoCs has also been raised as a source of frustration by firms surveyed for the report.

Seifsa is, thus, urging government to settle on the instrument it will use to both monitor and enforce the designations, which Trade and Industry Minister Dr Rob Davies insists is not a choice, but rather a requirement.

Davies has indicated that the department would be approaching the Auditor General to request that any lack of adherence to the designations be regarded as a reportable irregularity during audits of departments and SoC.

A task team has also established to assess how to improve local-content enforcement across government, but the outcomes of its deliberations have not yet been published.

Seifsa believes the enforcement of designations is urgent in light of the lack of progress in improving protection for downstream industries from cheap imports.

Nyatsumba notes that such protection was expected to flow following Seifsa support, together with the trade unions, for an increase in tariffs on primary steel imports in 2015.

“We believe that we were right to be part of the call [for the imposition of tariffs to protect primary steel producers in the country] and we were grateful that government responded positively to that. But we supported the call for the imposition of tariff believing that a way would be found to protect downstream fabricators. We would be very grateful if, in 2019, a way could be found to ensure that the protection extended to the primary steel producers is available throughout the value chain.”

Nyatsumba is, nevertheless, highly supportive of the interventions being made by President Cyril Ramaphosa’s administration to strengthen key institutions and to address corruption, which has eroded confidence and contributed to what has been a “lost decade” for the metals sector.

Seifsa is particularly pleased by the progress that has been made in restoring policy certainty in key metal consuming sectors, such as automotive and mining. “You cannot have a thriving metals and engineering sector, when mining is bleeding.”

Nyatsumba also sees significant opportunity arising as a result of reforms to the Automotive Production and Development Programme, which set far higher local-content thresholds for those assemblers seeking to benefit from South Africa’s automotive incentives.

“Things are looking a lot more positive as we move into 2019 than has been the case for a number of years,” he concludes.

Edited by Creamer Media Reporter

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