Industry body the Steel and Engineering Industries Federation of Southern Africa (Seifsa) has called for the finalisation and speedy implementation of the Steel Master Plan, which it believes will benefit primary and downstream players in the local steel industry.
It is also considered to be key to ensuring the metals and engineering (M&E) sector is able to survival, says Seifsa chief economist Chifipa Mhango.
Manufacturing production data published by Statistics South Africa (Stats SA) on February 11 showed that total M&E production across 13 subcategories had declined by 13.6% year-on-year in 2020. Total sales declined by 12.3% to R727-billion. Overall manufacturing production fell by 11% and total sales declined by 9.9% in 2020 .
The South African economy is estimated to have contracted by 7.5% in 2020, partially owing to the weak manufacturing production trends throughout the year as a result of low capacity utilisation at producing companies under stringent Covid-19 lockdown regulations.
It is important for government to do more to revive the ailing economy, with special focus on speeding up implementation of policies, says Mhango.
"The Covid-19 pandemic and lockdowns had a devastating effect on the South African economy in general and the manufacturing sector in particular in 2020, and the Stats SA data reveals the pressure under which companies within the M&E sector operated."
The M&E sector represents 29% of the South African manufacturing base and its decline has significant implications for other sectors of the economy, such as construction into which 60% of the M&E sector products serve as key inputs. In 2020, the local economy experienced shortages of several key products used by the construction sector owing to industries operating below the prescribed capacity.
“There was a shortage of steel as construction activity resumed and as other manufacturers that rely on steel in production also resumed operations,” says Mhango.
Further, Seifsa is also concerned about the latest figures on capacity utilisation. According to Stats SA, in 2020, total capacity utilisation in the manufacturing sector was 72.3%, compared with 81% in 2019.
Within the M&E sector, the average total capacity utilisation in 2020 was 67.6%, with the lowest level recorded in the other transport equipment subsector, at 58.4%, and the basic iron and steel subsector, at 54.2%. These figures explained the shortages of steel experienced in the country, says Mhango.
Fixed investment is key to reviving the M&E industry. South Africa’s level of gross fixed investment to total gross domestic product needs to move to levels of above 40%, from the current level of below 20%, in order to grow the country’s industrial base, he emphasises.
Although the government had committed, during the 2020 National Budget speech, to spending R815-billion over the next three years on various infrastructure projects, mainly though State-owned entities (SoEs), implementation is slow, he adds.
"The M&E sector is heavily reliant on demand from key government projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. The lack of progress in the implementation of such key government projects was a hindrance to reviving the economy.
“As we await the tabling of the National Budget in Parliament on February 24, we expect tough statements in dealing with mismanagement of funds at SoEs and speeding up of reforms, coupled with increased investment incentives for the manufacturing sector, for both small and large businesses. More also needs to be done to revive the railway system that is not supporting industrial activity transportation, which was a commitment made by government in a previous State of the Nation address,” he concludes.