Economic Development Minister Ebrahim Patel released details on Thursday of a new R1.5-billion incentive for downstream steel manufacturers, which would be implemented from June 1.

The incentive, officially named the ‘Downstream Steel Industry Competitiveness Fund’ is to be administered by the Industrial Development Corporation (IDC), which will also provide the bulk of its funding.

In fact, the Economic Development Department (EDD) will inject only R95-million of direct on-budget funding, spread over a three-year period, with R30-million available for the current fiscal year.

However, Patel said the funding, while modest, would enable the IDC to offer discounts to its already favourable interest rates to qualifying beneficiaries. The IDC might also consider, on a case-by-case basis, including a grant element, should such funding be required to facilitate an investment.

The fund would target steel-intensive downstream manufacturers and would not be open to integrated steel mills, component manufacturers that qualify for other incentives, or large multinational original-equipment manufacturers receiving support under sector-specific schemes, such as the Automotive Production and Development Programme.

However, the fund would be open to applications from foundries and fabricators of pressure vessels, pipes and structural steel products. Parts and component manufacturers of steel-intensive products would also be eligible, along with valve and pump manufacturers, machining plants, and capital equipment producers, particularly in the rail and rolling stock subsector.

“The fund will mainly target very small, small and medium enterprises, as defined in the National Small Business Amendment Bill. However, large enterprises up to a maximum annual turnover of R450-million will be considered, depending on developmental returns.”

Should there be an oversubscription against the incentive, the EDD and IDC would prioritise support based on criteria such as job creation, transformation and black empowerment, and beneficiation.

The incentive is being introduced amid moves to further protect South Africa’s upstream steel sector, which has faced an existential crisis in recent years as a result of a rise in cheap imports, mostly from Asia.

Duties have already been increased on a range of primary steel products up to the 10% bound rate allowed for under South Africa’s World Trade Organisation commitments. Protection has also been instituted on some downstream steel products.

In addition, Trade and Industry Minister Dr Rob Davies recently signed off on a 12% safeguard duty on hot-rolled coil (HRC), which would be instituted in addition to the base tariff of 10% on HRC from July 1.

Patel acknowledged that downstream industries in the metals and engineering sectors were under “serious pressure”, which had resulted in firm closures and the loss of 25 000 jobs in the last year.

The fund was designed as a “timely intervention” to place the sector on sounder footing.