Revitalising the domestic steel industry is not only possible but also essential, if the economy is to be back on a growth trajectory and create much-needed jobs, argues Mike Benfield

A recent study by Oxford Economics confirms what we all intuitively understand: steel is one of the backbone industries on which economies are built and jobs created. Steel is used to manufacture the objects that make a modern society work – without it, manufacturing would simply be impossible. This means that steel has an unusually long and influential value chain, creating value and jobs across its own supply chain and into the broader economy.

The Oxford Economics research shows that, for every $1 of value added within the steel industry, a further $2.50 is added by companies across the globe that supply the industry. To put it in terms that should resonate particularly strongly in this job-hungry country, every two jobs in the steel sector translate into 13 more jobs across the supply chain. In South Africa, steel creates 190 000 jobs directly.

The steel industry also influences the entire economy. Because steel is a key input in many other industrial sectors, steel supports jobs in the industries that make or use steel-based products. The major steel-consuming industries contribute about 15% to South Africa’s gross domestic product and employ eight- million people directly and indirectly.

The overriding point I want to make is that a flourishing domestic steel industry is something well worth having from myriad viewpoints. It creates jobs within its own supply chain and supports the creation of still more jobs in industries that use steel or steel products. Manufacturing is the catalyst for economic growth and job creation, and this starts with steel.

At a strategic level, it makes sense not to rely on steel imports because doing so results in the steel ecosystem of a country being perpetually at the mercy of global geopolitics and trade cycles.

The steel industry in South Africa has been in steep decline since 2010. There are a number of reasons for this, including a dramatic increase of 250% in the amount of cheap steel imported into this country, mostly from China, between 2000 and 2016. This led to the imposition of tariffs to protect largely the country’s primary steel producer. This has resulted in a reduction in imported steel, but imported finished goods are still being brought in at the expense of the local manufacturing sector.

Another major factor is the weakness of the South African economy. This weakness is based on multiple factors, including poor infrastructure, underperforming State-owned enterprises, ineffective labour legislation and a calamitously dysfunctional educational system – not forgetting the impact of corruption. All these factors drive negative sentiment, perpetuating a downward spiral. These are hugely complex issues, and it is a cause for optimism that business as a whole is working together with government to play its part in resolving them.

To strengthen the steel industry and the industries that it supports, a number of specific actions are needed. These include the use of tariff protection to support the local steel ecosystem. Tariffs can either be a powerful weapon or hugely destructive, depending on how intelligently they are used. I believe tariffs should not be used to protect the primary producer, thus harnessing the power of the market to make it maximally competitive and thus able to supply the raw material the industry needs at the best price.

Instead, tariffs should be used to protect finished goods produced in South Africa. This maximises the accelerator effect that the steel industry has on the economy as a whole by ensuring the greatest number of jobs are created. We all witnessed the carnage that the failure to provide protection for the garment-manufacturing industry caused and the impact this had on jobs.

Developing an effective ‘Buy South Africa’ campaign would also assist in strengthening the local steel industry. This would entail the initiation of a properly resourced and credible programme to identify and promote goods made with South African steel. This approach has worked well in the automotive and other industries, and would tap into the high levels of patriotism and optimism that, against all the odds, exist, as the #Imstaying social media movement attests.

We would also need to fix the transport system in order to further strengthen the steel industry. First and foremost, rail transport needs to be improved radically so that raw material and finished goods can be moved efficiently around the country – this would immediately improve the state of the road network and promote internal trade. Efficient bulk transport is essential to many industries, not just steel.

In addition, an upgraded transport system would consume a lot of steel, further strengthening the industry.

Government’s role in all this should be that of a catalyst: it does not have the money for this kind of investment but the private sector would jump at it, given the right conditions.

Another key area is to ensure that ports are upgraded. Once we have a solid domestic consumer base for finished goods manufactured using our own steel, we need to be able to export them efficiently. The ability to export goods efficiently will go a long way towards making South Africa globally competitive, despite the long distances to the country’s major trading partners. We cannot change geography, but let us control what we can by becoming very efficient and cost effective.

With the right kind of government support, steel companies can expand the role they play in supporting economic growth. This includes providing training, extending credit and holding stock so that smaller customers do not have to tie up capital in inventory, and supporting small businesses that use steel with better terms and advice.

The steel industry is one of South Africa’s economic crown jewels, with the potential to help lead the economic recovery we all so desperately want and need. It can be revitalised but every year we delay taking these actions will reduce its capacity to do so, as skills and capital move into other industries, often in other countries. To reverse the decline in the steel industry, we must act now.

Benfield is CEO of Macsteel, Africa's leading manufacturer, merchandise and distributor of steel and value-added steel products.