ISCOR CHICKENS COME HOME TO ROOST
A FEW YEARS AGO, in a magazine committed to upholding the free market and deploring intervention in it, I wrote an editorial suggesting that, without abandoning those general principles, maybe the acquisition of Iscor by Mittal should be considered a special case. Perhaps the submersion of South Africa’s near-monopoly steelmaker into a huge international group could lead to the taking of decisions that might be to Mittal’s worldwide advantage but not in SA’s best interests.
That provoked a number of letters from readers deploring the magazine’s heresy. However, it’s now apparent just how justified those reservations were.
Later, I couldn’t see just how Mittal would placate SA steel users by switching from import parity pricing to another bundle of criteria with no relevance to SA – and indeed it didn’t.
Of course, in a globalised market, international considerations will always affect the price of a commodity in any particular jurisdiction. But to impose a pricing system that removes the entire comparative advantage to consumers of being located in a low-cost producer is, to put it mildly, perverse.
And for Mittal to jack SA prices up further within days of being seriously criticised by SA’s competition authorities borders on contempt.
The authorities claim they will force Mittal to divest one of its SA mills only as a last resort. Well, I have news for them: I can’t imagine that anything short of bringing an independent producer into being will have any effect on Mittal’s pricing policy. After all, from its own perspective Mittal is being perfectly logical and consistent.
Though I haven’t seen the parallel drawn anywhere, I find it reminiscent of the basic mistake made when Telkom was privatised. Contrary to what a former editor of mine used naïvely to argue, it’s not enough just to privatise and believe a private-sector monopoly will be more benevolent than a public-sector one.
You must introduce effective competition as well. We’re still paying dearly for that error in the telecoms market and I fear the same will be true of steel.