SA’s downgrades should not deter more investment
LOSS-MAKING ArcelorMittal South Africa (Amsa), Africa’s biggest steel producer, has applied to the National Electricity Regulator of SA (Nersa) to implement a better electricity-pricing model for the struggling steel industry and was considering cutting the production of long steel at its Newcastle plant because of low demand.
“We have asked Nersa to look at a different tariff for the steel industry. If we do not get the answer we want, we will continue to struggle as an industry,” Amsa’s chief executive, Wim de Klerk. told a press conference in Johannesburg yesterday.
The move is the latest attempt by the company to convince the state to intervene on behalf of the struggling domestic steel industry. Amsa led the lobby that resulted in the government signing off on import duties on certain steel products to protect the industry from the surge of imports.
The steel industry has become uncompetitive because of the dumping of cheap Chinese imports, the subdued economic outlook and low demand, which have resulted in the collapse a number of players, including Evraz Highveld, which went into business rescue last year.
De Klerk said Amsa was holding talks with Eskom over better pricing as part of a plan to deal with its biggest costs: electricity, transport, labour and coal.
‘We are a business in distress, and we cannot continue to pay these prices. We need better prices for electricity.’
“It will be difficult to be sustainable if we do not do anything about costs. As a result, we have embarked on negotiations with Eskom,” De Klerk said. “We are a business in distress, and we cannot continue to pay these prices. We need better prices for electricity.”
De Klerk said electricity comprised 34 percent of the costs at its plant at Saldanha, and Amsa’s power bill was R2.6billion a year.
Regarding cutting production at its Newcastle plant, which employs 2 800 people, De Klerk said the company was in a difficult position.
“We assured government that we will do everything in our power not to shed jobs, because we understand how important jobs are in the country. The cutting of production of long steel products will possibly affect people,” he said.
“We have to look at options and consider what is the footprint that we want as a company and a way that it will impact people.”
De Klerk said the local market could not absorb the long steel products made at Newcastle and the company could not sell the products internationally because of fierce competition from China.
“We have seen a lot of cheap imports, and our economy is not growing. We had a downgrade, which [means there is] less money available for government to introduce infrastructure projects. I am not convinced that the money that was available for infrastructure development is available,” he said. IT WOULD be regressive for investors to pull out of South Africa completely on the basis of South Africa’s sovereign credit ratings recent downgrades.
FNB Share Investing chief executive Aneesa Razack said the country had a good track record in navigating market volatility and political headwinds. While the downgrades were a cause for concern for local investors, this should not deter anyone from continuing to invest. “Over the long term, the market tends to slowly return to a growth trajectory by self-correcting,” Razack said. “The worst any investor can do is to decide to pull out completely; nothing could be more regressive.”
Lost out
Razack said that from April 2009 to April 2017, the JSE All Share grew by more than 160 percent, meaning investors who had pulled out of the country during the financial meltdown would have lost out on significant returns from the market.
South Africa was recently ranked second in the Africa Competitiveness Report, and the country’s global ranking for 2016-17 improved by nine places – from 56 in the 2014/2015 report to 47 out of 138 countries worldwide.
The sectors in which South Africa excelled included financial market development, business sophistication, innovation and technological readiness.
Janice Johnston, investment head of the Vumela Fund under Edge Growth, said the key investment considerations had evolved over the past 150 years from a predominantly one-dimensional focus on return towards two-dimensional risk/return assessment criteria to incorporate the impact of the investment.
“Given the momentum to align social and environmental considerations with investment fundamentals, as well as the potential commercial value of tracking such metrics, it appears that the next conventional investment framework could comprise a three-dimensional approach: risk, return and impact,” said Johnston.
The country’s global ranking for 2016-17 worldwide