As localisation has become a critical issue in the South African steel industry, government’s recent designation of steel power pylons, monopole pylons, steel substation structures, power-line hardware, streetlighting steel poles and steel lattice towers and masts is a major breakthrough.
This is according to the Power Line Association of South Africa (Polasa), with director Kobus de Beer noting that the development indicates government’s commitment to protect the jobs and capabilities in the industry.
The National Treasury’s instruction issued on September 29 to accounting officers of all national departments, municipal entities, public entities and provinces is a significant advancement for Polasa, which has worked with government to have critical products designated, prescribing 100% local content.
“It is also an important development that the Instruction note includes a range of similarly manufactured products as well as the associated components, some made of aluminium and even ceramics,” he adds. This Instruction is issued in terms of regulation 9(1) of the Preferential Procurement Regulations of 2011, under which the Department of Trade and Industry may designate sectors in line with national development and industrial policies for the facilitation of local production.
After originally announcing in April that this designation would take place, Trade and Industry Minister Dr Rob Davies placed considerable emphasis on compliance issues, which have been a problem in South Africa since the introduction of the designation concept.
“Sometimes, for good reason, buyers at government institutions do not seem particularly eager to comply with these prescriptions, but it has to be understood that to preserve current jobs in the South African economy, designation and compliance with the processes are critical to ensure its successful implementation,” De Beer explains.
He points out that some products, such as steel power pylons, already carry a 15% import duty payable by the importer. “In practice, however, this has not been found to deter imports as prices are often below that of South African production costs.” In the case of World Bank-funded projects for State-owned power utility Eskom, this requirement was not taken into account during the adjudication processes, even though the import duties had to be paid.
The designation of steel power pylons in July 2012 also did not protect the industry effectively – World Bank funding precluded clients from specifying local content. “This is a problem that needs to be addressed to facilitate future compliance,” urges De Beer.
He further emphasises that it is not a simple matter to implement designation. Further complicating the issue is the exclusion from the designation of mainly primary steel products, such as hot rolled profiles and channels, ex mill, aluminium billets and zinc ingots used for fabrication. The official reason is that “. . . this is to encourage local fabricators to seek the best global competitive prices for primary materials . . . hence, the competitive imported primary steel used in the manufacture of the above designated products will be deemed to have been sourced locally for the purposes of calculating local content”.
“This is a serious matter and is contributing to the crisis in the South African steel industry and the resulting retrenchments and loss of jobs,” he surmises.
De Beer believes there is no doubt that the steel industry now has an opportunity to benefit from designation. “The challenge lies in all the relevant parties working together to achieve sensible compliance and, crucially, simultaneously, for suppliers and contractors to take all possible action to become and remain internationally competitive.”
In this regard, he adds that considerable success has been achieved in securing exports of fabricated structural steel products into Africa and elsewhere, with almost 200 000 t exported in 2014 – but this needs to be extended to the maximum for each of the designated products.
Moreover, he points out that, while State-owned power utility Eskom has for some years made its own progress in promoting local manufacture through its list of approved products, suppliers have complained that these approved suppliers were not consistently used in all nine provinces. “The designation instruction now opens the door to engage on this and assist in achieving 100% compliance,” De Beer says. The fundamental assumption is that local producers will remain competitive in quality, availability and price.
“So we have good news complicated by various challenges. This process that we have all gone through in getting these products designated represents an area where South Africa can help itself significantly in the current dire economic situation. Every effort must be made to succeed,” stresses De Beer.