South Africa: Trade and Industry Committee Engages On Sugar and Steel Industries

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The Portfolio Committee on Trade and Industry today had fruitful discussions on developments in the South African sugar and steel industries.

Committee Chairperson Mr Duma Nkosi noted that the sugar industry is in the process of applying for an exception from the Competition Commission to implement the provisions of the master plan as drawn up by the Department of Trade, Industry and Competition (DTIC).

The committee heard that the South African share of the sugar market has shrunk from 1.6 to 1.2 million tons. Furthermore, there has been a significant decrease in sugar cane production, mainly in KwaZulu-Natal. Consequently, there have been job losses and small growers have gone out of business.

The DTIC’s proposed sugar masterplan interventions for stabilising the industry include restoring the local market and off-take agreements, commitments by producers to restrain price increases in line with inflation, product tax policy and the retention of small sugar cane growers. The DTIC said that the South African Sugar Association has committed R1 billion towards transformation and small-scale farmer development over a five-year period. R200 million is allocated for 2019/20, of which R142 million will be to support black sugar cane farmers.

The committee also welcomed the gazetting of Amendments to the Constitution of the South African Sugar Association and the Sugar Industry Agreement on 23 June 2020 and the prioritisation of the Sugar Master Plan. However, concerned were raised about the impact of large sugar imports and the Health Promotion Levy (HPL, commonly known as sugar tax) on the ailing South African sugar industry.

The committee heard that the success of the master plan depends largely on a focus on the national interest, a commitment to shared governance and implementation, specific stakeholder commitments, commitment to transformation and inclusive diversification.

Mr Nkosi said that the committee will continue to oversee developments in the sugar industry and the implementation of the master plan through regular engagements with the department.

In the steel industry, the committee was informed that excess steelmaking capacity of about 440 million tonnes continues to be the biggest challenge in the global steel sector, particularly considering the slow global economic growth. The increasing price volatility, global trade, margin pressure and rising debt are creating difficult operating conditions for steel makers. Steel manufacturers in developing economies, including South Africa, are disproportionally affected.

Tariff increases on a range of downstream products to the maximum bound rates allowed, SARS reference price system developed for steel products to address low priced imports and inter-agency working group established to tackle illegal trade. The use of local procurement by government to boost aggregate demand. [this paragraph is not given its context]

The outbreak of the Covid-19 pandemic aggravated the situation with excess capacity as mills have not reduced production, looking to sell at low prices to raise cash. The pandemic and the lockdown have accelerated the effects of low demand, over-capacity, weak balance sheets and liquidity challenges impacting on the viability of an industry that was already in distress. Steel prices are forecast to fall while domestic steel consumption is expected to be below 3.3 million tons for 2020, a 26% drop, down from 4.5 million tonnes in 2019.

Measures implemented include relief funding for companies in distress, support for SMMEs, tax relief and limiting imports to enable companies to ramp-up production to supply domestic markets. Key interventions already in progress are an increase in the general rate of customs duty on primary steel products to 10% and safeguard measures on hot rolled coil and plate products.

Mr Nkosi said the committee will continue to monitor these two vulnerable industries. “Furthermore the committee would like to see participatory involvement – especially for growth and transformation.”

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