IDC should abandon plans for $5 billion steel plant
The Industrial Development Corporation (IDC) should abandon its high-risk plans to build a $5 billion steel plant in partnership with the state-owned Chinese steelmaker, Hebei.
Today, while presenting the Corporation’s 2014/15 Annual Report to the Portfolio Committee on Economic Development, IDC chief executive officer Geoffrey Qhena confirmed the IDC’s desire to forge ahead with the project.
This flies in the face of all common sense.
Yesterday, the CEO of steelmaker Arcelor Mittal warned of a “bloodbath year” for the industry.
There is currently a global glut of 600 million tons of steel. Most South African steel companies are slashing operations and jobs, including Scaw Metals in which the IDC already has a 74% stake. Scaw made a loss of R1.1bn in 2014/15.
The IDC’s decision could prove to be ruinous as South Africa quickens its march to the edge of the fiscal cliff.
Yet the Corporation appears to be blundering into the megadeal with unseemly haste.
On 11 September 2015, the IDC signed a Memorandum of Understanding (MOU) with Hebei to complete a detailed feasibility study. At the time, the Minister of Economic Development, Ebrahim Patel, said: “Once this process has been completed – and depending on a positive outcome of the study – we intend to commence with the establishment of the South African iron and steel company”.
Yet barely a month later, the head of mining and metals at the IDC, Abel Malinga, insisted in a media interview that: “We are going ahead with it. We are not going to change our minds”.
The plant, earmarked either for Mpumalanga or Richards Bay according to Qhena, is expected to produce up to 5 million tons of steel a year.
In the long term, the project is likely to be an expensive failure. There is currently an overabundance of the kind of steel that South Africa needs for infrastructure development. Many of our African trading partners already have large steel plants, which negates the potential for export benefits. And while the plant may create some new jobs, it will also lead to job losses as more private sector steel companies are forced out of business.
I will submit parliamentary questions to Minister Patel on the status and recommendations of the steel company feasibility study. I will also ask him for a detailed breakdown of how the deal with Hebei will be financed; the nature of the IDC’s financial commitments; and the number of jobs that will be created.
In the meantime, the IDC would do well to take its foot off the accelerator and put its plans for a state steel giant on ice.
Issued by Dr Michael Cardo, DA Shadow Minister of Economic Development, 10 November 2015
