Who are we to believe?

October says new IPAP that is due to be released will support localisation.

Davies says DTI is also committed to downstream steel products.

Department of Trade and Industry (DTI) director-general Lionel October has revealed during a recent speech that the new Industrial Policy Action Plan (IPAP) focused on supporting the agro processing and metals industries, including foundries and the casting sector is due to be released in April 2017.

“We are aiming to strategically support the foundry and casting industries as the core of broader manufacturing activities, if the new plan is adopted by Cabinet,” said October in March 2017.

The fact that October was addressing an audience that was supposed to be made up of South African foundrymen in the majority but was rather made up of academics, government officials and international association and supplier visitors probably influenced his remark.

“The government is committed to local production and we must support local industry. We have designated rail rolling stock, valves and now steel as products that must be produced locally. Parastatals must buy these products locally, which creates base demand for the industry.”

This iteration comes shortly after Trade and Industry Minister Rob Davies reported recently that he had signed off on the duties on downstream steel products as part of a “whole-value-chain approach” to supporting the domestic steel industry, which was being rocked by cheap imports as a result of a “global glut” of steel.

The statements from the high-ranking government officials were made at the very same time that Scaw Metals, South Africa’s only manufacturer of cast wheels for the rail sector, is busy getting its cast wheel plant up and running again after being moth balled for a number of months because promised orders for the local content factor in the government infrastructure upgrade programme were not forthcoming, it is reliably learnt.

“But to meet the expectations of the orders we are importing wheels from China, something that has been going on for some time I believe. To get the plant up and running will take a good few months. It does not happen overnight,” said the source, who wished to remain anonymous for obvious reasons.

If you look at the ownership, the Industrial Development Corporation (IDC) is the majority shareholder (74%) in the Scaw Metals Group. Main Street 510 (Pty) Ltd, consisting of a Black Economic Empowerment consortium holds 21% and an employee share ownership plan trust holds 5%.

The IDC, which was established in 1940, says on its website: “We are a national development finance institution set up to promote economic growth and industrial development. We are owned by the South African government under the supervision of the Economic Development Department. Our mandate is to contribute to the creation of balanced, sustainable economic growth in South Africa and on the rest of the continent. We promote entrepreneurship through the building of competitive industries and enterprises based on sound business principles. Our strategic business units work in three distinct areas: the services sector, within the mining and manufacturing sector and in the agro-processing and new industries environment.”

As we all know the only local customer for the Scaw Metals Group cast wheels would be Transnet. Transnet is fully owned by the South African government and on its website it says: “Transnet operates as a corporate entity aimed at both supporting and contributing to the country’s freight logistics network. It aims at developing South African industry, reducing the cost of doing business, while at the same time operating efficiently and profitably.”

To much fanfare, pomp and ceremony four years ago, and widely reported via all forms of media, it was announced: “Transnet has launched a R300 billion infrastructure plan that is set to create 588 000 new jobs in the South African economy. Through its Market Demand Strategy (MDS) the company, which is the custodian of rail, ports and pipelines, will spend R300 billion on capital projects over a seven-year period. The strategy, said the company, is aimed at expanding the country’s rails, port and pipeline infrastructure. This will result in an increase in freight volumes especially for commodities like iron ore, coal and manganese.”

One has to ask that if this plan was announced four years ago, and you have to take into account that the plan to spend R300 billion of the taxpayers hard earned money it must have been devised over a few years prior to the announcement, then why is Scaw Metals, also a government owned entity, only now getting the orders they were promised? And to top it off wheels have to be initially imported from China? And where were all the wheels being purchased from over the last few years because wheels are a consumable and do not last indefinitely?

But the intrigue does not end there. The Scaw Metals Group has long been a manufacturer of grinding media. The Grinding Media Division, situated at the Union Junction site near Johannesburg, Gauteng, is the largest producer of cast high chrome grinding media in the southern hemisphere and the leading producer and supplier of high chrome and forged grinding balls primarily to the African platinum, copper and gold mining industries.

When Trade and Industry Minister Dr Rob Davies reported recently that he had signed off on the duties on downstream steel products, at the same time Itac (The International Trade Administration Commission of South Africa is a schedule 3A Public Entity, created by the DTI through an Act of Parliament and established in terms of the International Trade Administration Act, No 71 of 2002, is tasked with administering South African trade laws, with its core functions as tariff investigations, trade remedies, and import and export control) recommended that tariffs be increased on welded link chains, grinding media balls, fasteners and certain wire products to bound rates allowed for under South Africa’s commitments to the World Trade Organisation.

For welded link chains and grinding media balls protection is being increased from 0% to 15%, while duties on certain wire products will rise from free of duty to 10%. The duties applicable to fasteners would rise from between 0% and 20%, to between 10% and 30%. Presumably these duties are being recommended in terms of protecting local industry against cheap imports from China and others. A positive move and one most of us will agree with unless it makes downstream manufacturers uncompetitive.

However, this is where it becomes baffling. Naledi Inhlanganiso Group, though a consortium and in partnership with the IDC, purchased the majority of the shares in the previously JSE listed Dorbyl Ltd in 2013. The purchase included that of Guestro Foundry and Machining, now known as NI Foundry, which has been going through a major upgrade of its foundry manufacturing operations and which was reported extensively in this magazine.

The company produces steel and iron castings, including grey, ductile and SG iron. Management has stated that: “Our focus has been primarily on the automotive industry in recent years, supplying fully machined SABS approved castings to the OEMs and others. With the major investment in equipment and processes that we are currently implementing, which includes increasing our melting and moulding capacities, we will aggressively be pursuing other automotive components and diversifying into other areas.”

Very good intentions but it has been reported that NI Foundry recently cast 35 tons of grinding media balls. Whether the company will continue to produce grinding media balls we will only find out in the future because it is currently closed for six weeks for a maintenance upgrade. But why grinding media balls, a new venture for the foundry, when a ‘sister’ company – Scaw Metals – is well known for producing grinding balls?

But getting back to the 2017 IPAP release: IPAP was originally launched in 2007 and each year, the DTI issues a revised three-year rolling IPAP with a 10-year outlook in a context of rapid economic change and significant global uncertainty.

South Africa has implemented a number of industrial policy initiatives since 1994. However, it was not until 2007 that a comprehensive statement of government’s approach to industrialisation and industrial policy was released. Cabinet adopted the National Industrial Policy Framework (NIPF) in January 2007. The NIPF set out government’s broad approach to industrialisation in the context of the Accelerated and Shared Growth Initiative for South Africa (ASGI-SA) and its targets of halving unemployment and poverty by 2014 through accelerated growth of at least 6 per cent from 2010. (Talk is cheap).

Leveraging public procurement
Amongst other statements, the DTI professed in this first IPAP document that: “Large-scale plans are being implemented to both upgrade and install new infrastructure (electricity, rail, and ports) as well as broader expenditure plans in areas such as ICT, health, housing, 2010 FIFA World Cup, and the taxi re-capitalisation programme. This public expenditure will provide a massive investment injection into the economy over the coming decade.”

“On the back of this investment arises a major opportunity to leverage the public expenditure, by ensuring that domestic firms are sufficiently competitive to capture significant portions of it; without compromising price and quality. However, substantial coordination will be required in order to maximise the linkages from the public expenditure programme. Industries and firms that previously supplied the parastatals have lost substantial capabilities with some no longer active due to low levels of investment over the last two decades. As a result, a range of coordination activities need to take place: Between public procurement managers and potential suppliers; amongst firms that can potentially form supply consortia; and between government departments particularly linking the DTI’s Customised Strategy Programmes (CSPs), DPE’s expenditure plans and DOL’s training plans.”

Fast forwarding a bit to 2010 IPAP was read out in parliament: “The Minister’s statement today, that the new plan will lead to the creation of 2 477 000 direct and indirect decent jobs over the next 10 years and that it will diversify and grow exports, improve the trade balance, build long term industrial capability, grow our domestic technology and catalyse our skills development.”

The revised Industrial Policy Action Plan (IPAP) tabled in 2010/11 identified a number of sectors that have a high complementarity between investment and employment creation. Subsequent iterations of the IPAP continued to identify the potential of these sectors. The metal fabrication, capital and rail transport equipment sectors, including the foundry industry, have been identified in this regard. The IPAP set out to enhance competitiveness in the foundry industry, as this is one of the key drivers of the manufacturing sector’s overall competitiveness.

The fifth iteration of IPAP, released in 2013, covered specific action plans to spur industrial growth and reduce unemployment until 2016.

Cabinet approved the sixth annual IPAP 2014/15-2016/17 for implementation with the overriding goal of IPAP 2014 to prevent industrial decline and support the growth and diversification of South Africa’s manufacturing sector.

The seventh issue of IPAP, launched on 7 May 2015, changed tact a bit and highlighted the development of a specific support framework for black industrialists.

The launch of the last IPAP in 2016 broke away from tradition by being launched at a factory in Benoni, as opposed to being held at an established industry or in parliament. The fact that the launch was held at Naledi Foundry was no coincidence, but would there be anything new in the latest version or would it be ‘same old, same old’? Minister Davies, speaking at the launch of the 8th iteration, highlighted that “There is now an even more pressing need for structural change in the economy”. However, Business Day had reported in October 2014 that the very same Minister “says the economy urgently needs ‘structural change’”.

The press release issued at the launch said IPAP 2016 envisages nothing less than a massive, concerted and focused national industrial effort, intimately involving all the key stakeholders and economic partners.

And surprise, surprise public procurement was mentioned as a focal area with greatly enhanced and enforced compliance for localisation targets to be set for government departments and State-owned companies.

There was also mention of a strong focus on labour intensive sectors in particular agro-processing, the components manufacturing and subassembly subsectors in the automotive industry, rail, light manufacturing and engineering in the metals sector. Nothing new was proffered. Just a continuation of the same theme, but put in different terminology, since the first launch in 2007.

And now to the proposed 2017 release of IPAP.

“The government is committed to local production and we must support local industry. We have designated rail rolling stock, valves and now steel as products that must be produced locally. Parastatals must buy these products locally, which creates base demand for the industry,” said October. Something we have heard before?

But now came the latest industry buzz.

“In the next IPAP, we are emphasising the importance of preparing for the fourth industrial revolution and supporting the metals and casting industries to modernise and upgrade. Information and communication technologies, the Internet of Things and three-dimensional printing technologies are part of the major convergence of technologies in the sector,” said October.

But Mr October we need to get the basics right first and yes maybe, just maybe, the information and communication technologies might get the parastatal procurement officers red flagged if they try to order from beyond our borders rather than locally, but I doubt it!