Infrastructure investment is key to steel industry growth, says Seifa

Stakeholders in the Steel industry say investment in infrastructure development can open more opportunities in the industry.

According to Tafadzwa Chibanguza, CEO of the Steel and Engineering Industries Federation of Southern Africa (Seifa), industry leaders at the Infrastructure Africa Conference discussed a need to focus on building new infrastructure and repairing the existing one.

The two-day conference recently took place in Cape Town.

Apart from infrastructure development, the discussions over the two days centred around financing, regulatory reform, policy coordination and cooperation to achieve the desired goals of the industry.

Under-investment and maintenance

Chibanguza says infrastructure investment will play a vital role in increasing demand for the metals and engineering sector. The sector plays a role in markets of mining, agriculture, construction, automotive, logistics, water, and the energy supply industry.

He notes that the multi-billion and long-term infrastructure investments will help the industry, However, there are a lot of industrialisation projects that can be achieved through repairing the existing, neglected infrastructure. “This existing infrastructure has continued to deteriorate due to under-investment and maintenance backlogs,” he adds.

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Most infrastructure areas that are currently experiencing this include rail, energy, municipal services and increasingly worrying, water infrastructure.

“While it is obvious to mention that the country’s poor economic growth outcome can be attributed to the bottlenecks in these respective areas, some of the immediate challenges faced by companies because of the infrastructure decay are as equally shocking as they are horrifying,” says Chibanguza.

He gives an example of a multinational company that had to invest in a large-scale backup fire suppression system for R12 million. “As necessary as this investment was, the company partially failed an ad hoc insurance inspection because there was no water coming out of the grid-based fire suppression system.”

Increases in administered prices

“The South African Reserve Bank (SARB) has on numerous occasions highlighted its concern about the pace of increases in administered prices and their impact on general inflation,” he says. He adds that it is worth noting that the administered price trajectory is largely because of inefficiencies in infrastructure.

“It is noteworthy that approximately 35%-40% of costs for companies in the Metals and Engineering Sector are attributable to administered prices in one form or another. This, in itself, should highlight the pressure that this line item contributes to input costs.”

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Other steel industry stakeholders

He speaks of other sectors that play a role in the metals and engineering sector. Starting with electricity, he says the long time without load-shedding can lead to an increase in economic growth which will put pressure on the available electricity capacity. “Hence, the urgent need to expand the transmission and distribution network while concurrently adding additional generation capacity.”

Coming to logistics, he believes there is a need to expand the rail network and fix port operations. After that has been done, economic efficiency and connectivity will be enhanced.

With water infrastructure, he says it requires the most urgent attention on water treatment facilities and pipeline repairs. “All these investments amount to billions of rands and present an immediate off-take, demand-wise, for industry.”

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A need for funding

Chibanguza says the industry has experienced low demand and capacity utilisation levels over the last 15 years. “In this industrialisation framework companies in the Metals and Engineering sector can quite easily increase production to meet demand with minimal investment required.”

At the conference, they also put on spotlight on the funding component. He says due to the under-investment and maintenance backlog on infrastructure, which runs into billions, the industry needs to find urgent financial solutions.