SEIFSA warns of unprecedented jobs crisis if ArcelorMittal closes down

SEIFSA warns of unprecedented jobs crisis if ArcelorMittal closed down as the industry has already been plagued by underlying structural constraints for the last 15 years. Employment in the sector has decreased at double the rate production has decreased over the same period.

The sector currently employs 362 871 people, a significant drop from the 577 507 people employed in 2008. This equates to a decline of 214 636 jobs, or 37.2% and when measured on a compound basis, represents a 2.9% decline per year.

“Considering the steel sector’s induced economic multiplier of 2.7 times, the employment multiplier of 6 times and the dependency ratio of between 7 to 10 people relying on each formal job, the sectors employment trends spell wide scale social and economic disaster,” Tafadzwa Chibanguza, chief operating officer at the Steel and Engineering Industries of Sothern Africa (SEIFSA), says.

“The steel and engineering sector is crucial to the South African economy, it is the backbone of the country’s industrial base which is akin to none on the continent. The value chain represented in the sector constitutes the entire metals value chain from metal production (ferrous and non-ferrous), merchants and service centres, metal fabrication to heavy and light engineering.”

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The sector is a crucial supplier of inputs into sectors such as agriculture, mining, the automotive sector, construction, the electricity supply industry across all its facets, logistics and water sectors. The sector is also export intensive, with 40% of total production exported, raising the country’s foreign exchange receipts by USD $20 billion annually. 

Chibanguza says despite the sectors far-reaching impact and diversified demand profile the innate potential is unfortunately not being realised. “The recent announcement by ArcelorMittal South Africa on the closure of its operations in Newcastle and Vereeniging, as well as ArcelorMittal Rail and Structural bears testament to this. The prospect of this development materialising is a major cause of concern which will only add to exacerbating the downward spiral to employment in the sector.”

Of the 362 871 people employed in the sector, the downstream industries account for 90% of the employment with the balance employed in the upstream. This number has evolved from 80% (downstream) and 20% (upstream) over the last 15 years.

“Although the job losses have been felt across the entire value chain, they have mostly been concentrated in the downstream industries, which have accounted for 60.2% of the losses recorded over this period.”

Chibanguza points out that the propensity of the sector’s employment losses, as a result of the structural vulnerabilities and headwinds the sector faces, mostly materialise through employment losses in the downstream industries.

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The impact on downstream industries

“It is therefore reasonable to conclude that the impact of the plant closures will mostly be felt in the downstream where the bulk of employment resides. Of even greater concern is that a number of companies in the downstream have started estimating the business cases of importing their final product as opposed to semi-finished products for further processing locally.”

He warns this will have even wider employment ramifications by eliminating other intermediate processes like forging, galvanising and packaging, thereby converting many existing factories into distribution warehouses.

In a country with high unemployment, the continued decoupling of the relationship between employment and production increases is becoming a less sufficient condition for employment creation, as a 4.7% increase in production is required to induce a 1% increase in employment. 

Chibanguza points out that the reasons for the ArcelorMittal plants closure are low economic growth and anaemic gross fixed capital formation, as well as electricity and logistics challenges. Companies in the entire value chain face these challenges and without urgent intervention and reform these challenges are unlikely to be resolved in the medium term.

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SEIFSA says employment to decline in absence of reform

“Therefore, it is conceivable that in the absence of reform, the rate of employment declines observed can be projected into the medium term with some modifying factors applied to account for the ArcelorMittal closure.”

Considering the 3 500 employees that will be directly affected by the plant closures, projecting the 2.9% rate of decline across the entire steel and engineering sectors employment and applying the steel sector employment multiplier, on a five-year horizon, SEIFSA estimates the employment losses could amount to a staggering 293 754 direct and indirect job losses, Chibanguza says.

“This is an outcome that South Africa, given its already untenable unemployment rate, can ill afford. Doing everything possible to find lasting solutions to averting the announced plant closures should dominate our and governments agenda, failing which industry and the economy will be left to deal with a catastrophic socioeconomic jobs crisis of unimaginable proportions.”