SO, THE country’s second-largest steel maker, Evraz Highveld, has stopped making all steel products. It is at a complete, 100% standstill.
The country’s biggest steel maker, ArcelorMittal, is in a profound crisis. So much so that the world’s richest steel boss, Lakshmi Mittal, was in SA recently to beg President Jacob Zuma to find him a black empowerment partner for ArcelorMittal SA, and for (Chinese) import protection.
Basically, our steel industry is running into the drain because the government cannot kick-start its infrastructure programme. That is because it either cannot make decisions or it is afraid of making the wrong ones.
That, and the fact that the Department of Trade and Industry has spent the past 10 years trying to strong-arm the steel industry into cutting prices — it wants ludicrously "developmental" prices while producers pay developed economy costs — are burying steel in the country. On Thursday Arcelor announced it was mothballing its Vereeniging long products mill.
How you create black industrialists in a country that can’t make its own steel at a profit is beyond me, but Trade and Industry Minister Rob Davies and Economic Development Minister Ebrahim Patel, President Jacob Zuma’s two most trusted economic advisers, will no doubt have a plan. Actually, I know what it is. China.
China will save us. Not only will China come here and make steel for us, it’ll import back what we make. How’s that for a plan? And all 20,000 direct, indecent jobs at Highveld and Arcelor can be replaced by decent ones with Hebei-Langa, or whatever fancy name a new plant might get.
The Industrial Development Corporation (IDC), the agency controlled by Patel, already has a memorandum of understanding with the Chinese state-owned Hebei Steel to build a brand-new integrated plant here. The plant would be much bigger than Mittal’s plant at Vanderbjlpark.
Hebei is under pressure in China because it is a terrible polluter. The best thing is to move the pollution elsewhere. Hmmm, lets think where …?
There’s been a flurry lately of ministers and functionaries flying to China. That’s because the president (some say it’s Gwede Mantashe) is determined to import Chinese state capitalism to SA on such a scale that it cannot be reversed once he leaves office.
Deputy President Cyril Ramaphosa was in Beijing just the other day, studying what are hilariously called "reforms" in the way the Chinese run their state-owned companies. That makes sense.
First Gwede drove the initial ANC debate on bringing private capital into Eskom. And Cyril’s best chance of succeeding Zuma is if Gwede backs him and joins a ticket as deputy president. Cyril would swop a little state capitalism for the top job any day.
Anyway, the "reforms" Cyril was studying consist precisely of the introduction of private capital into otherwise moribund companies in moribund industries. Think Eskom, Prasa, the SABC, SAA …
What happened in China though, is that for the most part the new money was simply crony capital. In China the domestic market is so huge, and the currency managed down so low, that the results of pumping inefficient private capital into inefficient public assets could be kept hidden for years.
But that number may be up, just as we start to copy it here. It’s insane to think a country with a virtually limitless domestic market has anything to teach one with a tiny local market like ours. Arcelor and Highveld are in trouble here because local customers just can’t order steel in volumes big enough to justify producer discounts.
Sikonathi Mantshantsha writes in the Financial Mail this week about Atlas Copco importing Chinese steel for their compressors and other machinery at just 25% of what Arcelor would charge!
Nonetheless, our South African communists want to be like Chinese communists. Rich and secure. Gwede, a former chairman of the South African Communist Party, has just sent his own son to China to learn how to farm. Near Elliot.
I guess that for China, the cloying adoration of the South Africans is a small burden. We are far down their radar.
China’s ambitions, and China’s problems, are simply gigantic.
Its invest and export (on an artificially weakened currency) strategy is done for. Global demand is flat. The alternative, consumption-driven growth, has just run into a wall with the collapse of Chinese equity markets. The exchanges are now being propped up by deeply intrusive state regulation, including the declaration of a new and bogus public holiday period in September so people can’t trade.
Anne Stevenson-Yang is an American researcher who has lived in China for 30 years and is married to a former Chinese military intelligence officer. I have just found an interview with her in the latest edition of Barron’s, on the state China is really in.*
"Starting in 2008, China sought to counter global recession with huge amounts of ill-advised investment in redundant industrial capacity and vanity infrastructure projects," she says. "You know, airports with no flights, highways to nowhere, and stadiums with no teams. The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt.
OK, but it still grew 7.3% in the second quarter didn’t it? Er, no …
"People are crazy if they believe any government statistics, which, of course, are largely fabricated," says Stevenson-Yang.
"In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behaviour.
"For a time we started to look at numbers like electric-power production and freight traffic (but) it didn’t take long for Beijing to figure this out and start doctoring those numbers, too. I’d be shocked if China is currently growing at … 4%."
The Uncertainty Principle perfectly captures the Gwede Mantashe school of political management. As The Guardian explains, there is a "fundamental limit to what we can know about the behaviour of quantum particles and therefore the smallest scales of nature. Of these scales the most we can hope for is to calculate probabilities for where things are and how they will behave."
In other words, you have to guess. Gwede does, the government does and the president sure does. The fact is the Chinese model was just made for the ANC. The steel will come from somewhere. Can someone please find Rob Davies a quantum physicist?
* Find the whole interview in my daily online FM blog on Thursday
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