The Steel and Engineering Industries Federation of Southern Africa said that the fund would allow for major strides in value creation in the sector to take place.
Seifsa chief economist Tafadzwa Chibanguza said that the industry was underpinned by a complex set of dynamics that are unique to it and that the fund would assist the industry to be more competitive.
“We welcome this fund, because it should help to deal directly with the dynamics at play in the sector. In fact, we have always cautioned about the limitation of a blanket approach to manufacturing and the need for dedicated policy packages,” Chibanguza said.
The fund is aimed at helping qualifying entrepreneurs in the downstream steel sectors to improve their competitiveness. It will be predominantly funded by the Industrial Development Corporation (IDC).
The IDC will receive R95 million in the form of grant funding the department of economic development over the next three years, which it will use to fund the interest rate subsidy. The rest of the R1.5 billon will be from the IDC’s own funds.
According to the department of trade and industry (dti), the steel industry directly represents 1.5percent of the country’s gross domestic product (GDP) and indirectly supports strategic sectors of the economy, the top five of which, it is estimated, support 15 percent of GDP and employ 8 million people. Chibanguza said the initiative had come at the right time for the ailing industry that had been battered by cheap imports from China.
“The timing could not have been any better. In the current environment - characterised by weak markets, falling production, low capacity utilisation levels and deteriorating profit margins - most companies in the metals and engineering sector have found it very difficult to motivate for investment into their production capacity,” he said.
The global steel market has been dominated over the last decade by China, which has capacity to produce 1.1 billion tons of steel. The country’s steel exports account for well over half of the global steel market - presently estimated as 800 million tons.
According to data from research company Marketline global steel production reached a value of $753 billion (R9.68 trillion) in 2015 and was expected to grow by 2.8 percent a year to reach $865 billion by 2020.
In South Africa, the industry has been on the ropes for the past several years, shedding thousands of jobs.