The Portfolio Committee on Trade and Industry met on a virtual platform with the Department of Trade, Industry and Competition for a briefing on the challenges facing the ferrochrome and cement industries.
The Department of Trade, Industry and Competition reported that it was involved in addressing the challenges facing the ferrochrome and cement industries but the lead department in the ferrochrome sector was the Department of Mineral Resources and Energy (DMRE). South Africa had lost its ferrochrome market share as a result of lower ferrochrome prices, increased production and competition from China, as well as increasing domestic energy costs. Due to the strategic importance of value-add, jobs and capability, there was currently a need to support the sustainable growth of the chrome value chain. An inter-departmental task team was set up to consider competitively priced electricity, the high costs of logistics and transportation. Consideration was being given to a form of chrome export tax. The ferrochrome industry was a critical sector and any form of value-add was critical to prevent the country being at the bottom of the value chain.
The total production of cement in South Africa had declined to 68% of the industry’s capacity. Employment in the industry declined from 16 000 workers in 2008 to 8 006 in 2020. Key challenges related to imports of cement and declining construction activity. There was a serious concern that local good quality cement was being replaced with substandard imported cement and there was increasing non-compliance with regulations for the quality of cement that could be used on different types of buildings. The National Regulator of Compulsory Standards had highlighted cement as a high risk item and customer concerns had been investigated, leading to rigorous sampling for testing, the issue of Directives for non-compliances, confiscation of cement, criminal cases and the withdrawal of compliance certificates. It was important to the broader development of the economy that, as the infrastructure programme picked up, local cement was used.
Committee Members were concerned about transformation in the sector and requested a plan for transformation, including timelines with the number of people who had or would benefit from the process. Members asked if there was a plan for beneficiation. Were there any plans for a stainless steel market in South Africa? What was the Department doing about illegal chrome mining in Limpopo? Was there any engagement at the diplomatic level to deal with the export of illegal chrome to China?
The Chairperson greeted the Committee Members and everyone who was connected on the online platform.
The Secretary confirmed that the meeting was quorate and representative. He presented the agenda.
The Chairperson noted that the responses provided by the Department and the National Regulator of Compulsory Standards, following a previous meeting, would be distributed so that everyone received a copy of the responses. He indicated that there was only one item on the agenda and that was a briefing on the ferrochrome and cement industries. The agenda was adopted by the Committee.
He welcomed Mr Lionel October, Director-General (DG), Department of Trade and Industry (dtic) and his team, noting that the DG would explain why dtic was involved in a matter that was led by the Department of Mineral Resources and Energy (DMRE).
The Chairperson introduced the topic, stating that the Committee would be looking at the ferrochrome and cement industries and what was being done to address the challenges in the industries and to mitigate the impact on the economy. The focus would be on the challenges that had led to market decline and would lead to job losses. SA had been a leading international ferrochrome ore supplier but was facing domestic constraints that were affecting its competitiveness. In terms of the cement industry, the Committee had noted concern regarding the replacement of local good quality cement with substandard imported cement and non-compliance with regulations for the quality of cement that could be used on different types of buildings.
The Chairperson requested the DG to go through the two industries, giving the Committee a sense of work in progress because the Committee had previously received a report on the industries.
Presentation on the challenges facing the ferrochrome and cement industries – dtic
Mr Lionel October, DG, Department of Trade and Industry (dtic) greeted the Chairperson and thanked him for putting the matter of the ferrochrome and cement industries on the agenda and for his constant guidance and leadership.
Because the matter was so serious, he had a fairly large team with him in the virtual meeting. He noted, in particular: Dr Anneline Chetty, Acting DDG Industrial Development Division; Dr Umeesha Naidoo, Director: Primary Minerals and Processing; Dr Tshenge Demana, Chief Director: Technical Infrastructure; Edward Mamadise CEO: National Regulator for Compulsory Specifications (NRCS) and Jodi Scholtz, Administrator: South African Bureau of Standards (SABS).
Because dtic had an active industrial policy of development, it had adopted the approach that government had to offer a helping hand to industries. The dtic did not adopt a laissez-faire or hands-off approach to industry. The lead Department in the ferrochrome sector was the DMRE. The key role players were the Chambers of Mines and the Integrated Producers. He noted that the beneficiation done by ferrochrome was stage 2 beneficiation whereas dtic worked with stage 4 beneficiation in the manufacturing sector. However, any form of value-add was critical to prevent the country being at the bottom of the value chain. Every country tried to add more value to its minerals so that more value stayed in the country.
Mr October stated that an inter-departmental committee had been set up, with DMRE as the leading Department, and conclusions had been reached on a range of issues from electricity to the proposed mechanism of an export tax. An export tax was difficult but the inter-departmental committee was looking at a whole range of factors, including the miners and the broader national interest. The process included ongoing engagement with role players in the sector.
He added that the cement industry was a critical sector. In terms of the Recovery Package announced by the President, the big leg for dtic was the industrial localisation leg and the big push would be that, as the infrastructure programme picked up, local cement was used.
Presentation on the ferrochrome and cement industries
Noting that the DG had provided a detailed introduction, Dr Chetty informed the Committee that the work on the ferrochrome and cement industries was work in progress. Whilst there were no Master Plans for the two industries, the dtic would ensure that the pillars of the Master Plan were tied to the sectors, that is in terms of transformation, localisation, industrialisation and economic growth.
Dr Chetty introduced the Director responsible for Primary Minerals and Processing, Dr Umeesha Naidoo.
Dr Naidoo stated that South Africa had 75% of the world’s known chrome ore reserves but SA’s share of global ferrochrome market was about 27%, down from 39% in 2009.
SA had advantages that could be leveraged, such as world class technology, access to the largest resources of local chrome ore and the fact that the country was a world class stainless steel producer.
However, SA had lost ferrochrome market share as a result of lower ferrochrome prices, increased production and competition from China, as well as increasing domestic energy costs, leading to challenges in the South African market. Illegal mining activity and companies pre-buying the output of junior mines were added challenges. Due to the strategic importance of value-add, jobs and capability, there was currently a need to support the sustainable growth of the chrome value chain.
Proposed interventions included the establishment of an inter-departmental task team of dtic, DMRE, National Treasury and the Department of Public Enterprises (DPE) to consider measures to support the industry across the value chain. The security of competitively priced electricity through the short and long term electricity pricing framework for energy-intensive users would assist the industry to attain profitability. The high costs of logistics and transportation would be attended to and, amongst other matters, consideration was being given to a form of chrome export tax.
South Africa’s has 20.5 mtons per annum cement installed capacity. However, in 2019, the total production was 14 mtons, that is 68% capacity utilisation. Employment in the industry had declined from 16 000 workers in 2008 to 8 006 in 2020. Key challenges in the industry related to imports and declining construction activity.
The National Regulator of Compulsory Standards had taken some action. Cement had been highlighted as a high risk item on the SABS risk engine and customer concerns had been investigated. That led to rigorous sampling for testing, the issue of Directives for non-compliances, criminal cases and Letters of Approval had been withdrawn. Non-compliant cement had been confiscated in the past year.
Key interventions would be driving demand, ensuring quality control, managing sub-standard imports, adherence to B-BBEE legislation, carbon tax and adherence to the Mining Charter.
The Chairperson thanked the dtic for its input. He invited Members to offer comments or pose questions.
Mr S Mbuyane (ANC) was concerned about transformation in the sector. He requested a plan for transformation in the sector, including timelines with the number of people who had or would benefit from the process. Was there a plan for beneficiation? The industries worked in the rural areas where black people were very poor and the industries just took what was underground and left the poor people with nothing. They benefitted only from employment which paid a person just a few thousand Rand. Was there a plan for beneficiation that would ensure that black people were part of the mainstream value chain and so enjoyed economic transformation?
He added that there were serious challenges from China in terms of export and import. Were there any plans for a stainless steel market in SA? Members had been told that there was a stainless steel mill in Mpumalanga, but even that one was concentrated on certain demographics and the people were only employees; they did not benefit from the raw material that was underground in SA. He asked for clarity on the issue.
He asked for clarification of the objectives of the inter-departmental committee. If DMRE, dtic and other departments could come together, they could come up with a clear plan for SA.
Ms N Motaung (ANC) asked what the Department was doing about illegal chrome mining in Limpopo. Was there any engagement at the diplomatic level to deal with the export of illegal chrome to China?
Ms T Mantashe (ANC) was mainly concerned about the beneficiation of chrome in SA, especially as it used less energy for processing. She wished that SA could beneficiate chrome and “run away” from exporting it as had been done throughout her lifetime. She would support a move to impose an export tax on chrome.
Mr October responded to the point about transformation. The main piece of legislation governing the sector was the Mining Charter which had been developed in conjunction with the dtic but was driven mainly by the DMRE. The Mining Charter dealt specifically with transformation and set out clear obligations with regards to transformation and ownership, ownership by the local community, and issues put into the Charter by the dtic, i.e. details regarding procurement and localisation. He suggested that the Committee request a full presentation on the Mining Charter and the implementation of the Charter.
He understood Mr Mbuyane’s point and the country was facing a particularly difficult period at the current time because commodity prices were low and there was intense competition. However, he reminded the Committee that the sector had gone through highs and lows in over 100 years and, despite all the massive resources, the people had remained in poverty. The riches, whether beneficiated or un-beneficiated, had not been shared with the majority of the people in the country. The Mining Charter was an attempt to address that imbalance in terms of the distribution of the benefits of the industry.
Dr Naidoo responded to Mr Mbuyane regarding the inter-departmental task team and the plan. It was a holistic set of interventions and different departments would address different aspects. The DMRE would address how the Mining Charter and transformation was brought into the equation as well as the energy aspect in order to consider the benefits of the long-term and short-term framework that had been approved for intensive energy users. The dtic would focus on the downstream value-add, looking at how it could expand both the ferrochrome and stainless steel beneficiation should the interventions be able to increase the capacity and the growth opportunities in ferrochrome. The Department of Public Enterprises was also part of the task team and would look at the logistics of transportation as well as energy supply and competitive pricing issues.
Dr Naidoo stated that the DMRE was leading the intervention and there had been diplomatic engagements with China, which would form part of the task team intervention. The DMRE was also working with the SA Revenue Service (SARS) and the SA Police Service was also part of the team
She informed Ms Mantashe that the focus of the intervention was to promote transformation and beneficiation. Beneficiation was intended to add more value to the country’s chrome resources, ferrochrome production and, going forward, downstream industries.
Dr Naidoo noted the support for an import tax.
Mr October stated that all questions had been responded to. In addition, an inter-departmental task team report had been tabled with Cabinet. There was a division of labour in the task team and each Department had specific responsibilities. He reiterated that there would be extensive consultation with the miners and the Integrated Producers. The dtic was working extensively with Columbus Steel and the steel industry which was the final stage of the value chain. The team was addressing electricity prices to cushion the blow to the industry.
The Minister of Trade, Industry and Competition was working with Minister de Lille of the Department of Public Works and Infrastructure, Dr Ramagopa and the infrastructure agencies. The dtic was hoping that they would put in place a commitment to the use of local cement. The dtic was working closely with SABS, NRCS regarding high standards and the International Trade Administration Commission of South Africa (ITAC) regarding illegal imports so that together they would ensure that there were appropriate standards of cement, not only for the consumers but to revive jobs.
He assured the Committee that the dtic was working closely with other departments.
The Chairperson noted the four Departments that were working together and suggested that there was a need for a joint session so that the Committee could see a common list of timeframes to see in which areas the Committee should focus its attention in order to take the process forward as he had noted that all the issues were intertwined.
Mr Mbuyane asked about the poor quality cement distributed around SA. Could the DG confirm that the NRCS was not part of the poor quality cement concerns and the dumping of cement around the country because previously there had been a challenge with a cement-testing laboratory at the NRCS?
Ms Mantashe asked about the intention of the Department in terms of the sub-standard cement that was already in the market.
The Chairperson explained that some companies imported cheaper cement in order to be able to present a lower tender. That was dangerous. It might not be a case of China dumping cement but of people in SA initiating the import of cement from China at low costs. He noted that the quality of products had to do with safety in the case of cement.
Mr October explained that a tariff was a difficult tool because the World Trade Organisation had certain regulations and SA was obligated to adhere to those. In addition, he noted that if the tariff were too high, the consumer was harmed by a higher cement price, but if the tariff were very low, the industry was damaged. It was a balance that ITAC had to find between industry and the consumer, while addressing quality.
Dr Demana stated that the SABS had expanded its capacity to test cement. It had expanded the laboratories and had bought more equipment to do the testing.
He informed the Committee that the role of the NRCS was to enforce compliance with SABS standards. The NRCS did market surveillance and bought cement sold in the market, had it tested and pulled it out of the market if it did not meet the specifications. The NRCS had also been checking the weight of cement as bags were often up to 5kg short of the stated weight. NRCS had begun testing cement in use in the rural area.
Mr Mamadise confirmed Dr Demana’s remarks on the involvement of the NRCS. It was an ongoing process and the NRCS was planning to increase capacity in the form of inspectors, especially in areas, such as Durban, where there had been an increase in the import of non-compliant cement. He explained to Mr Mbuyane that testing was a function of the SABS and the laboratories at NRCS were only for legal metrology.
Ms Scholtz stated that the cement laboratory had had two Covid-19 instances that had resulted in a closure of the laboratory and that had created a backlog. However, a new machine had arrived the previous week and a second machine was arriving at the end of the month. In the interim, SABS had sub-contracted an independent laboratory to test 140 samples so that SABS did not stop the testing. Once the machines had been commissioned, SABS would quickly be able to deal with the backlog. With the new machines, SABS would be able test more robustly and to test greater quantities.
Mr October informed the Committee that the responses made it evident that dtic was actively working with the standards entities. dtic had provided SABS with additional funds to procure the machinery necessary to do the work that SABS was required to do.
dtic was actively engaged in supporting the industries and was offering whatever assistance it could in the current poor economic conditions following Covid-19 but it was being done in the clear understanding that there would be a sharing of the benefits of growth. There would be active transformation and strengthened black empowerment and strengthened benefits for the local communities. Localisation had two meanings and was about producing manufactured products locally and it meant employing local communities in the area of the industry, as stated in the Mining Charter.
He thanked the Chairperson and the Committee for taking an interest in the industries such as sugar, poultry and steel and for being supportive of the growth of the economy while providing guidance, oversight and leadership.
The Chairperson stated that the Committee would look at the Mining Charter. Localisation and beneficiation were obviously key. Transformation was linked to the Mining Charter. The Committee would have to look at how the consolidated approach of the dtic, DMRE, DPE could have an intervention to ensure that it was able to stabilise that space and drive the areas to ensure sustainability. Quality and standards had to be monitored to ensure that the cement industry was sustainable and safe, especially in the area of infrastructure. There would have to be a follow-up reporting session.
Mr Mbuyane said that the dtic should collect information from all the departments and consolidate a report. He wanted to know how the country could grow the economy when private institutions were testing cement because the state institutions were not able to test cement. Regarding cases of Covid-19 closing down laboratories, that was totally unacceptable and SABS would have to see what it could do to address that issue as the SABS laboratories simply could not be closed. The issue of Covid-19 closing a laboratory was a serious concern.
Mr October stated that the dtic would take Mr Mbuyane’s comments on board, including that the SABS laboratories should be fully functional. He would keep the Committee updated and would be working with colleagues, especially in DMRE. The dtic’s policy was that there had to be beneficiation. He agreed with Minister Mantashe that mining was a critical industry but it was essential for the country to ensure beneficiation through industrialisation. Transformation was a concurrent process.
The Chairperson reminded the dtic that the Committee would require a follow-up on the matter.
The Secretary tabled responses from dtic and NRCS stemming from the previous meeting.
Interviews for the Chairperson of the National Lottery Commission would begin the following week, so the Committee programme would be adjusted.
The Secretary stated that he had received an email from Ms Mantashe and it would be discussed in the management meeting.
The Chairperson informed Members that they would receive a copy of the amended programme the following day. He thanked all Members, the dtic and all who had attended the meeting.
The meeting was adjourned.
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