R1 billion bailout on the cards to save 100,000 jobs in South Africa

 ·26 Jan 2025

Government officials are earmarking a R1 billion bailout for ArcelorMittal South Africa (AMSA) after it announced it would close its Longs Steel business.

Earlier this month, AMSA said it had no choice but to wind down its longs business amid high energy costs, logistics constraints and an export scrap tax issue.

Although AMSA engaged with stakeholders throughout 2023 to find a solution, it said that the package of initiatives sought would not change the fundamentals of the structural problems.

The group said that its decision would affect about 3,500 direct and indirect jobs, while the total number of retrenchments would depend on agreed alternatives and consultation outcomes.

However, due to the importance of the steel sector to other parts of the economy, there is a belief that job losses could rise to 100,000 by the year-end.

Shutting down the Longs steel plants, such as the Vereeniging and Newcastle mills, would mean that the production of specialized steel products would no longer be made.

This would lead to higher prices for local manufacturers and impact South Africa’s competitiveness, threatening jobs in those sectors.

However, as reported by Business Times, efforts are underway by the government to create a rescue package for AMSA’s embattled steel mills.

Business Times said that Department of Trade, Industry and Competition (DTIC) Minister Parks Tau and Finance Minister Enoch Godongwana have created a draft rescue package of up to R1 billion.

Following years of government inactivity, the proposed crisis has jolted the government into action to keep the private business going.

Moreover, it is believed that the Public Investment Corp (PIC), the Industrial Development Corp (IDC) and the Unemployment Insurance Fund (UIF) could also be part of the rescue package.

But one senior government source with knowledge of the talks said there was some opposition to a bailout because there was no guarantee Amsa would not come back later for more.

However, a senior government source said there was opposition to a bailout as there was no guarantee Amsa would ask for more in the future.

They added that AMSA was not investing in plant upgrades even when they were making profits.

They added that the solution should not be a bailout and that an alternative plan would be put on the table shortly.

Moreover, the IDC, which is already an AMSA shareholder, has already pumped R1 billion to keep the company afloat.

The IDC said that it would engage with relevant stakeholders of AMSA’s issues, while the PIC said that it would do what was best for its clients and their beneficiaries.

Indian billionaire plan

However, there is potentially a saving light from India.

President Cyril Ramaphosa met with Steelmaking mogul Lakshmi Mittal in Davos earlier this week at the World Economic Forum.

Mittal has previously met with Godongwana, Tau, and Electricity Minister Kgosientsho Ramokgopa.

Based in the UK, Mittal is worth $16 billion (roughly R300 billion). He is the current chairman of ArcelorMittal, which is the world’s second-largest steelmaking company

AMSA is majority-owned by ArcelorMittal.

Despite reaching out for possible assistance, Mittal’s relationship with the South African government has faced issues.

After acquiring Iscor, the former state-owned steelmaker in 2003, Mittal’s company was faced with accusations of charging excessive prices and neglecting plant maintenance.

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