ArcelorMittal takeover could make SA pay twice for its steel

The proposed takeover of ArcelorMittal South Africa (Amsa) by the Industrial Development Corporation (IDC) presents a risk of South Africa paying twice for a loss-making business. This comes as the government grapples with the performance of other state-owned enterprises that have received billions in bailouts. President Cyril Ramaphosa has appointed a commission to oversee the restructuring of these failing businesses.

However, while addressing these issues, the government is also supporting talks that could bring Amsa under state control. The IDC has reportedly offered around R3-billion in cash and assumed about R7-billion in Amsa debt in the takeover talks. The IDC has already extended financial assistance to Amsa, providing R1-billion in working-capital facilities in June 2024 and an additional R1.68-billion in March 2025 to defer the closure of its long-steel operations.

Taking over Amsa would increase the risk to the IDC's capital and incentivize the government to protect its investment, potentially leading to another bailout if the company continues to lose money. This could result in South Africa paying twice for the rescue of Amsa. The government is already imposing import duties and trade protections on steel products, which could ultimately be passed on to consumers.

If these barriers are increased, it could negatively impact South African fabricators, who must compete with suppliers from China, India, and the United Arab Emirates. A fabricator in Gauteng that pays more for steel and transportation still has to compete on the price of finished products. The IDC should examine which grades of steel South Africa requires to produce locally, the cost of modernizing Amsa's facilities, and how the company will retain skilled workers.

Additionally, the IDC and Amsa's leadership should explain their expectations for earning a return under realistic conditions, including electricity, freight, demand, and import competition. The decision to take over Amsa raises concerns about the government's track record of bailouts and the risk of cadre deployment in a turnaround requiring highly specialized expertise.

Before committing public capital, the IDC should present a detailed business case outlining the potential risks and benefits. South Africa could achieve better results by improving its ports and freight rail systems, which would reduce costs for domestic mills, provide better access to imports, and help South African fabricators deliver products to African markets competitively.

If buying Amsa only benefits the IDC at the expense of other stakeholders, the corporation should reconsider the deal.