ArcelorMittal takeover could make SA pay twice for its steel

President Cyril Ramaphosa wants a commission to oversee and coordinate the restructuring of the businesses the state already owns. 

Many are failing or performing well below expectations, despite billions of rand paid in bailouts and promises to introduce equity partners or to improve performance and employ professionals to head them up. Yet while the government continues to work out how to fix those businesses, it is backing talks that could bring another struggling company under state control: ArcelorMittal South Africa (Amsa).

Before the president chairs a commission on how to turn around the companies the state already owns, he should explain why South Africans should take on another one.

Moneyweb recently reported that the Industrial Development Corporation’s (IDC’s) proposed takeover could involve about R3-billion in cash and the assumption of about R7-billion in Amsa debt. The company’s stock exchange disclosures confirm that talks are at an advanced stage, with conditions and approvals still outstanding.

Financial support

The IDC has already extended financial support to Amsa. In June 2024, it provided a R1-billion working-capital facility and announced a R1.68-billion facility a year later in March 2025, to defer the closure of Amsa’s long-steel operations. How those earlier facilities would be treated in the proposed takeover remains unclear. 

The real issue however, is that taking control of Amsa would put more of the state-owned lender’s capital at risk, whereafter it will give the government a powerful incentive to protect its investment if losses continue, which most business economists predict will happen. This is how South Africa could end up paying twice. The first bill sits on the Industrial Development Corporation’s balance sheet. The second comes through the price of steel.

The government has already imposed import duties and other trade protections on selected steel products. If it raises those barriers to keep Amsa afloat, steel users could end up paying part of the cost of the rescue. A municipality building a bridge or upgrading a water plant has a fixed budget. When steel takes a bigger share of that budget, there is less money to build. 

South African fabricators bidding for work elsewhere in Africa will undoubtedly feel the squeeze. They compete with suppliers from China, India and the United Arab Emirates. 

A fabricator in Gauteng that pays more for steel and more to move its products, still has to compete on the price of a finished product delivered by other suppliers competing for their customers. That customer has no obligation to pay a premium to support South Africa’s industrial policy. If the contract goes elsewhere, so does the work of cutting, welding and assembling the steel products.

Jobs

Of course the jobs at Amsa matter. But so do the jobs in the businesses that buy its steel. Before committing public capital, the IDC should show which grades South Africa genuinely needs to produce locally, what it would cost to modernise Amsa’s ageing facilities, and where the company will find and retain the skills to run them. 

The IDC and Amsa’s leadership should explain how the business expects to earn a return under realistic assumptions about electricity, freight, demand and import competition. A change of shareholder does nothing to answer those questions.

South Africa already has scrap-based mini-mills that compete with Amsa in some products, and the Industrial Development Corporation has financed some of these businesses. If the IDC also takes control of the country’s largest primary steel producer, the government will have a financial interest on several sides of the market while setting the tariffs that affect them all. 

Given the government’s track record, we also have to take seriously the risk of cadre deployment in a turnaround that demands highly specialised expertise. This decision has all the hallmarks of throwing good money after bad. 

Private-sector equity partners

I have argued before that the government should divest from businesses operating in competitive sectors and bring in private-sector equity partners where commercial and public-service mandates overlap. I have also asked how many more commissions, task teams and bailouts South Africa needs before the government acts on governance failures it has known about for years. 

While the proposed commission gives the president a chance to apply that scrutiny to existing state enterprises, he should start now by asking the IDC to publish its business case, spell out how much public capital is at risk, and show what steel prices and tariff protection it assumes that this deal will need.

In my view, South Africa would get far more for its money by getting its ports and freight rail working properly. Reliable freight would lower costs for domestic mills, give steel users better access to imports where they need them, and help South African fabricators deliver into African markets on time and at competitive prices.

If buying Amsa only works by making everyone else pay more for steel, the Industrial Development Corporation should walk away. DM