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Industrial policy under democracy: apartheid's grown-up infant industries? Iscor and Sasol

Literature › Works

Simon Roberts; Zavareh Rustomjee (2009). Industrial policy under democracy: apartheid's grown-up infant industries? Iscor and Sasol. Transformation: Critical Perspectives on Southern Africa, No. 71. Transformation (Project MUSE).
Type journal article
Scope Post-1994 South African economy
Method policy analysis
Period studied 1928–2008
Regions South Africa, Mozambique
Themes manufacturing industrial policy, business and state, transition post apartheid, comparative theory
Citation key roberts2009

Argument

Iscor and Sasol, apartheid-era state-owned 'infant industries' privatised in 1989-90, now appear to have grown up into internationally competitive firms. The authors argue their corporate strategies have entrenched the minerals-energy complex (MEC) path of capital- and energy-intensive upstream growth with weak downstream linkages. Post-1994 industrial policy strengthened upstream competitiveness but failed to confront the market power of these firms, notably import parity pricing. The reasons are fragmented state institutions, unenforced conditions on support, and weak competition remedies. The argument is built through two case studies set within the MEC framework of Fine and Rustomjee.

Evidence and method

Secondary literature, competition tribunal case documents (Iscor/Harmony Gold excessive pricing case), company presentations and results, Quantec sector data, input-output data, IDC and DTI reports, National Treasury windfall tax task team report, and sector studies (PARAS, Dobreva et al).

Findings

  • Iscor and Sasol were strategic state enterprises vertically integrated into inputs and tied to the mining complex. (p. 2)

    They were viewed as strategic (and hence were state-owned) due to their main products – liquid fuels and steel – without which the apartheid state could not ensure its prolonged life

  • Iscor dominated local steel sales, which underpinned its market power. (p. 8)

    Iscor accounted for over two-thirds of local sales of all basic carbon steel products over the past decade, and 80 per cent of flat steel products.

  • Trade liberalisation sharply cut steel tariffs, yet the steel sector kept performing strongly. (p. 8)

    with tariffs on steel reduced sharply from 30 per cent in 1994 to 5 per cent in 1996.

  • Restructuring after privatisation cut employment and improved delivery performance. (p. 9)

    Employment was cut sharply, by over one-third in the second half of the 1990s, while value added grew strongly from 1999 following major investments.

  • Mittal acquired a very low-cost producer whose capital had been state-financed. (p. 10)

    In effect, Mittal acquired one of the lowest cost steel producers in the world, with the capital investment having been made by the state

  • Import parity pricing gave local steel buyers prices far above export prices. (p. 11)

    the net price for steel sold to local customers at the import parity level has been some 60 per cent or more above that received for steel sold to export customers.

  • The Competition Tribunal found Iscor's pricing excessive, but the appeal process meant no practical effect. (p. 13)

    In 2007, the Tribunal found Iscor's pricing to be excessive, imposed a fine of 5.5 per cent of turnover

  • Sasol did not deliver the jobs promised in exchange for continued synfuel protection. (p. 16)

    in exchange for Sasol agreeing to create 50,000 sustainable downstream jobs. It is not clear what happened as Sasol did not succeed in honouring its commitment by 2000

  • Upstream oligopoly power with import parity pricing impeded downstream chemicals beneficiation. (p. 17)

    the key impediment to translating the upstream stage 2 and 3 competitive advantage into stage 4 beneficiation growth is the uneven power relationship between oligopolistic upstream industry

  • Policy succeeded upstream but entrenched the power of the two firms. (p. 23)

    The outcomes of government's interventions reveal success in strengthening the competitive position of the upstream industries but much less impact in translating this into more competitive downstream sectors

  • The authors accept that the firms have grown up but note continuing state support. (p. 21)

    Both Iscor and Sasol have 'grown-up' in the sense of now being internationally competitive without trade protection. However, we should be careful not to overstate the case