Corroded steel

13 January 2025 — What does the closing of ArcelorMittal’s long steel plants mean for the economy? What does the ANC’s January 8th statement tell us about the prospects for reform and GNU longevity? How will US and SA economic dynamics play out in the currency market? Where to next for Mozambique?

Corroded steel

ArcelorMittal South Africa (AMSA) will be shuttering its long steel plants in Newcastle and Vereeniging at the end of January after years of falling demand, an unreliable energy supply, an underperforming logistics sector, and a macro environment unconducive to large-scale manufacturing and construction projects. In addition to those factors, AMSA also laid blame at the door of the country’s scrap metal policy and on cheap steel imports from China. Total demand for steel was 4.1 million tonnes in 2024, a 10% drop from the previous year. Of this, 2.8 million tonnes were produced locally from plants that have the capacity to produce 8.8 million tonnes.

While political leaders such as President Cyril Ramaphosa and the public works minister, Dean Macpherson, have talked about turning South Africa into “a giant construction site”, AMSA’s long steel decision sends a chilling signal regarding the viability of manufacturing and construction — two sectors crucial for higher GDP growth rates. South Africa’s highly valued automotive sector, which like many other sectors is subject to local content requirements in pursuit of localisation objectives, will also be negatively impacted. While the AMSA plant shutdowns are expected to result in 3,500 direct job losses, several tens of thousands of jobs in other industries are also at risk.

During a media briefing on 6 January, company CEO Kobus Verster said that domestic steel consumption was 30% lower than eight years ago. The ABSA Purchasing Managers’ Index for December 2024 confirmed the ongoing struggles of the manufacturing sector specifically. The reading of 46.2 represents the second consecutive monthly decline. In the 1980s, the manufacturing sector contributed 25% of the country’s total GDP. By 2023, this had dropped by half, to 12.9%.

In a statement released last week, the trade and industry minister, Parks Tau, said: “Whilst the immediate task will be on addressing structural issues affecting AMSA’s long steel business, the broader focus should also be on addressing productivity improvements and supply chain efficiencies, investments in low-carbon technologies, competitiveness and regaining the market share.” This is pious waffle. South Africa will continue to deindustrialise until the government becomes serious about addressing the detrimental effects of its industrial, labour and procurement policies, as well as the harm that its state-owned enterprises are causing in electricity, water and logistics.

ANC soul-searching to intensify

On Saturday the African National Congress (ANC) celebrated its 113^th birthday in Khayelitsha, Cape Town. In his speech at the event, Mr Ramaphosa admitted that the ANC was facing an existential crisis and said that it needed to renew itself if it was to survive. He pleaded for unity within the party and with its alliance members, such as the South African Communist Party (SACP) and the Congress of South African Trade Unions (Cosatu), both of which have expressed their unhappiness about the presence of the Democratic Alliance (DA) in the Government of National Unity (GNU). The SACP has been sufficiently disgruntled to announce in December that it would be contesting the 2026 local government elections independently. However, it will remain a member of the Tripartite Alliance.

The ANC finds itself at a crossroads. In one direction, beckon democratic constitutionalism and the pro-growth policies that are possible in the context of the GNU. Further along that path lie higher economic growth and increased political support levels, holding the promise of a recovery following the 40% humbling in the 2024 national and provincial elections. Along the other path, which many in the party favour, lies a tie-up with the revolutionary, ethnic nationalist forces represented by the uMkhonto weSizwe Party (MK) and the Economic Freedom Fighters (EFF). That path leads to greater poverty, more corruption and sustained underdevelopment.

With time running short before the 2026 local government elections, and limited opportunities to win voters’ favour, the ANC faces difficult decisions this year. Foremost will be the respective futures of the current iterations of the party’s Gauteng and KwaZulu-Natal (KZN) structures. The Gauteng provincial ANC is under the sway of anti-GNU leaders, while the KZN ANC is suspected of being wooed and at risk of being subverted by MK. Party unity will come under increasing strain in the run-up to the 2026 polls.

The ANC continues to hold an interest in the continuation of the current GNU constellation, at least in the short term. But as Mr Ramaphosa’s January 8^th statement shows, it is becoming increasingly clear that most of the party’s leadership are not taking seriously enough the lessons from the party’s decline in electoral support from 2019 to 2024. Should the echo chamber persist, the party is unlikely to turn around its ailing fortunes in the 2026 local government polls and in the 2029 national and provincial elections. Mr Ramaphosa’s assertion that “state power will always be in the hands of the African National Congress” is beginning to sound increasingly hollow.

Rand weakness

The Rand’s recent weakening against the United States (US) Dollar — to R19.11 last week, from R17.12 on 27 September 2024, a 10.5% drop in its value — was primarily a reflection of Dollar strengthening. The Dollar Index, which measures the performance of the greenback against a basket of other currencies, shows it strengthening by 9.6% over the same period, from a value of 100.05 to 109.64. If the US economy performs strongly during Mr Trump’s second term as president, the Dollar will likely continue strengthening. It could soon eclipse its September 2022 high of 112 points and perhaps even go on to surpass the 25-year high of 120 points recorded in January 2002.

Should the Trump administration succeed in implementing policies that favour US exporters and widen the deficit, the US Federal Reserve (Fed) will proceed more cautiously with future interest rate cuts as it tries to shore up the value of the Dollar. Slower rate cuts are also indicated by rising yields on US bonds, with the yield on the US 10-year Treasury note rising to almost 4.79% on Friday, its highest level in 14 months. The US economy added 256,000 jobs in December, more than the 160,000 that were expected, while the unemployment rate unexpectedly declined to 4.1%.

Overall, the picture is one of ongoing Rand weakening against the  Dollar in 2025. Weak growth fundamentals in South Africa mean that the Rand can offer little to resist the process. Increased geopolitical tensions and volatility in 2025 will expose these weaknesses, as investors lean into safe havens such as the Dollar. Ongoing growth concerns in China pose a further downside to Rand strengthening, as Chinese demand for South African commodities remains a key driver behind Rand value.

As a small, open economy South Africa is especially exposed to global volatility. The government can insure against some of this volatility, and pare down some of the Rand’s exposed weakness, by accelerating pro-growth reforms. For the GNU, translating the promise of growth into real growth is of foremost concern.

Mozambique remains tense

The potential for more intense protest action in Mozambique increased last week with the return to the country of opposition leader Venâncio Mondlane on 9 January, ahead of the scheduled inauguration of the governing Frelimo party’s Daniel Chapo. Mr Mondlane fled the country following the 9 October 2024 election, amidst allegations that the poll had been rigged in favour of Frelimo.

Throughout November and December, recurring bouts of election related-protests shut the Mozambique-South Africa border, and severely impacted operations at the Port of Maputo. Should the simmering situation erupt in the weeks around the inauguration, South Africa will be forced to contend with incoming refugees, constrained, at-risk business operations and investments, and increased regional instability with accompanying heightened security risks.