Important South African city under threat

The city of Vereeniging in Gauteng has gone from a key area in South Africa’s industrial success to facing complete devastation.

The city’s economy is under severe pressure, as it is not only on track to lose one of its biggest employers, ArcelorMittal South Africa (AMSA), but is also feeling the impact of the country’s distressed manufacturing industry.

DA MP and member of the National Council of Provinces Dennis Ryder said the closure of AMSA’s plant is going to have a “massive impact” on Vereeniging’s community.  

AMSA first announced its plans to shutter its plants in Newcastle and Vereeniging in 2023, citing prolonged weak economic conditions, logistical and energy challenges, and unsustainable competition from low-cost imports.

Ever since, AMSA has been engaged in talks to potentially save or sell its long-steel plants in the city, but these discussions have yet to yield results.

In the meantime, AMSA has closed the two steel mills and an iron-ore mine, which is expected to result in more than 4,000 job losses, dealing a devastating blow to the Vereeniging community.

Ryder told Daily Investor that this is a far cry from the city’s historic status, with the Vereeniging/Vanderbijlpark area being a key driver of South Africa’s industrial success.  

“The de-industrialisation has already had a huge impact on the area, and we have seen work becoming more and more scarce as businesses close,” he said.

“The immediate impact on those who will be directly affected is just the tip of the iceberg.”

He explained that it has not been possible to obtain an estimate of the number of people directly affected, “as the workers have been instructed not to speak to anyone”.

Rand York Casting CEO Justin Corbett previously estimated that AMSA’s plant closure will lead to around 100,000 job losses across the manufacturing value chain.

Ryder explained that there are many more businesses in Vereeniging and neighbouring areas that have set themselves up in the area to benefit from the proximity to the plant.

Therefore, the plant’s closure will affect more than just manufacturing jobs in the area, with ripple effects set to be felt across the region.

More than just AMSA

Ryder referred to AMSA’s estimates of how many job losses its plant closure will result in, which put the figure at around 3,500 direct and indirect jobs.

However, he said this figure appears to be quite a low estimate, as AMSA’s Newcastle plant is significantly bigger than the Vereeniging plant. 

“The last figure I can find for the Vereeniging plant is a 2009 statistic of 863 employees at Vereeniging,” he said.

The figure will be significantly higher “if you add the local engineering companies, transporters, etc, as well as the people selling them food and groceries, the domestic workers, etc”.

“The move is also going to have a direct impact on the local municipality, which will be collecting less rates and service charges, but also will be dealing with more people who can’t afford to pay for their domestic use,” he explained.

Ryder added that AMSA’s steel plant closure is the latest in a series of blows to the Vereeniging community, which has been hard hit by South Africa’s shrinking manufacturing sector.

South Africa’s manufacturing sector has seen a steady decline in its output over the past five years.

The sector’s output remains more than 6% lower than the level of output reached just before the start of the pandemic in 2020.

Stanlib chief economist Kevin Lings previously explained that the sector has struggled to gain any momentum in recent years and is under pressure from unstable electricity and water supplies, rising costs, and weak demand.

“There is a lot of talk about improving competitiveness, lifting South Africa’s export base, and improving manufacturing, but we are just not able to do that,” Lings said.

This can be seen in South Africa’s lacklustre level of fixed investment, with both the private and public sectors not investing nearly as much now as they did years ago.

South Africa’s gross fixed capital formation (GFCF) as a share of GDP has declined since 2008, as government spending has shifted towards consumption and away from investment.

South Africa’s GFCF as a share of GDP has remained flat at around 13% to 15%, while investment in other emerging markets typically falls between 20% and 40%.

This has seen South Africa’s GFCF-to-GDP ratio decline from around 30% in 1976 to 15% in 2024, reflecting subdued investment from private companies, utilities, and the government. 

“This is a harsh blow to a community already facing the impact of decades of bad industrial policy, and now the impact of electricity prices on the viability of manufacturing,” Ryder said.

“Those prices have to increase to fund the rampant corruption and ineffectiveness at Eskom.  It is hard to swallow.”