Ghana Should Not Sit on Sidelines as Steel Industry is Decimated

 

“It is difficult to tell whether the punitive levies on imported Chinese steel would be effective. So far it has had a lackluster effect in the United States and across the European Union”

The recent clarion call from Ghana’s steel manufacturers for government to impose levies on imported finished steel products echoes the growing frustration among global steel producers over the flood of cheaper foreign-made steel and its impact on domestic prices and profitability.

Across the European Union, Japan, and the United States, steelmakers are sounding dire warnings. The EU’s trade commissioner Cecilia Malmstrom said recently that “the scale of the emergency in the [steel] sector means it is now life or death for many companies.”

And, at the just-concluded G7 Summit, the leaders of the United Kingdom, United States, Japan, Germany, France, Italy and Canada, declared that the steel crisis “needs to be urgently addressed through elimination of market-distorting measures.”

Ghana’s Steel Problem
Ghana’s steel industry and the nearly 9000 workers it employs in factories across the country also face an existential crisis, according to the Steel Manufacturers Association of Ghana.

Already Ghana produces more steel than the local market is able to consume – installed capacity of domestic steel producers is around 450,000 tons per year compared to local demand of 300,000 tons per year. When imports from China, Turkey, Russia, and India, among others, are included, the untenable situation faced by Ghana’s steel industry cannot be overstated.

Indeed, SMAG and others have been calling for protectionist measures for a number of years. In April 2014, in a circuitous response to industry pressure, Ghana banned the export (not import) of ferrous scrap metal, a measure intended to make more raw materials available to sustain local steel manufacturers. The government, however, did not tackle the real issue – which is controlling the flood of imported steel.

Now, as the crisis intensifies, SMAG is once again asking the government to impose a 25% special levy on imported finished steel products, in addition to the existing 20% import duty. It warns that if government does not intervene, local steel factories would have no choice but to shut down, causing many workers to lose their jobs.

The Steel Dragon
Much of the steel imported to Ghana (and essentially any other country that is developing its infrastructure) is coming from China, and they are 20% to 50% cheaper than competing products, experts say.

China seems unfazed by the global uproar. Rather than curtailing production, the country, which produces as much steel as the rest of the world combined, has cranked up steel production.

In March alone, Chinese mills produced a record 70.65m tons of steel, 51% of global output and five times as much as the whole European Union, according to the UK’s Telegraph newspaper. In fact, China is on pace to beat its 2015 record as the largest exporter of steel by any country this century.

A Steely Global Response
The crisis over steel imports is fueling some of the fiercest protectionist campaigns ever launched by industry trade groups, regulators and governments. In the United States, regulators have slapped Chinese steelmakers with final import duties of 266% on cold-rolled flat steel, with the possibility of total punitive duties increasing to more than 500% in the coming months.

In the EU, the European Commission has imposed a record number of measures, including 37 anti-dumping and anti-subsidy measures on steel products. Sixteen of these measures specifically target Chinese steel imports.

Will Protectionism Work?
It is difficult to tell whether the punitive levies on imported Chinese steel would be effective. So far it has had a lackluster effect in the United States and across the European Union.

Some of the difficulty has to do with the fact that manufacturers actually need low-priced steel to remain competitive. In certain countries, steel production cost more because of higher labor and environmental costs. Also, many local steel industries in countries that import Chinese steel are not equipped to manufacture all the different types of steel consuming industries need.

For instance, in Ghana, none of the steel products used by the country’s oil and gas industry are manufactured locally, according to Oxford Business Group’s 2013 report. Another case in point: Wire Weaving Industries (Ghana) imports galvanized steel for barbed wire, welded mesh and other metal products because local firms cannot produce the necessary film coating.

Still, a do-nothing approach is not an option. No government should sit on the sideline and watch as an entire industry is decimated. Also, as SMAG warns, the threat of massive job losses within Ghana’s steel industry is real. Other countries are currently experiencing this pain. In Europe, 85,000 steel workers or 20% of the workforce have lost their jobs since 2008, according to the trade group Eurofer.

In our view, imposing hefty levies on imported steel is just the first step in a long list of actions the government needs to take.

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