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South African Iron and Steel Institute

  GDP declines by 0.7% with most of the key industries recording a contraction in Q2

7 Sep 2022

Most industries linked to the Steel sector have not yet recovered and have recorded negative performance during Q2, with construction currently in the worst shape. The construction industry is 24% smaller than it was before the pandemic.

Source: Stats SA

According to Statistics South Africa (Stats SA), after two consecutive quarters of positive growth, the country’s real gross domestic product (GDP) dropped by 0.7%1 in the second quarter of 2022. 

The devastating floods in KwaZulu-Natal and load shedding contributed to the decline, weakening an already fragile national economy that had just recovered to pre-pandemic levels,” Stats SA 

Source: Saisi

The sector has seen a 21% decline in steel production during Q2 of 2022 compared to Q1 of 2022 (46% decline compared to Pre-Covid levels- Q2 2018). This comes as no surprise as the sector’s performance is closely linked to GDP performance. and also most industries linked to the sector have not yet recovered and recorded negative performance during Q2. The construction is currently in the worst shape. The construction industry is 24% smaller than it was before the pandemic.

Most industries linked to the sector have not yet recovered. The construction sector is currently in the worst shape. The construction industry is 24% smaller than it was before the pandemic.

Source: Saisi

Traditionally, overall construction activities in South Africa accounted for about 50% of all steel consumption (i.e. sections, cabling, tubing, piping, fasteners, fixtures, and fittings), although the figure is much lower now, after years of underspending by the government on large infrastructure maintenance and development since the end of the FIFA Soccer World Cup in 2010.

The reduction has been exacerbated by the effects of the 2009 global financial crisis, the Covid pandemic, and many years of generally low gross fixed capital formation inputs by private and state actors in South Africa.

Along with construction, steel is widely used in the manufacturing, mining, automotive, energy, packaging, and transport sectors of the South African economy.

According to Stats SA, manufacturing had the biggest drag on GDP due to flooding, which hurt several industries. Manufacturing is the largest industry in KwaZulu-Natal, according to 2019 data, accounting for a fifth of national manufacturing production. The decline is mainly linked to the damage to factories and plants, and disruptions to logistics and supply chains. The Mining sector registered a contraction of 3.5% during Q2 2022.

The industry believes that the solution to constrained demand is to roll out a large-scale infrastructure program, effective and rapid infrastructure development is urgently required to stimulate the sector. 

In addition, decisive and timely intervention is required to address challenges affecting the operating environment for the sector, these include the unavailability of cost-efficient rail service, unstable electricity supply, and an increase in illicit trade and substandard imports into the country. 

These events represent lost opportunities, which is lamentable for a country that so desperately needs to take advantage of every economic opportunity to rebuild after the destructive pandemic.

The steel sector remains committed to contributing to the country’s economic recovery plans. The challenge is securing a commitment from all those who are part of the South African steel value chain to a common goal of growth and development for the country.