Corporate power, society and the environment: a case study of ArcelorMittal South Africa.
Abstract: An analysis of the privatised steel monopoly ArcelorMittal's operations in South Africa is used to raise questions about the power of multinational corporations in relation to the state. The article focuses on the steel manufacturer's externalisation of environmental, social and economic costs onto communities and upstream consumers of steel. The analysis is grounded in two places where steel production networks 'touch down': Vanderbijlpark in the south of Gauteng, where ArelorMittal manufactures steel, and Ezakheni in KwaZulu-Natal, where a household appliance manufacturer uses steel as a major input. The article points to the limitations of competition policy (directed at the prevention of 'import-party pricing') in the absence of an effective industrial policy. The classification of the post-apartheid South African state as a 'developmental state' is questioned in the context of this minimalist approach to economic and social transformation.
Article Type: Case study
Subject: Monopolies (Case studies)
Steel industry (Foreign operations)
International business enterprises (Case studies)
Authors: Bezuidenhout, Andries
Cock, Jacklyn
Pub Date: 01/01/2009
Publication: Name: Transformation Publisher: Transformation Audience: Academic Format: Magazine/Journal Subject: Social sciences Copyright: COPYRIGHT 2009 Transformation ISSN: 0258-7696
Issue: Date: Jan, 2009 Source Issue: 69
Topic: Event Code: 146 Foreign operations; 970 Government domestic functions
Product: Product Code: 9920000 Multinational Corporations SIC Code: 3312 Blast furnaces and steel mills; 3315 Steel wire and related products; 3316 Cold finishing of steel shapes; 3317 Steel pipe and tubes; 3325 Steel foundries, not elsewhere classified
Organization: Company Name: Arcelor Mittal
Geographic: Geographic Scope: South Africa; Netherlands Geographic Name: South Africa Geographic Code: 6SOUT South Africa
Accession Number: 207644287
Full Text: 'O, it is excellent to have a giant's strength: but it is tyrannous to use it as a giant.' (The South African Competition Tribunal, quoting William Shakespeare's 1603 play Measure for Measure, in their ruling on the Mittal case)


Producing 10 per cent of global steel production, ArcelorMital describes itself as 'the only truly global steelmaker'. With over 311,000 employees in 60 countries around the world, a crude steel production of 116 million tons and revenue of $105.2 billion (ArcelorMittal 2007: 2), it demonstrates the concentration of power that marks global production chains, a power that overshadows many nation states.

This paper uses ArcelorMittal SA as a case study to raise tentative questions about the power of multinational corporate capital in relation to the post-apartheid state. During the Mbeki era, it was almost commonplace to refer to South Africa as a 'developmental state'. In the literature on development, this concept implies a state that systematically intervenes in the economy in order to alter the industrial structure, usually by targeting downstream, labour-intensive industries for state support (Amsden 1989; Chang 1994, 2002; Evans 1995; Lall 1996; Woo-Cumings 1999). In the context of a steel-producing country such as South Africa, these downstream industries would typically include, inter alia, manufacturers of household appliances. However, the power of ArcelorMittal, a privatised steel monopoly in South Africa, and despite agreements to the contrary, limits the extent to which the scale and quality of employment can be improved, thus constraining the post-apartheid developmental project (Roberts 2006).

Throughout the paper, we emphasize the need to ground an analysis of global production systems in local contexts. The analysis of value chains, or global commodity chains, has become an influential framework for understanding how national economies are linked to global production arrangements. In the context of developing countries, the focus is specifically on various ways in which firms can upgrade, or move to higher value-added production (see Gereffi 1995, 1996; Gereffi & Korzeniewicz 1994; Kaplinsky & Morris 2001). Recently it has been argued that the labour market and environmental impacts of value chains are central to how we understand the local impacts of production systems (see e.g. Bair 2005; Barrientos & Dolan 2006; Bonacich & Appelbaum 2000; Bonacich & Wilson 2008; Dunaway 2001). In this paper we shift scale from the value chain as unit of analysis to an exploration that is grounded in specific places--Vanderbijlpark in the Gauteng province and Ezakheni in KwaZulu-Natal. (1)

We chose Vanderbijlpark because this is one of the nodes of South African steel production. Ezakheni, near Ladysmith, is where steel is a major input in a household appliance factory owned by Defy. We demonstrate how ArcelorMittal externalises the environmental costs of its operations onto communities in Vanderbijlpark, and how its pricing policy impacted on a downstream manufacturer, Defy, and contributed the externalization of the cost of social reproduction onto communities in Ezakheni.

The focus of this paper is on three sets of impacts of a powerful global corporation: the economic impact of ArcelorMittal's import-parity pricing on downstream manufacturers, the environmental impact on the community in Vanderbijlpark, and the impact of downsizing and labour-market casualisation on social reproduction in Ezakheni.

This approach allows us to explore the contexts where these chains 'touch down'. In addition to the focus on corporate power in relation to 'chain governance' in the value chains literature, we are interested in how social and environmental externalization relates to communities and the state. As Bakker and Gill (2003:56) point out, 'Transnational corporations may still be headquartered in one country, but their operations are increasingly deterritorialized. They can demand subsidies and expensive infrastructure in one state, elect to pay taxes in another, and download the human end environmental costs of production on yet another jurisdiction'. The key issue both theoretically and politically is power. Key questions include: where does power lie? where are decisions made--in parliaments or corporate boardrooms? how can the power of producers be increased?

This issue of power is central to the debate on the nature of South Africa's 'triple transition with political, economic and social dimensions' (Webster & Von Holdt 2005: 4). The political transition from apartheid to democracy created a new political order with many new rights for workers and citizens. But at the same time there was an economic transition. 'The transition from a domestically oriented economy to a more globally integrated one has been accompanied by a process of corporate and workplace restructuring' (Ibid). Some argue that the economic transition has undermined the political one. For example, John Saul argues that 'South Africa's dramatic transition to a democratic dispensation has been twinned with a simultaneous transition towards an ever more sweeping neo-liberal socio-economic dispensation what has negated in practice a great deal of the country's democratic advance' (Saul 2005: 197). Saul's view fits into the theoretical argument that the nation state has no future in an increasingly globalised economic and social system. This 'strong globalization thesis' represents national states as being reduced 'to a zombie-like presence, living yet dead' (Beck 2000: 27). While this is not our understanding, we argue that the state's minimalist approach to industrial policy has generally been inadequate.

Steel in South Africa

There seems to be a bit of steel in everything around us and if there isn't any steel in the product, steel was used in its manufacture or at the very least in its distribution. (Jabulani Sikhakhanje cited in The Star March 22, 2006)

In order for us to tell our stories of steel in Vanderbijlpark and Ezakheni, we have to start with the national trade picture. Steel is a node in several commodity chains and is central to the mining, manufacturing, transport, communications and construction sectors. South Africa produced almost nine million tonnes of crude steel in 2007. South Africa is the largest steel producer in Africa, and ranks 21st globally (SA Iron and Steel Institute 2008). Steel is South Africa's single largest export product item under what is classified as 'manufactured goods.' In 2006 it accounted for 16.3 per cent of South Africa's manufacturing exports. It was followed by other 'basic precious and non-ferrous metals', which accounted for 15 per cent of manufacturing exports. This means that more than 30 per cent of what is classified as 'manufacturing,' is actually beneficiation--products that are usually used as an input in manufacturing. The export of motor vehicles only ended up in third place, at 11.8 per cent of manufacturing exports (see Table 1).

When one considers overall exports, 'ferro-alloys' and 'flat-rolled products of stainless steel' jointly account for 7.1 per cent of exports, following platinum at 14 per cent, and gold at 8.9 per cent (see Table 2). What is also striking from the table is how the new kid on the block--platinum--has stolen the export show since the early 2000s.

These statistics show that South Africa's exports are dominated by mining and beneficiation. As Roberts (2006: 178) has shown, 'dominance in the value chain of upstream producers of basic metals [is] to the detriment of downstream metal products producers. South Africa is a net exporter of steel, while it is a net importer of labour-intensive metal products such as household appliances.'

The biggest of these upstream producers is ArcelorMittal. The case of this firm suggests that powerful corporations are dictating South Africa's industrial policy. The corporation supplies 80 per cent of the flat steel employed in key sectors in South Africa, including mining, construction, motor vehicles, and general transport, machinery, equipment and metal products with the remainder being supplied by Highveld Steel and Vanadium (Interview: Simon Roberts, May 8, 2006). Hence, ArcelorMittal is an upstream firm with monopoly power which impacts negatively on the environment and on downstream industries. Its excessive pricing indicates an abuse of its market dominance.

The view from Vanderbijlpark

We are the voice of steel (2007 ArcelorMittal Annual Report).

In order to consider the social and environmental impact of this powerful multinational corporation, we have to ground our analysis in the local, in a place called Vanderbijlpark. The town was named after Dr Hendrik van der Bijl, a South African scientist who was recalled from the United States in the 1920s by Prime Minister Jan Smuts to advise the government on industrial development. Van der Bijl oversaw the creation of the South African Iron and Steel Corporation (Iscor) in 1928 and the erection of a steel mill in Pretoria. With the expansion of steel production after the Second World War, 100 m2 next to the Vaal River was acquired to set up a new plant. It began operating in 1947 and Vanderbijlpark was proclaimed in 1949, a year after the National Party (NP) came to power. In 1952, a second steel works was opened and the town received municipal status in the same year.

Vanderbijlpark, along with its neighbouring towns of Sasolburg and Vereeniging, is referred to as the Vaal Triangle. Vereeniging was founded in 1892 and grew due to coal mining activities. Sasolburg was established to house employees of Suid Afrikaanse Steenkool en Olie [South African Coal and Oil] (Sasol), a state corporation set up to extract oil from coal. The location of these industrial projects next to the Vaal River and near the Vaal Dam, which was constructed in 1938, is significant in that it gave them access to water, while also being close to the mining hub of the Witwatersrand to the north and the Free State gold fields to the south.

The Vaal Triangle embodies the modernism of apartheid spatial and industrial planning and a focal point of what Fine and Rustomjee (1996) called the minerals-energy complex. State corporations such as Iscor and Sasol provided white employees with subsidised family accommodation, while black employees were housed in single-sex hostels and inferior urban accommodation. The area includes the black townships of Boipatong, Bophelong, Sebokeng and Sharpeville.

Iscor was set up for two reasons: to supply cheap steel that could spur industrialisation, and to employ white workers. It was operated as a parastatal until 1989, when it was listed on the Johannesburg Stock Exchange. Following a meeting in 2000 with Lakshmi Mittal of the LNM group (its full name), Iscor was unbundled to form a steel group called Ispat Iscor and a mining company called Kumba Resources. This created what Terence Creamer called 'a well run, well structured, globally-integrated steel group that is likely to survive and grow no matter how bad the steel cycle gets' (Engineering News September 10, 2004).

LNM's proposal for taking majority control of Iscor was approved by the Competition Tribunal. They ruled that competition within the local steel industry would not be affected if LNM lifted its shareholding above 50 per cent. The LNM website stated, 'This followed talks between LNM and the SA Department of Trade and Industry in May at which LNM agreed to support the SA government's growth objectives in the manufacturing sector. As part of the agreement a sustainable and competitive pricing model will be developed in the SA steel industry to comply with world trade organisation rules'. (3) Mittal said, 'Iscor will benefit from being part of a global group'. (4)

The merger was opposed by two trade unions active at Iscor, namely, the National Union of Metalworkers of South Africa (NUMSA) and the largely white union, Solidarity. NUMSA argued that Iscor had reduced its work force from 44 000 in 1980 to 12 200 in 2004 and feared further job losses. Solidarity argued that Mittal had a reputation for laying off workers as part of its 'turn-around strategy' for newly-acquired steel mills.

In 2006, Mittal Steel succeeded in buying Arcelor, the second largest privately-owned steelmaker in the world. The $33.4 billion merger made ArcelorMittal the largest privately-owned steel company in the world. President Lakshmi Mittal is estimated to be the third richest man in the world and told investors that the combined group would deliver earnings of $20 billion by 2008 (Sunday Times October 1, 2006).

ArcelorMittal Steel is committed to global expansion. In 2005, Mittal announced that it planned to develop iron ore mines and build railways and port facilities in Liberia to secure more than one billion tons of reserves. In the same year, it won an auction for Ukraine's Kryvorizhstal--a government-owned steel maker--with a bid of R32 billion. In so doing, it gained a mill in southern Ukraine that makes seven million tons of steel a year from its own iron ore and coal (Business Report October 25, 2005). In 2006, it bought two steel mills in Mozambique. ArcelorMittal SA is planning a R9billion expansion programme which will increase steel production by 2 millions tons by 2010 (Sunday Times October 1, 2006).

The corporation (first Iscor and now ArcelorMittal) have been locally criticised for its pricing policy, its labour policies in relation to retrenchments and its pay structure, and its environmental impact. According to Simon Roberts there have been 20,000 retrenchments since 1994 (Interview: Simon Roberts May 8, 2006).

The externalisation of environmental costs at the Vanderbijlpark mill has destroyed the Steel Valley community. Mittal's steel mill includes a gigantic slag heap and very large effluent dams. The steel mill poured its effluents into unlined dams, contaminating the ground water on which the community depended. The dams have been used since 1952, when steel production started, but have never been lined to prevent this effluent drainage into the groundwater. The steel mill also released effluent into an unlined canal from which the Steel Valley smallholders drew water for irrigation. More than five decades of pollution has poisoned the groundwater with a toxic mix of heavy metals, dissolved salts and hydrocarbons derived from coal. By 1996 the pollution plume from the effluent dams was thought to cover up to seven square kilometres. Local people maintain that the pollution plume is moving east, to include Boipatong, soon reaching Sharpeville. It is supplemented by leachate from the slag heap which has not been capped.

A comprehensive report on air quality in the area identified 58 polluting industrial and mining activities in the Vaal Triangle, with the Vanderbijlpark steel mill the top polluter for sulphur dioxide and (after Eskom and Sasol) the third largest source of carbon dioxide (Scorgie 2004). According to South Africa's National Air Quality Officer, Peter Lukey, 'there is enough evidence to assume that citizens in the Vaal's rights to clean air that is not harmful to their health, as required in the constitution, are being violated' (Interview: Peter Lukey August 2, 2006).

South Africa has good environmental legislation in addition to this constitutional provision. The National Environmental Management Act (NEMA), passed in 1998, establishes a strong legal framework for sustainable environmental management. However, specific laws remain fragmentary, enforcement is weak, and there is confusion over local, provincial, and national responsibilities.

The government has released a damning report detailing environmental legislation contraventions and non-compliance. The report comes after inspectors (known as the Green Scorpions) assessed the steel giant's plant at the end of May 2007 as part of their investigation into the environmental legislation compliance by the iron, steel and ferroalloy industries. The contraventions include dumping of hazardous waste on a prohibited site and significant pollution of surface and ground water with phenols, iron, oil, fluoride and other hazardous substances. Criminal prosecutions have not been ruled out (The Star July 26, 2007).

This pollution has destroyed what was once the vibrant agricultural community of Steel Valley. Crops have failed and animals have sickened and died or been born with genetic defects. Lives have been destroyed. Symptoms of serious illness were revealed in 500 questionnaires obtained from local people, which ranged from kidney disease, memory loss, skin ailments and various types of cancers. Two informants have died since this research began in 2003. Tests of 26 people for a 2001 court case showed higher cadmium levels than the South African reference levels. Those tested showed DNA breakages 30 per cent higher than the national reference level and 50 per cent higher than the international reference level. As informant Willie Cook stated, 'The whole area is actually sick'. Only two of 500 smallholders remain in the area.

The care of those suffering from these health consequences of polluted air and groundwater is undertaken by local women. As Dunaway indicates, '[w]omen are disproportionately endangered by the ecological degradation that accompanies capitalist development' in the sense that 'they are the household members who must contribute the labour needed to care for those made ill by environmental risks or resource depletion' (Dunaway 2001:20). The responsibility for health care has been externalised onto communities, another indicator of the neo-liberal state approach.

Official warnings of the pollution of the groundwater from the Department of Water Affairs and Forestry (DWAF) date back to 1961. The apartheid state, however, largely ignored environmental concerns. The post-apartheid state has formulated progressive policies and the Bill of Rights includes the right to live in a safe and healthy environment and the concept of environmental justice is enshrined in the National Environmental Management Act. However authorities have weak enforcement capacity, and there is a problematic fragmentation of responsibility for pollution between different spheres of government local, provincial and national.

Despite devastating impacts on their health and livelihoods, the people of Steel Valley have not been passive victims. Instead, many residents have demonstrated impressive qualities of courage, initiative and tenacity against a gigantic opponent. They have engaged in many forms of non-violent struggle to try and obtain justice, including litigation in the form of three private legal actions to stop the pollution and win compensation, an approach to the Constitutional Court, media campaigns, appeals to Iscor/ Mittal, appeals to the Department of Water Affairs and to Presidents Mandela and Mbeki directly, mass protest action, and participation in consultative processes and forums with Iscor/Mittal and the local state. All in vain; these attempts have failed to stop the pollution and neither have they obtained compensation for its victims (Cock & Munnik 2006).

The labour movement was largely absent from this struggle for environmental justice but has been active in opposition to import-parity pricing. In December 2006, Solidarity held a mock trial in which it charged government and three firms--Mittal, Lafarge and Bombela--for undermining government's growth and job creation objectives. Mittal was cited for its use of import-parity pricing (Business Day December 15, 2006).

The view from Vanderbijlpark gives us a sense of the social and environmental consequences of ArcelorMittal's downscaling of its labour force and its poor environmental record. We now turn to a much smaller town called Ezakheni, home to Defy, one of South Africa's oldest manufacturing firms. Steel is a major input in the refrigerators they manufacture here.

The view from Ezakheni

ArcelorMittal claims to be 'the leader in all major global markets, including automotive, construction, household appliances and packaging' (ArcelorMittal 2007). The household appliance manufacturing industry is one of the 'downstream' industries that are affected negatively by ArcelorMittal's anti-competitive pricing model. Steel is a significant input in the manufacturing of these 'white goods'--refrigerators, stoves, washing machines, dryers and dishwashers. It is used for metal exteriors, bolts, screws, wire baskets, etc. (IDC 2000; Bezuidenhout 2005).5 While steel is a significant input for household appliance manufacturers, these downstream producers are not all that significant for steel producers. As can be seen from Figure 1, this sector accounted for a mere 1.2 per cent of total steel sales in the first quarter of 2008.

The performance of South Africa's downstream manufacturing sector remains weak, and the unemployment rate remains high in places like Ezakheni, where goods are manufactured that are dependent on inputs from the steel industry. The Ezakheni industrial park was set up in the 1980s by the apartheid state as an industrial area located in the former KwaZulu. It was part of what was known as 'industrial decentralisation', a policy designed to stem African urbanisation and to discipline the emerging militant trade union movement (Hart 2002). Firms that located their operations in these decentralisation zones received direct subsidies from the state. Managers could live in the comfortably pleasant town of Ladysmith, ten kilometres from their factories which were located in an area close to labour reserves.

These factories were also excluded from the Wiehahn reforms to apartheid labour laws at the end of the 1970s. The KwaZulu Finance Corporation administered industrial parks where these factories were located.

Defy set up its plant in Ezakheni in 1984. Like most of the other decentralisation zones, Ezakheni was dominated by low-wage clothing and textiles factories, mostly owned and operated by Taiwanese business people. With the end of apartheid, the state withdrew most of these benefits, and many factories in Ezakheni closed down (Webster, Lambert & Bezuidenhout 2008). But, as Hart (2002) points out, even though spatial planning became unfashionable under neo-liberalism, these decentralization zones did not simply whither away. The KwaZulu Finance Corporation reinvented itself as the Ithala Development Finance Corporation and assumed responsibility for maintaining and marketing the industrial park at Ezakheni to prospective investors. Defy still manufactures white goods there. It is considered to be one of the 'blue chip' tenants in the industrial park. If the company decides to close down the operation (it also manufactures appliances in Jacobs, south of Durban, and in East London) it will be a major blow. According to a document outlining the area's local economic development strategy, the unemployment rate in Ezakheni is estimated to be around 70 per cent. More than half the households in the area survive on less than R800 a month. Only 54 per cent of households have access to piped water in their houses or yards (Fakisandla 2006: 23-24).

The story of white goods manufacturing, and hence the story of Ezakheni as well, reads like a typical South African downstream manufacturing tragedy. By the 1980s, most white goods manufacturers were owned by local financial conglomerates. As soon as the economy was liberalised, these conglomerates were unbundled and several were not able to survive in the new environment of liberalised trade and the rising cost of steel. Several firms were liquidated--most significantly Kelvinator--and incorporated into the remaining firms (Bezuidenhout 2006).

This local tend towards rationalisation and concentration reflected a global trend, very similar to what was happening in steel, where fewer firms control larger market share (Nichols & Cam 2005). They compete on the basis of cost and volume, and the small- scale South African operators are not able to compete in this environment. Hence, as Figures 2 and 3 show, the growth in exports has outstripped the growth in imports by far. The only product where exports have grown significantly is chest freezers, mostly for the African market.



Thus, as Figure 3 shows, the trade deficit in the sector has grown at a steady pace.


Defy has succeeded in maintaining local production, mainly because it has a very well established local brand, and is the manufacturing monopoly in a number of products such as stoves. But it has also cut costs by reorganising its internal labour market. A major shift occurred in 1995. The practice since then has been for the firm to appoint about one-third of its manufacturing staff on fixed-term contracts. These workers are paid less than permanent staff and in practice have fewer rights at the workplace. They are consistently scared that they may lose their jobs.

A survey found that workers, in light of the insecurity created by this, are retreating into their households and are relying on other sources of non-wage income in order to survive. A worker commented on the insecurity created by working on a short-term contract: 'My contract can be terminated any day. I cannot open credit accounts... because I may not have enough money to pay the instalments.' Another said: 'I do not feel secure, because I am a [on a] contract. I cannot even apply for any of the internal posts, because our contracts are taken as though we don't exist. We are only given one to two weeks' notice if we are going to be laid off.' (Webster, Lambert & Bezuidenhout 2008: 111-12).

This sense of insecurity is increased by high levels of violent crime and the HIV-AIDS pandemic. Community organisations have emerged in order to form home-based care groups. AIDS orphans are looked after with meagre resources. In short, there is a crisis of social reproduction in Ezakheni (Fakier 2005; Webster, Lambert & Bezuidenhout 2008). But, in the context of rising imports and expensive steel, Defy has little room to manoeuvre and remains under pressure to cut costs. As ArcelorMittal externalises the environmental costs of its operations onto communities, Defy externalises the cost of social reproduction onto households and communities in Ezakheni. This is done with devastating local economic and social consequences.

Import-parity pricing

The high cost of steel is a consequence of Mittal's policy of import-parity pricing. This policy illustrates the contradictions involved in South Africa presenting itself as a developmental state. Import-parity pricing means that a company uses the same price locally for its products as it does if it is selling to international customers. However, it adds a range of notional costs that would be incurred if the domestic customer were to import the product, including disproportionate shipping and insurance costs. So, according to Thebe Mabanga, citing a Merill Lynch report, on March 17, 2006, the price of maize on the international market was R645 a ton. The import-parity price at Cape Town harbour was 33 per cent higher at R973 a ton. If Mittal was the sole and dominant supplier of maize, it would charge maize from the Highveld at the latter price. Harmony claims that this practice pushed up its cost to the point where it had to walk away from an opportunity to commission a R1.7 billion mine. He cites a Merril Lynch analyst who estimates that local steel prices are 10 per cent to 25 per cent higher than international prices, with South Africa hampered by the size of its market, high capital costs in steel manufacturing and distance from international markets (Mail and Guardian April 13, 2006).

Compared to a multinational corporation such as ArcelorMittal, Defy is not a powerful corporation and has little bargaining power. However, another firm, a gold- mining operation, brought ArcelorMittal before the Competition Tribunal in order to address its abuse of market dominance. This was the first case of excessive pricing brought before the Tribunal.

The Competition Tribunal was set up in accordance with the Competition Act of 1998. Cases are referred to this body by the Competition Commission, and decisions can be appealed to at the Competition Appeal Court (Jooste 1999). Harmony Gold and DRD (Durban Roodepoort Deep) Gold complained to the Competition Tribunal that Mittal's pricing policy was based on import-parity pricing, an allegation which Mittal Steel SA denies. The issue is whether the company has abused its dominant position as South Africa's largest steelmaker. Steel accounts for 13 per cent of Harmony's procurement costs, which amounted to about R400 million between 2002 and 2005. Evidence was produced at the tribunal showing Mittal was the world's third lowest cost producer of steel in 2004. Mittal's Vanderbjlpark plant is situated at the heart of the country's industrial economy and has access to cheap iron ore, coal and electricity. Under an agreement struck at the time of the unbundling of Kumba Resources (the mining business formerly part of Iscor/Mittal), it secures iron ore at cost plus three per cent. Mittal has also beneficial deals on the purchase of zinc and its labour costs are low relative to many other countries. The only raw-material input cost where international prices apply to any degree is coking coal, much of which it imports (Business Day November 30, 2006). Hence, in 2006 Mittal came under the spotlight in South Africa because of its pricing policies. Theoretically, the Competition Tribunal could impose a fine of up to 10 per cent of the company's turnover, or demand the implementation of a particular pricing model.

The South African government supported Mittal's acquisition of majority control of Iscor in 2003 on condition that it come up with a developmental pricing model--in other words, cheaper prices for local consumers. This has not happened. At meetings with the Department of Trade and Industry (DTI) in 2005, Mittal claimed that the government's insistence that the company move away from import-parity pricing to export-parity pricing would threaten its profitability. In 2006, government scrapped a five per cent import duty and was furious when Mittal raised prices on certain steel products, the third increase in as many months. DTI is keen to invite other steel producers to set up in SA to free up the steel sector (Mail and Guardian November 3, 2006). According to Zav Rustomjee, a former director general of the DTI (1994-99):

Rustomjee told the Tribunal of how the government has generously supported key industries to exploit South African competitive advantage in resources and create world-class suppliers of input-like steel and chemicals, only to see these fail to benefit the downstream economy. Mittal, for example, benefited from the general export incentive scheme. This scheme cost R21 billion between 1992 and 1997. Iscor is reported to have received R875 million between 1992 and 1996 under this scheme. The giant also benefited from accelerated depreciation tax incentives and a R300 million investment for a coke plant in Newcastle in KwaZulu-Natal. Rustomjee suggested that if competition authorities could not regulate steel prices, a special body should be established for this purpose. The problem is that the notion of increased state regulation is controversial in terms of the dominant neoliberal discourse.

According to Rustomjee, the industrial policy that prevailed up to the 1990s resulted in a minerals energy complex 'where most growth took place within a confluence of primary extractive industries (dominated by hold), energy-intensive and capital-intensive smelting or primary beneficiation (particularly of steel and other metals) supported by major investment in electricity generation'. This complex was characterised by conglomeration of economic ownership and a very well developed financial system. Rustomjee recalled that in 1993 'the government with business and labour through the National Economic Forum attempted to create a more coherent policy in respect of economic development and in particular the growth of downstream industries'. The focus of industrial policy since 1994 has thus been firstly, to retain and increase the natural resource advantage that SA enjoys, and secondly, to encourage the transfer of that advantage through the growth of downstream, higher value-added and labour-intensive industries. In the next decade, the government offered incentives and support measures to achieve this objective. Within the steel industries these measures included the creation and subsequent rescue of Saldanah Steel at a cost of billions of Rands. For Iscor, the rescue package included the now controversial agreement, struck at the time of the unbundling of iron ore producer Kumba Resources from Iscor, for the long-term supply of iron ore to Iscor at cost plus three per cent. From the government's perspective, this advantageous supply agreement was intended 'to benefit not only Iscor shareholders, but also the down stream steel-using sectors' (Interview: Zav Rustomjee May 8, 2006).

Mittal's pricing system involves 'offering different rebates to different customers depending on whether they are large or small, or exporters or developers of new markets. This system is determined not by grand plans aimed at national economic development, but by a need to prevent any threat to its monopoly from competitive international suppliers. It is difficult to determine when it happened but over the years the government has steadily ceded control over this segment of industrial policy to Mittal. In the same way it has ceded control over oil policy to Sasol ...'

These are legacy costs of the minerals energy complex built up under apartheid. Mining and energy are still at the core of our economy, as Zav Rustomjee put it,

Ann Crotty, a business reporter, concurs. She points out that Rustomjee's statement before the Tribunal reflects the 'extent to which the country's industrial policy has been privatised. If nothing else, the tribunal's hearings have highlighted the fact that the executives who run ArcelorMittal determine industrial policy far more than any government minister or departmental official does. Sadder still is that the same is true of every economic sector where powerful companies are in a position to ensure that their short-term profit-maximising strategies prevail over every other consideration' (The Star March 29, 2006).

At the Competition Tribunal hearings, ArcelorMittal argued that it is not a profitable operation. This is difficult to believe because since in 2001 Mittal SA reported cumulative headline earnings of R13 billion after allowing for the R1.3 billion that the local firm had to pay a Rotterdam-based holding group, in terms of a controversial 'business assistance agreement'. ArcelorMittal argued that the tribunal should ignore this information and disregard the billions of Rands of headline earnings it has reported over the last few years because those figures were the result of the machinations of accountants and auditors whose primary concern was the company's rating on the local stock exchange. ArcelorMittal's experts argued that a more appropriate depreciation policy which would provide for replacement value, would have reduced the group's income by between R2.5 million and R6.6 billion a year between 2000 and 2006, and would increase the value of assets by between R33 billion and R42 billion. On the basis of these adjustments, ArcelorMittal contended it would not make a sufficient return on net assets to cover its weighted average cost of capital.

Professor Harvey Wainer, a witness, disagreed and told the tribunal that if Mittal steel SA's profit performance was as poor as it indicated 'the group has no long term future and should be closed'. Wainer challenged the argument that if ArcelorMittal was forced to charge export-parity prices for its domestic sales, it would make a loss. He said that this did not take into consideration the cost savings that the group had recently secured.

In March 2006, the government scrapped a five per cent duty on imported steel products. This was interpreted as the government's first concrete action in an increasingly tough stance against monopolistic producers that charge domestic consumers more than their export clients for key raw materials. The government was also making clear that it wanted to see an end to import-parity pricing which it believes hinders economic growth and taking concrete action to encourage 'fairer' pricing for a number of industrial raw materials in the country.

The abolition of import tariffs on carbon steel and stainless steel was met with dismay by ArcelorMittal. Tami Didiza, general manager for corporate affairs at Mittal, said that the giant was disappointed with the move. He pointed out that at five per cent it was already the lowest in the developing world. More importantly, he noted that the duty served as a psychological deterrent to dumping.

In October 2006, ArcelorMittal raised its prices again. The deputy director general at DTI, Lionel October, attacked the decision. He said, 'At Mittal there has been no major underlying cost pressure. It gets the cheapest iron ore in the world because of the arrangement with Kumba (it can buy its iron ore at cost plus three per cent) and the cheapest electricity in the world'. October expressed concern about pricing. 'We... are looking at import parity pricing in the chemical, steel and all upstream industries where it has been identified as a constraint in the economy. An essential role of government is to ensure competitive markets and strong anti-trust legislation. We want to be a capitalist economy but competition is essential, as is a strong competitive market, not one dominated by monopolies and oligopolies' (Sunday Times October 7, 2006).

At the national level, NUMSA) who organise the Defy factory, support the actions against ArcelorMittal's import-parity pricing. In a landmark ruling in September 2007, the Competition Tribunal imposed a record R692million fine on ArcelorMittal. It also imposed a number of 'behavioural remedies' aimed at preventing the corporation from manipulating the market in future, which could substantially contribute to achieving more competitive prices in the flat steel market (Business Day September 7, 2007).

Nevertheless, in 2008 alone, in spite of the ruling, there were four price increases of respectively 5, 18, 15 and 25 per cent for both long and flat steel products. Unsurprisingly, in September 2008 ArcelorMittal reported a 48 per cent jump in profit. Lakshmi Mittal claimed that growth in steel demand will 'remain strong' for 'several' years, driven by China and other emerging economies (Business Day September 18, 2008). However, one month later with the global economic downturn ArcelorMittal South Africa announced that it would cut production by more than a third (The Star November 6, 2008).


This paper has emphasised the externalisation of environmental, economic and social costs by ArcelorMittal at the local level. Dunaway (2001:18) points out that '[c]ommodity chains have largely been constructed around the acquisition and organisation of material inputs, a methodological decision which ignores the tendency of capitalists to externalize costs as much as possible' (Dunaway 2001:18). Others have since taken up this challenge (eg Barrientos & Dolan 2006; Bonacich & Appelbaum 2000; Bonacich & Wilson 2008). By shifting scale from a value chain as unit of analysis, and focusing on the local instead, we have highlighted the consequences of externalization. The state is often constructed as an entity that operates on the scale of the nation, and communities relegated to the sphere of the local (Ferguson 2006: 97-109). A challenge is to understand how the externalization of economic, environmental and social costs operates at different scales--from the local, the regional, the national, through to the global. These scalar dynamics are about power, and how an actor that operates at the global scale (a multinational corporation) impacts on people who are seemingly trapped in the local scale (Harvey 2001). This is why it is important to 'ground globalization' (Burawoy et al 2000; Webster et al 2008). At the global level, two takeover bids, by two Indian conglomerates Mittal and Tata, illustrate tensions between power at the global, national, and local levels. Mittal's successful bid for Arcelor and Tata Steel's successful bid for Anglo-Dutch producer Corus have been framed very differently. The Tata Steel bid was framed as a triumph for Indian nationalism, representing 'globalisation in reverse' and the Mittal bid as 'taking globalization to a new level'.

Mittal said of his Arcelor bid, 'This is a great opportunity for us to take the steel industry to the next level. Our customers are becoming global, our suppliers are becoming global, everyone is looking for a stronger global player.' One banker close to the Arcelor bid said, 'This is globalization in action' (The Observer February 5, 2006). However, there are reports that the Human Resources Development Minister Bandhy Tirkey came out against a proposed Mittal steel venture in India. As his reasoning, Minister Tirkey stated that they have to protect the interests of the local people (Asian News Service November 22, 2006). Those interests should be the subject of careful research. According to one source, 'From their London mansions Mittal, Anil Agarwal and Tata are exploiting rural India as fast and ruthlessly as the East India Company did...' (Sakhi 2007).

This article uses ArcelorMittal as a case study to raise questions about the corporate power and impact of multinational capital on local communities. This impact, especially on downstream industries, calls into question post-apartheid South Africa's presentation of itself as a developmental state. While the Department of Trade and Industry formulated a range of industrial policies during the Mbeki era, these policies have not been successful in strengthening downstream manufacturing in the steel industry. (6) One of the reasons could be that the idea of a developmental state had very little to do with changing industrial structure and that it was more a rhetorical device that defined development as poverty relief in the broad sense of the word. In a comment finance minister Trevor Manual put it quite bluntly: 'We need to disabuse people of the notion that we will have a mighty powerful developmental state capable of planning and creating all manner of employment... It may have been on the agenda in 1994 but it could not be delivered now. The next period is likely to see a lot more competitiveness in the global economy' (Financial Times November 2, 2008). (7)

The state's response is partly to rely on the architecture set up by competition law--the Competition Commission and the Tribunal. This could potentially impact on dilemmas such as the ability of a privatised monopoly to enforce import parity pricing in spite of agreements to the contrary. The Tribunal can levy a significant fine. Nevertheless, the fact that the process is costly and drawn out, means that this is by no means a policy instrument that can control for the short-term negative impact of the exercise of such power to the detriment of society.

Our paper has shown how economic, social and environmental costs are externalised. The case of ArcelorMittal in South Africa points to the limits of the minimalist approach that the post-apartheid state has taken to economic and social transformation. It remains to be seen whether a post-Mbeki government is able to change the configurations of power that allows for such a situation to shift. A progressive notion of a developmental state would imply a much stronger approach to regulation that also takes into consideration the externalisation of costs.



Peter Lukey, National Air Quality Officer, interviewed August 2, 2006.

Simon Roberts, economist and witness in the Competition Tribunal hearing on the case against Mittal, interviewed May 8, 2006.

Zavareh Rustomjee, former Director General of the Department of Trade and Industry, interviewed May 23, 2006.

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Andries Bezuidenhout and Jacklyn Cock /


(1.) For an analysis of value chains in the South African metals sector, see Roberts (2006).

(2.) See (Accessed February 20, 2007)

(3.) See

(4.) See

(5.) White goods refer to the following products: Chest freezers; Combined refrigerator-freezers; Household compression-type refrigerators; Household absorption-type refrigerators; Household dishwashing machines; Fully automatic washing machines; and Microwave ovens.

(6.) With the possible exception of the auto industry, where German multinational corporations had significant bargaining power to negotiate the Motor Industry Development Programme, as well as special deals on steel with ArcelorMittal (see Roberts 2006). In the late-1990s, Ha-joon Chang (1998) pointed out that South Africa's industrial policies were unlikely to succeed without supporting macro-economic policies.

(7.) See =2417268 (Accessed November 4, 2008)
... in 2000 IDC management approached Mittal and others, the issue
   was to find an appropriate strategic partner. Mittal expressed
   interest, had a strong track record of turning companies around. He
   had a bad environmental record but this wasn't seen as a major
   issue... Iscor also had import-parity pricing. Sasol and Billiton
   also does import-parity pricing. (Interview: Zav Rustomjee May 23,

The problem is a weak state, the government doesn't want to be
   interventionist. South Africa will make a lot of money for Mittal;
   his steel mills here have the lowest costs in the world--with
   access to cheap, high quality iron ore and cheap energy. The energy
   costs are artificially low because Eskom doesn't price in
   environmental costs. The IDC [Industrial Development Corporation]
   and DTI always wanted to get foreign investment in the steel
   industry for access to markets and technology. (Interview: Zav
   Rustomjee May 8, 2006).

Table 1: South Africa's manufacturing exports, top 10 in 2006
(value in R'000) (1)

              Name                    2006         2005         2004

  3510.basic iron and steel        37,430,303   38,832,127   36,553,790
  3520.basic precious and non-     34,347,218   23,093,487   21,287,842
ferrous metals
  3810.motor vehicles              27,183,924   24,403,824   20,468,834
  3569.other general purpose       15,706,462   11,536,060    9,851,663
  3341.basic chemicals, except     12,811,536   13,725,477   10,799,172
fertilizers and nitrogen
  3320.petroleum                    8,417,491   10,049,918    7,716,109
  3231.pulp, paper and              5,567,859    4,751,792    4,724,989
paperboard and accessories for    5,178,218    4,971,399    4,834,480
motor vehicles and their engi
  3921.jewellery and related        5,108,325    5,544,379    4,159,284
  3951.recycling of metal waste     4,976,889    3,317,269    3,351,242
and scrap n.e.c.

              Name                    2003         2002          %

  3510.basic iron and steel        29,600,086   25,532,218      16.3%
  3520.basic precious and non-     10,851,515   11,355,406      15.0%
ferrous metals
  3810.motor vehicles              19,426,689   18,754,612      11.8%
  3569.other general purpose        9,493,601   10,932,059       6.8%
  3341.basic chemicals, except      8,591,723   11,373,042       5.6%
fertilizers and nitrogen
  3320.petroleum                    9,374,588   10,052,668       3.7%
  3231.pulp, paper and              5,668,208    6,393,955       2.4%
paperboard and accessories for    4,760,467    5,015,445       2.3%
motor vehicles and their engi
  3921.jewellery and related        4,426,546    5,541,687       2.2%
  3951.recycling of metal waste     3,238,091    3,810,482       2.2%
and scrap n.e.c.

Source: Department of Trade and Industry: econdb/
raportt/rapsimacurrent.html. (Accessed February 11, 2007)

Table 2: Exports from South Africa, top 15 in 2006
(value in R'000)

           Name                  2006         2005         2004

  7110.Platinum               50,223,920   33,911,323   29,804,158
  7108.Gold                   31,906,558   29,416,703   34,778,556
  2701.Coal                   19,139,018   20,771,003   15,787,509
  8703.Motor Cars             18,090,522   19,225,140   17,374,628
  7202.Ferro-alloys           17,076,691   17,797,756   16,798,478
  7102.Diamonds               14,885,829   16,819,536   12,881,256
  8421.Centrifuges            14,718,706   10,394,051    8,861,294
  7219.Flat-rolled Products    8,575,385    4,658,041    6,076,059
of Stainless Steel
  2710.Petroleum Oils          7,448,300    9,325,382    6,984,374
  7601.Unwrought               7,332,945    6,550,130    6,890,531
  8704.Motor Vehicles for      6,555,827    3,280,738    1,579,510
the Transport of Goods
  2601.Iron Ores and           6,475,898    5,788,495    3,562,975
  8708.Parts and               4,326,466    3,997,914    3,971,825
Accessories of the Motor
Vehicles of No 8701
  0805.Citrus Fruit, Fresh     3,518,212    3,176,996    2,973,041
or Dried
  2204.Wine of Fresh           3,260,080    3,807,293    3,437,011

           Name                  2003         2002        % Total

  7110.Platinum                8,639,576            0      14.0%
  7108.Gold                   34,792,081   42,347,182       8.9%
  2701.Coal                   13,563,809   19,577,871       5.3%
  8703.Motor Cars             16,401,325   15,404,907       5.0%
  7202.Ferro-alloys           12,326,221   10,862,581       4.7%
  7102.Diamonds               13,226,385   16,196,367       4.1%
  8421.Centrifuges             8,467,038    9,732,918       4.1%
  7219.Flat-rolled Products    4,778,191    4,017,824       2.4%
of Stainless Steel
  2710.Petroleum Oils          8,662,939    9,191,039       2.1%
  7601.Unwrought               5,113,670    7,156,349       2.0%
  8704.Motor Vehicles for      2,192,393    2,391,039       1.8%
the Transport of Goods
  2601.Iron Ores and           3,551,600    4,410,013       1.8%
  8708.Parts and               3,931,997    4,219,519       1.2%
Accessories of the Motor
Vehicles of No 8701
  0805.Citrus Fruit, Fresh     2,668,136    2,314,996       1.0%
or Dried
  2204.Wine of Fresh           3,150,923    3,001,736       0.9%

Source: Department of Trade and Industry:
econdb/raportt/rapsimacurrent.html. (Accessed February 11, 2007)

Figure 1: South African Steel Sales to Industrial Sectors

Roofing & Cold forming           1.1%
Agricultural                     1.3%
Automotive                       5.5%
Electrical AppWhite Goods        1.2%
Cables, wire products & gates   13.2%
Fasteners                        1.5%
Hardware, furniture, railroad    8.6%
Building & Construction         26.8%
Unallocated                     13.3%
Mining                           4.2%
Packaging                        3.8%
Tube & Pipe                     10.8%
Plate & Sheet metal works        8.9%

Source: South African Iron and Steel Institute (2008).

Note: Table made from pie chart.
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