Introduction

ArcelorMittal South Africa (AMSA) announced on 16 January 2025 that it had closed its Newcastle blast furnace, bringing to a halt the production of long steel. The action is bound to have widespread implications for the South African economy, especially in the automotive sector, which depends upon AMSA for all their specialty steel needs. With AMSA being the sole producer of approximately 70 kt of automotive grade long steel per annum, its closure threatens not only supply chains and employment but also the industrial competitiveness of the country as a whole. This article sets the closure within its legal context provided by Section 189A of the Labour Relations Act, 1995, but also examines the wider economic and social impacts.

  1. Section 189A of the Labour Relations Act: Large-Scale Retrenchments

Application and Scope of Section 189A

  • Section 189A of the LRA, which governs large-scale retrenchments for those employers who have more than 50 employees where the proposed retrenchments are over specific thresholds, strikes a balance between employers’ operational requirements and employees’ rights, is to be equitable, and to conduct meaningful consultations in an attempt to explore alternatives to job losses.

Procedural Requirements

  • AMSA is obliged to go through an onerous process if it is to comply with the requirements of Section 189A:

Notice of Retrenchment:

  • It has to be a written notice that the AMSA issues to the relevant trade unions, workplace forums, and representatives of the employees. Such notice should give the reason for the closure, number, categories of employees, proposed timetable, and possible alternatives to retrenchments.

Notification Process:

  • Following notice, AMSA is required to consult with the affected parties in discussing ways of reducing the retrenchments. Such discussion would cover:
  • The possibility of reemployment.
  • Voluntary severance packages or early retirement programs.
  • Selection criteria of the employees to be retrenched.

CCMA facilitation:

  • Either party may invite the CCMA to facilitate discussions. Facilitation makes the process open and must be finished within 60 days or the period extended by agreement.

Selection Criteria:

  • AMSA shall, if there is any retrenchment, use selection criteria that are fair and non-discriminatory, often on the “last in, first out” principle, except that other options may be agreed to.

Severance pay:

  • Severance pay of at least one week’s worth of wages for every completed year of service shall be paid to the workers who have been retrenched. AMSA are encouraged to incorporate more activities post-retrenchment such as employment placement and skills development programs as well.

Penalty for Non-Compliance

  • Failure to comply with the required procedure under Section 189A may cause the retrenchments to be considered procedurally unfair. The affected employees are entitled to challenge the process at the Labour Court, which has the power to order remedies like reinstatement, compensation, or further severance pay.
  1. Economic Implications of AMSA’s Closure

Disruption in the Automotive Sector:

  • The automotive industry, a mainstay of South Africa’s economy, will be significantly impacted by AMSA’s closure. The sector is responsible for approximately 15% of South Africa’s total exports and is the origin of over 116,500 direct jobs.

Supply Chain Disruptions:

  • AMSA’s specialist steel is the key to the production of automotive components, including safety-critical items for electric vehicles that are exported to global customers. Manufacturers face the threat of disruption without a local supplier.

Imported Dependence:

  • Such a shift to imported steel could result in a cost increase of as high as 25%, facilitated by forex volatility, higher cost of logistics, and increased lead times.

Rules of Origin Compliance:

  • Imported steel might fail to comply with the APDP incentive or RoO requirements, thereby risk exports competitiveness.

Jeopardy of Job Loss:

  • The failure of AMSA will directly lead to the loss of 3,500 jobs in Newcastle; NAACAM projects another 3,000 job losses in auto component manufacture and another 13,000 across the automotive value chain if this persists.

Impact on Export Competitiveness:

  • South Africa’s automotive export competitiveness is founded on cost-competitive, quality local steel. In this regard, higher input costs and delayed production have the potential to damage the country’s reputation as a reliable automotive hub.

Broader Economic Consequences

  • Deindustrialisation:

Acceleration of shrinkage in South Africa’s industrial base cripples its international competitiveness.

  • Regional Economic Downturn:

The economy, which largely relies on AMSA, is subjected to extreme shrinkage with local services and businesses most likely to bear the brunt.

  • Deteriorating Trade Deficit:

Increased reliance on imported steel to meet demand for steel will further deteriorate South Africa’s trade deficit with increased stress on the economy.

Conclusion:

Section 189A is a mechanism intended to safeguard employees through the retrenchment process. This mechanism has the consequence and potential to soften the overall impact of more large-scale retrenchments such as the AMSA Newcastle plant. The need for Section 189A, although of great assistance to individuals, is prominent to groups of would-be retrenches.

The closure of AMSA’s Newcastle operations can only serve to highlight frailties in South Africa’s economic and industrial base. Beyond the actual retrenchments, the closure has the potential to destabilise critical sectors like automotive manufacturing and further boost unemployment and inequality. While Section 189A of the LRA offers a highly structured legal framework within which to address large-scale retrenchments, the broader economic and social challenges demand urgent and collective action. Section 189A of the LRA can both cushion the short-term impact of this closure and set the foundations for a more sustainable economy by aiding the affected communities, and expanding industrial policy. Failure to act boldly threatens to accelerate deindustrialisation, reduce global competitiveness, and engender economic stagnation in the longer term.

Mass Retrenchments