AMSA, bailouts, and the cost of policy failure in SA

News24

08-05-2025

When private companies stumble and the state is asked to step in, the resulting debate often reveals as much about regulatory failure as it does about corporate fragility, writes Khaya Sithole.
Over 15 years ago, as the financial crisis hit hard across the globe, society had to deal with the difficult question of whether some companies are too big to fail and whether bailing out such companies was a necessity. The feature of modern capitalism has been that private enterprise thrives best when left on its own, and the cannibalisation of the weak by the stronger is something that should be embraced as it ensures the best companies survive the brutal landscape of competition.
Government's role in the system was a story of mixed models and varying expectations. As a regulator of industries, government must work out the most appropriate regulatory regime that enables oversight without hampering agility and innovation.
The sectors where the public interest is most amplified – like financial services – had the most difficult relationships with regulators, as the need to stay ahead of the competition invited strong tendencies for exploration in exotic products. Countries where lobbying processes are strong and deeply funded, and political persuasions are transactional, escalate pressure on regulators who must withstand the pressure to be more accommodating to market participants.
At its most buccaneering peak, the capitalist system generates profits, employs people, provides services to clients and dividends to its shareholders. When dividends and bonuses are high, those at the forefront of delivering, naturally get the lion's share of the spoils.
Governments are equally happy as greater spoils generate higher taxes and, if those are deployed appropriately, benefit society at large. When it all falls apart, however – as seen during the financial crisis – the model of responding is not exactly linear.
When the US government decided on offering a bailout package for vulnerable yet critically important institutions, the focus was on whether those who had privatised the gains of the good times were now socialising the downside of the risks they had taken. The size of the bailouts themselves – initially pencilled in at $700 billion – shocked ordinary citizens and ignited long-standing scepticisms about whether the system was rigged against the common man.
In 2010, when former US president Barack Obama signed into law the response to the crisis – the range of reforms aimed at ensuring that the crisis would never be repeated – he famously declared that 'There will be no more tax-funded bailouts. Period.'
The idea of governments stepping in to save private enterprise has never been popular – particularly when public resources are limited.
In 2020, the Covid-19 pandemic forced governments to step up in various ways to contain the economic fallout of the pandemic. Companies that were otherwise well-managed and governed suddenly found their business fundamentals undermined by a force no one knew how to contain.
Stepping in to aid businesses with public resources – especially in a country like South Africa with historically high unemployment – was regarded as a necessary foray into the business arena. The idea, however, was never to create permanent dependencies, as this yields unintended consequences when businesses are run suboptimally based on the implicit expectation of the state stepping in if the business is on the brink. If such an expectation persists, the necessary reforms and good stewardship may not materialise, and public resources are then allocated to managing the bleeding.
South Africa's state enterprises are a case in point where steps that were necessary to ensure business viability were not implemented and bailouts – the short-term solution to deep-set problems – became the common practice. One can see the government's prism – some of these entities are strategically important and when they are massive employers in a sea of high unemployment – letting them evolve into shadows of their stature is regarded as politically suicidal.
Others are less critical, but once the political suicide anxieties have set in, it becomes impossible to distinguish between those whose fate is fundamentally critical to the national economic nucleus, and those whose business model has long ceased to be relevant.
Accelerated crises
A unique feature of the South African dilemma is the complicity dimension, where those responsible for the policy and regulation landscape often accelerate the crisis through policy lethargy and regulatory incoherence. If those in charge of setting the landscape acknowledge that they could have done better to aid the market or sector keep up with the world around it, the tendency for patchwork solutions like bailouts escalates.
In recent days, a rather curious case has emerged when ArcelorMittal threatened to mothball its operations, particularly in Newcastle where it is a crucial employer and central to the economy of that town. In recent years, the industry has been subjected to various market and policy vicissitudes that have forced role players to operate from an ever-complicated policy and market canvas, whose dynamics affect all role players to some degree.
For ArcelorMittal, the request for assistance has naturally attracted the attention of various stakeholders, who all have a view that is largely informed by their own respective levels of involvement in the market and perspectives about how such difficult issues should be tackled. The involvement of the IDC – which is a material investor in the sector – naturally elicited concerns about whether this was a case of a private company seeking state assistance to sort out its problems.
On the extreme end of the spectrum, the loss of a business of its nature is not only a crisis for employment but also results in a gap in the value chain unless others are able to immediately step in.
Government naturally must take an interest in the conversation, given the intersectional impacts of the possible closures.
The equally difficult part of this conversation relates to whether the state has enabled players in the sector to work within a balanced playing field, or whether some policy and oversight gaps have created problems for those who still wish to participate in the market.
If the state itself has not been vigilant enough to anticipate the shifts that create such problems, then the AMSA case should be an alert for looking closer at what exactly happens in markets like this. According to Tami Didiza of ArcelorMittal, the 'government intervention to allow a deferral of the ArcelorMittal Longs Business provides an opportunity for the fundamental structural issues facing the steel industry to be addressed, and to place it on a sustainable path by removing the market distortions that have been created'.
Such a statement reflects the nature of the issues that are not only within the steel industry but in many other sectors where the policy lethargy that creeps in, accelerates the prospects of demise for many companies who would otherwise find some footing towards viability.
Whether AMSA survives in the long run will be a combination of the solutions found now, plus the deeper deliberations on how South Africa wants to regulate and support its various industries in a world defined by shifts that are both gradual and sudden.
Given the scepticism that prevails whenever state resources are in play, this is a reckoning that neither business nor government can afford to defer.