Billionaire-backed ArcelorMittal South Africa’s (AMSA's) plans to shut down a century-old steel mill in South Africa are holding President Cyril Ramaphosa’s dream of fostering a $257-billion infrastructure boom to ransom.

That plant — and two others it wants to idle — supply what builders need for the vaunted exponential rollout of power-transmission towers, rail lines and new roads — projects that the leader says will turn the country into “a construction site,” boost sluggish growth and provide much-needed employment.

They are also crucial to the jewels in South Africa’s manufacturing industry — its auto plants — and provide the specialty steel for the drills used in the country’s precious-metal mines that rank among the world’s biggest.

Rand York Castings Ltd., one of the nation’s largest steel fabricators, said it may move a unit that makes civil-engineering products it exports globally to India. Industry groups estimate that at least 100,000 relatively high-paying positions are at stake in South Africa, where almost a third of the labor force is jobless.

“It’s a devastating blow to South Africa’s industrialization and infrastructure-development goals,” said Lucio Trentini, the chief executive officer of the Steel and Engineering Industries Federation of South Africa, which represents more than 1,300 companies employing 170,000 people. “It was a decision that we were hoping could be at best avoided, at worst delayed.”

The company, which Lakshmi Mittal formed in 2006 by merging his Mittal Steel with France’s Arcelor, on Jan. 6 said that after a year of inconclusive talks with the government, it will shutter its long-steel plants in Vereeniging and Newcastle at the end of the month. A dysfunctional freight-rail service, soaring electricity prices, a low-growth economy and government policies that cut costs for its local competitors triggered its call.

“We cannot delay this decision any longer,” AMSA CEO Kobus Verster said. “The government is willing to listen but is not really able to make decisions. Could they have done more? Of course they could.”

South African Trade Minister Parks Tau has since then put together a team that’s “working day and night” with AMSA, as the company is known, to stave off the closures, said Yamkela Fanisi, his spokesman.

“The steel industry is critical in the reconstruction and recovery plan for the South African economy,” Fanisi said.

Vincent Magwenya, Ramaphosa’s spokesman, referred queries to Tau’s department.

While steel consumers can source the more-basic materials that AMSA supplies from local steel mills that melt scrap in electric-arc furnaces, they will need to import larger steel sections and specialty steels, limiting flexibility and raising costs. Carmakers will need to undergo recertification for steel products made by new suppliers, a safety requirement that involves a lengthy approval process.

“The minute you import, you are looking at large cash-flow investments and long lead times, defeating the purpose of rolling out infrastructure and creating labor across the value chain,” said Justin Corbett, the co-CEO of Rand York. “You are beholden to external forces.”

For now, the industries that AMSA supplies are scrambling to either avert the closures or find alternatives.

Organizations that represent carmakers in the country — which include Volkswagen and Toyota Motor Corp — and automotive-component manufacturers have written to Tau and Verster, asking them to stop or delay the closures for 12 months while they find alternative supplies. They warned that plants may close, and that components made locally would need to be imported, threatening thousands of jobs in an industry that employs more than 116,000 people.

The closures could disrupt supply chains and see skilled workers emigrate, Mining Equipment Manufacturers of South Africa interim CEO Juliana Makapan said. The National Transmission Company South Africa, which oversees the electricity grid, said it’s assessing the impact of the wind-downs.

AMSA and industry organizations say the closures are partly due to a testy relationship between the government and ArcelorMittal. The company took over former state-owned steelmaker Iscor Ltd. in 2003 and has since been accused of skimping on capital expenditure. In 2016, local antitrust authorities fined it the equivalent of $110-million for anti-competitive behavior.

AMSA didn’t respond to requests for further comment.

As a result, the government fostered challengers to AMSA by forcing discounts on scrap prices for those competitors through a price preference system it introduced in 2013, and imposing an export tax of 20% on the material in 2020.

Scrap collectors can only export if no local buyer wants the material. And if domestic users want the product, they get a 30% discount on the international scrap price. Also, the scrap dealer has to deliver it to them no matter where they are in the country. As a result, the material lingers in yards, incurring additional costs.

“It’s an enormous amount of bureaucracy,” said Mark Fine, the owner of Fine Trading, a major Cape Town-based scrap dealer. “It defies any kind of economic logic.”

The Industrial Development Corp, a South African State development bank that’s the biggest shareholder in AMSA after ArcelorMittal, also invested in its rivals.

A number of steelmakers and so-called mini-mills now out-compete AMSA for the market for less-specialized products the company produces. Those include Scaw Metals, Cape Gate and Unica Iron and Steel.

The IDC is talking to stakeholders with a view to “maintaining and expanding industrial capacity,” it said in a response to queries The government is reviewing both the PPS and the export tax, the trade ministry’s Fanisi said.

AMSA, which also closed down the Saldanha Steel mill in 2020, has turned down a number of offers for its shuttered or struggling plants.

Scaw has made multiple offers to buy or operate Vereeniging, which supplies the crucial auto sector, and can now make some of the products itself, Commercial Director Mzamo Mjekevu said.

Sign up here for the twice-weekly Next Africa newsletter

While both Scaw and Cape Gate are expanding and upgrading their operations, Mjekevu said the local market is too small for rival mills to invest in some specialized projects.

At a press briefing on Jan. 17 following her first visit to AMSA’s Vanderbijlpark operation, Labour Minister Nomakhosazana Meth said the government was engaging with the company and that the situation was “urgent.” Sitting alongside her, AMSA CEO Verster said time was running out for a resolution.

The industry isn’t holding out much hope that it will come.

“The horse has bolted,” Seifsa president Elias Monage told eNCA television. “We can talk until the cattle come home. If nothing happens, it’s a problem.”