SA’s ban on scrap metal exports is failing to arrest the theft of infrastructure and cables and should be lifted immediately, a report by trade expert XA Global Trade Advisors has warned.
The department of trade, industry & competition first imposed a ban on the export of ferrous and copper scrap in November 2022 to quell the theft of transport and communication network infrastructure.
This was extended by six months in July and is now under consideration for another six-month extension, despite the ban being in contravention of World Trade Organisation (WTO) regulations.
“The export ban has been in place for a year with no indication given that theft has reduced, said XA Traders CEO Donald Mackay. “The ban needs to be lifted as it is causing material harm to the economy.”
XA describes itself as SA’s only full-service international trade consulting firm, focusing on trade policy and customs and excise.
Addressing a media briefing on Wednesday, Mackay said it was “suspicious” that the department had refused to provide any supporting data for its proposed extension of the ban, while the SA Police Service (SAPS) declared its information confidential.
“It’s not clear how crime statistics can be considered confidential. This is procedurally unfair, irrational and casts doubt on the basis of the proposal,” said Mackay.
Secrecy around scrap metal policy has created fertile ground for lobbying and corrupt decisions, he added.
Cable theft is said to cost the economy an estimated R187bn a year, driven by growing global demand for copper scrap. It contributes to prolonged power outages and leaves trains stranded as railway lines, electricity pylons and street lights are among the key infrastructure items targeted.
Steel industry bodies such as the Metal Recyclers of SA and the Steel and Engineering Industries Federation of Southern Africa (Seifsa) have also voiced opposition to the ban.
The bodies have separately said that using the export ban as a blunt instrument is unlikely to curb criminal activities. Instead it would cause harm to legitimate scrap metal trade activity.
Small-cap metal alloys supplier Insimbi Industrial in October reported lower profits and a 95% fall in cash generated for the six months to end-August as it grappled with the effects of the ban on exports of recycled metals, which have forced it to increase its working capital cycle to 42 days.
According to the XA report, the government’s intervention in the sector has distorted the steel value chain and contributed to the potential closing down of the Newcastle operation of ArcelorMittal SA (Amsa) with massive job losses to follow.
Highlighting that the department’s move to possibly extend the bans coincides with large investments in mini-mills and foundries by the Industrial Development Corporation (IDC), Mackay said extending the ban would only serve to protect the IDC’s investments in the sector rather than serve the entire scrap metal value chain. “We have moved from a crime-fighting action to state support for its own investment portfolio.”
The IDC has increased its investment into the energy-intensive mini-mills and foundries by R3.3bn since 2019 and has a R14bn exposure to this scrap metal consuming sector.
State interventions — including the export bans; the Price Preference System (PPS), which forces scrap recyclers to offer their scrap to consumers at a minimum discount before they are allowed to export; and export duties — benefit and protect this segment of the value chain but create tremendous downward pricing pressure on scrap metal.
Most recently, steel giant Amsa conceded that it could not continue to operate in the face of headwinds brought about by the introduction of the PPS for scrap, a 20% export duty and a ban on scrap exports, which has allowed steel production through the electric arc furnaces route an “artificial” competitive advantage when compared with steel manufacturers beneficiating iron ore to produce steel.
According to the report, the interventions in the market make it difficult for legitimate scrap recyclers to compete with criminal syndicates, driving larger amounts of the material into the illegal market.
“So we are in an unusual position here with the IDC being the only bank in the country that also has the ability to get trade and industrial policy set in a way that their own investments can be looked after,” said Mackay. “The problem is particularly severe because of the secrecy.”
The IDC’s head of corporate affairs, Tshepo Ramodibe, dismissed claims that interventions were biased towards its investment portfolio which includes Amsa, steel mini-mills, stainless steel, downstream fabricators, foundries and casting companies.
He said the investment case for IDC support to mini-mills was aimed at increasing competition in the primary steel industry, improving economic inclusion and providing access to the market for SMMEs and black industrialists, while enhancing competition in particular products.
“The IDC is invested in the whole value chain inclusive of Amsa and steel mini-mills, as well as mid and downstream companies,” said Ramidibe. “It cannot be assumed that policy is only earmarked for IDC investee companies.”
The IDC steel investments are all subject to the challenges associated with logistics, electricity and weak demand, he added.
The department declined to comment on the matter.
Update: December 6 2023
This story has been updated to include comment from the IDC.
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