Why ban on scrap metal sales won’t deter theft of public infrastructure

METAL infrastructure continues to be stolen, while the volume of scrap metal that is being exported has been falling.

The volume of exports is at its lowest level in almost 10 years, according to SA Revenue Service (Sars) statistics.

What the two issues have in common depends on who you ask, or which way you look at it.

This year, the Cabinet has considered and approved a comprehensive package of measures to address the damage caused by metal theft to public infrastructure and the economy by restricting and regulating trade of waste, scrap and semi-finished metals.

And according to a media briefing in Parliament yesterday, the implementation of the policy measures will proceed along a three-phased approach.

This follows the publication in the Government Gazette, in August, of Draft Policy Proposals on Measures to Restrict and Regulate Trade in Ferrous and Non-Ferrous Metal Waste, Scrap and Semi-Finished Ferrous and Non-Ferrous Metals Products to Limit Damage to Infrastructure and the Economy for public comment.

According to the Minister of Trade,

Industry and Competition (dtic) Ebrahim Patel, the government, received more than 2 800 comments on the draft policy from across society, including business, industrial associations, organised labour, organs of State and individuals.

However, in some areas, comments from the public and affected parties have persuaded the government that the proposed interventions should be adjusted to minimise unintended consequences where possible, including disruption to legitimate exporters and potentially undermining waste-pickers’ livelihoods, he said.

The first of two phases includes the temporary prohibition of exports of copper waste and metal scrap for a six-month period.

However, Business Report asked Patel, at the media briefing yesterday, if the trial bans of more than nine months on scrap metal exports in 2020, during Covid, when theft of metals reached a peak, made little difference then, how would it make any difference now?

Patel mentioned the Price Preference System, which was implemented a few years back, where the government forced exporters to offer scrap metals to local industry at a discount first, before being allowed to export. He added that South Africa faced an enormous shortage of scrap metal in 2020.

With the tweaks and amendments over the years, the dtic managed to secure and supply and secure supply for the local industry, he said.

Patel added: “Here we are dealing with a separate problem. We are trying to deal with the theft of scrap metal and copper and its sale to industry. And most of its sales goes through exports.”

The thinking seems that if you curb the exports of scrap metal, you will flood the local market, suppressing the prices thieves can obtain for their stolen loot and thus disincentive theft.

However, Donald Mackay, the founder and chief executive of XA Global Trade Advisors, says that the measure makes three important assumptions, none of which is supported by evidence.

Firstly, that the stolen metal is traded at local market prices, or a reasonable derivative thereof, and secondly, if the price does drop in the illicit market, thieves won’t steal more to make up the shortfall.

“Thirdly, we need to assume the thieves are accurately declaring their exports to customs, so their stolen material is impacted by the ban,” he added.

In phase 2, according to a press release by the dtic, a licensing system will be put in place for all metal trading in South

Africa. It is intended that sellers of copper waste and scrap metal will need to register under the Second Hand Goods Act.

“In order to register to trade in copper waste and scrap metal, applicants will need to show, among other things, tax clearance, and dealers will be required to submit detailed purchase and sales information to a centralised database.

Registered buyers will only be allowed to purchase from registered sellers, which means that incidental sales of copper waste, scrap and semi-finished products and sales by unregistered waste pickers will not be allowed.

In phase 2, dealers in certain semi-finished metal products will also need to be registered under the Act, and tax clearance and reporting obligations will apply. Amendments to the Act’s regulations necessary to affect the above measures will first be put out for public comment.

But MacKay said that he was not sure where the idea originated that when metal is stolen it is exported.

“Recyclers collect around 3.5 million tons of ferrous scrap and another 300 000 tons of non-ferrous scrap per annum. We then export around 496 000 tons of scrap metal (13%). There is also little evidence that the criminals develop a conscience when they need to declare their exports to Sars,” Mackay said.