A restrictive regime

For years, rogue elements in South Africa and Kenya have been vandalizing infrastructure for scrap collection and trade. The resulting loss of public property has lead to economic losses for utility companies.

These thefts also are draining metal resources through unregulated trade, particularly of metallic scrap, which is a critical raw material in industrial and manufacturing sectors. As the world moves toward circular economies, both countries are seeking to save this important resource. Therefore, the South African and Kenyan governments are mulling strict restrictions on scrap metal trade in the domestic and foreign markets to safeguard their industrial and economic interests.

South African government tightens restrictions

From January through July of this year, South Africa’s ferrous scrap exports posted an annual increase of 447 percent to 206,363 metric tons on a low base effect. In the first six months of 2021, exports stood at 37,706 metric tons, according to the country’s customs data.

In 2019 before the coronavirus pandemic, South Africa exported nearly 525,000 metric tons of ferrous and stainless steel scrap, according to data from Global Trade Tracker. It also shipped 71,000 metric tons of aluminum scrap and 8,000 metric tons each of copper, brass and bronze scrap in this period.

SA Metal Group, headquartered in Cape Town, South Africa, reports that nearly 10,000 metric tons of copper scrap are produced per month in South Africa, of which 150 metric tons per month, or 1.5 percent, are stolen to be sold in overseas markets.

In addition to SA Metal Group, other recyclers are victims of such theft.

Thus, the cries for stringent measures have started to grow louder. South Africa’s President Cyril Ramaphosa has tightened rules for the sale of metallic scrap in domestic and export markets.

The South African government has mandated metal merchants to obtain licenses and has prohibited them from dealing in cash as crucial steps to combat theft and the illegal sales of cables, according to the budget review presented in parliament in February.

Enactment of rules, which place the onus on traders to undertake due diligence on their consumers and track the provenance of the material, also is underway. Some radical voices, those of a few industry leaders and ministers, have urged a complete ban on the export of scrap metals.

The South African metal recycling sector, however, states that a ban will not alleviate the problem and instead will harm the scrap metal and manufacturing industries. This, in turn, will affect the country’s economy.

A net exporter of scrap metal, the country’s industry is estimated at 15 billion to 20 billion South African rand (ZAR), the equivalent of $875.2 million to $1.2 billion, annually, proving crucial for earning foreign exchange reserves and in the development of the nation’s industrial sector.

A criminal justice system?

© Negro Elkha | stock.adobe.com

The country’s Metal Recyclers Association argued that neither a legislative change nor new regulations will solve the crisis. Vigorous enforcement by the criminal justice system is the only way out of the situation, it says.

Restrictions on export trade have been in place for more than two decades in South Africa. Calls for legislation to monitor exports began in 2001, with the ministry of trade unveiling the first policy to govern scrap exports in 2003. It mandated traders to cater to the needs of the domestic market before selling overseas and prohibited the issuance of export permits for certain classes of scrap.

Still, in 2007, South Africa witnessed a spike in metal theft and vandalism, with copper and other nonferrous metal users reporting an average of 11,000 incidents daily. Subsequently, in 2009, metallic scrap was added under the Second-Hand Goods Act, which was revised after five decades. The act is governed by the South African Police Services.

The country’s metal industry, especially domestic foundries, however, reported a continued shortage of scrap in the domestic market, rendering their products uncompetitive against imported goods.

The government, therefore, came out with a Price Preference System, managed by the International Trade Administration Commission (ITAC) in 2013. The Price Preference System required scrap recyclers to sell material to local customers at lower than the market value before securing an export license. ITAC granted export permits to dealers should they fail to receive local bids for scrap.

To aid the domestic industry, in 2015, South Africa raised price preferences for scrap steel and stainless steel from 20 percent to 30 percent under the Price Preference System policy. For aluminum scrap, it was raised to 25 percent from 20 percent. Preferences for other scrap metals continued to be at 20 percent. These preferences were calculated based on the average international spot market price of the previous month.

In June 2020, Minister of Trade, Industry and Competition Ebrahim Patel imposed a two-month ban on the export of ferrous and nonferrous scrap metal to safeguard the domestic industry against supply chain disruptions caused by the pandemic. The ban, however, failed to curb the theft and vandalism of public infrastructure for scrap metal trade, costing companies such as Transnet, Telkom and Eskom a total of ZAR7 billion per year ($427 million), with the economy losing ZAR187 billion ($11,4 billion).

Kenya’s fight against infrastructure theft

In January of this year, Kenyan President Uhuru Kenyatta imposed a ban on exports or scrap metal trading of any kind. The ban was replaced by rules in April mandating metal scrap trade licenses.

Mills and smelters must pay 250,000 Kenyan shillings (KES), roughly $2,109, in annual fees to obtain a license. While agents and Jua Kali collectors must pay KES50,000 ($422) for 3 metric tons and KES250,000 for 5 metric tons of scrap traded annually. Stakeholders, especially small-scale dealers, say these annual fees are exorbitant.

Additionally, under the new rules, only government-owned companies, including Kenya Shipyards Ltd. and Numerical Machining Complex Ltd., which is owned by Kenya Shipyards and Kenya Railways, are permitted to purchase scrap metal from the demolition of vital national infrastructures such as roads and railways.

The Kenyan government’s move to abolish the requirement of licenses for scrap metal trade in the 2007 amendment of the Scrap Metal Act of 1959 had increased metal theft and vandalism. Exports of scrap metal to nations such as China affected the availability of crucial raw materials for industries, market participants say.

In 2010, the government banned the export of steel, aluminum and copper wire to curb these thefts. Kenya’s exports of ferrous waste and scrap that year decreased by 15.6 percent to 3,626 metric tons, according to the Kenyan National Bureau of Statistics (KNBS).

Scrap metal exports from Kenya recovered within a year despite the ban and increased annually by 19.7 percent to 4,342 metric tons in 2011 and by 25.9 percent to 5,465 metric tons in 2012. In terms of value, the scrap metal trade rose by 169 percent from $11 million in 2011 to $32 million in 2012, according to the KNBS Economic Survey 2013.

In the 10 years leading up to 2012, Kenya Power and Lighting Co. revealed it had lost more than $70 million to vandalism, while Telkom Kenya claimed an annual loss of $6 million.

Therefore, the country’s Ministry of Industrialization introduced the Scrap Metal Bill of 2013 to regulate the industry, which again mandated a license. Other provisions of the bill required dealers and mills to keep records of buyers and sellers, the dates of transactions and the origins of the material.

However, the bill was amended less than a year later on the grounds that it disregarded Kenya’s obligations under international treaties governing the transportation of hazardous scrap metal.

In 2015, the governing body enacted the Scrap Metal Act in place of the previous bill and finalized the establishment of the Scrap Metal Council to regulate the scrap metal trade. The Scrap Metal Council was a regulatory institution that worked in collaboration with the inspectors to bring order and integrity to the scrap metal trade. The purpose of this act was to establish guidelines for screening and licensing business traders. Seven years later, the act has yet to take effect, with only 20 scrap metal dealers licensed under it.

In 2016, the Kenya Scrap Metal Association reported that approximately 100,000 metric tons of scrap cast iron remained unsold in the industry because of the lack of clear regulations. Meanwhile, the Kenya Power and Lighting Co. continued to report a loss of KES6 billion ($50.8 million) every year because of theft and vandalism of its electricity cables and transformers. In the meantime, the Kenya National Highways Authority paid private companies up to KES4 million ($33,543) per month to secure metallic installations on roads across the nation.

In 2020, the Kenya Rural Roads Authority disclosed that more than 40 street poles worth KES7 million ($58,700) were vandalized in Nairobi City County over three months.

Despite the ongoing thefts, a solution that benefits scrap traders and infrastructure companies has yet to be achieved.

Keren Beya is a reporter at Davis Index and can be reached at keren.beya@ davisindex.com.