TAFADZWA CHIBANGUZA: Why ending scrap metal theft requires nuanced approach

No-one in SA has been left untouched by infrastructure theft, whether in the form of electricity outages due to cable theft (worsening the country’s already tenuous grip on energy supply); the extensive damage to rail infrastructure that prevents the delivery of freight to ports; and/or the damage to the commuter rail system that affects mostly SA’s poorest citizens.

Though the focus of all these criminal activities is on stealing metal to sell as scrap, not all of SA’s scrap metal falls into this category. 

We may have come to associate all scrap metal with the infrastructure theft that according to the Global Initiative Against Transnational Organised Crime costs SA R187bn a year, but much of it is generated by manufacturers, which then legitimately sell it back into the system, providing them with an important cost recovery mechanism.

The widespread damage caused by metal theft has added to the many challenges that hamper SA’s economic recovery and repel investment. Given the extent of the problem, the recent policy directive from trade, industry & competition minister Ebrahim Patel is a welcome development. The draft directive proposes to curb scrap metal theft in a three-phase approach.

Phase one considers a six-month ban on the exportation of ferrous and nonferrous metals, while phases two and three primarily deal with legislative enhancements to the Second-Hand Goods Act, determining the ports that may be used to export scrap metal and banning the use of cash in scrap metal transactions. It is envisaged that phase one is necessary to give the department the necessary time and space to enact phases two and three.

However, this six-month export ban has attracted vastly contrasting opinions. The logic the department has followed is that the ban will depress domestic scrap prices and in turn remove the incentive for criminals to steal the metal. On the other hand, the EU has objected to the ban on the basis that it would violate world trade agreements, while the DA and the Recycling Association of SA have expressed concern about the consultation process.

Patel has tried to reassure critics that the ban is not a foregone conclusion. However, whatever shape the policy may take there are two important considerations. First, the issue of security, which encompasses economic, infrastructure and social security. This relates to the far-reaching damage felt by the country as a result of scrap metal theft. The second consideration relates to industrial policy and the domestic availability of scrap.

At present, the economic damage caused by the security-related considerations could be argued to outweigh the industrial policy ones, but the two considerations are not mutually exclusive as they have overlapping consequences. This is why the strategic policy choice of the directive must be made crystal clear, as that will determine the policy levers that should be adopted.

If the main point of focus is to be the resolution of the security concerns, better policing, intelligence, border control and far tougher sanctions for metal theft-related crimes are needed, and urgently. If industrial policy is to take the lead, instruments to increase the domestic availability of scrap can be adopted.

Bureaucratic hurdles

The existing proposal, particularly the ban, seems to try to solve both issues simultaneously, causing it to adopt blunt policy instruments that are likely to lead to yet more problems and yield economic casualties. In trying to curtail the activity of criminal syndicates and networks it is vital that new, more rigorous compliance requirements do not inadvertently penalise legitimate scrap metal traders and create bureaucratic hurdles and additional costs for them.

To successfully implement the proposed policy security will need to be improved substantially, critical infrastructure will have to be protected and exported metal will have to be closely monitored. Successful implementation of these policy initiatives would contribute to solving the problem and eliminate the need for an export ban.

One could agree with the logic that decreasing the domestic price of scrap metal through policy interventions will reduce the incentive to steal metal. However, this could also inadvertently encourage thieves to steal more to compensate for the decrease in price. Also, these metals will still be in high demand outside SA, re-emphasising the illegitimate export route as a lucrative option. It is clear that the issue cannot be dealt with lightly but requires a more nuanced policy response based on a holistic view. 

A more workable policy should take into account the structure as well as the demand and supply dynamics of the various scrap metal markets, rather than the blanket approach to all metals it has adopted. For example, copper, which is used for electricity, telecommunications and rail signals, is a high-risk metal and in high demand globally. It is also difficult to guard as it is used over expansive areas, so it would need to be more strictly controlled than other metals.

Policy directives

Stainless steel, on the other hand, has only one major domestic purchaser, from traders or directly from manufacturers, presenting a completely different demand and supply dynamic. Moreover, the Genesis Analytics report on which the policy directive for the export ban was based on estimates that the impact of copper scrap theft is R45bn per annum, while that of all other metals totals R100m. This is perhaps the strongest motivation that policy directives cannot treat all metals the same.

What is beyond question is that the economic devastation caused by scrap metal theft cannot be allowed to run unchecked. However, policies to address scrap metal theft must take into account the complexity of the market and the demand and supply forces at play, which point to the fact that some metals require stricter and further-reaching regulations than others. In the final analysis the development of any workable policy or policies will require thorough consultation with all of the industries and stakeholders, to ensure a one-size-fits-all approach is not simply adopted.

Whatever form the final policy takes, what is absolutely paramount is strengthening the law enforcement capacity to police, monitor and regulate the scrap metal trade. Policy interventions in the absence of strengthening this capacity will simply be doomed to failure.

• Chibanguza is COO of the Steel & Engineering Industries Federation of SA.