TELITA SNYCKERS: Is Ebrahim Patel sacrificing an industry to save government’s investment in Scaw?

I warned in this column recently that trade policy is being developed in a way that may simply be creating a seat at the table for those lobbyists with the deepest pockets. Worse: this policy is also being developed outside of the properly mandated International Trade Administration Commission of SA (ITAC). Well, the case gets more and more curious. 

When it comes to scrap metal, trade, industry & competition minister Ebrahim Patel has implemented a price preferencing system (PPS) and banned scrap metal exports — which has wiped out R6bn in annual export revenues. It’s a decision with scant apparent commercial substance that has been made with hardly any industry engagement.

Under this rule, scrap recyclers have to offer their scrap metal to local companies at below the global scrap price. They will only be issued with an export permit if they don’t get any offers to buy their scrap from a local company. (And, on top of that, they would then also have to pay a newly introduced export duty.)

You’d expect there to have been a solid impact assessment conducted before implementing such a policy. If so, there’s no trace of it in the public records. Patel’s department of trade, industry & competition (DTIC) recently disclosed the submissions it had considered in making its decision to extend the PPS. 

Yet straight off the bat, the DTIC said it could not disclose all of the submissions, since some contain “trade secrets” or were made in confidence. This is an issue on its own: surely, whatever confidential trade secrets may (weirdly) have been disclosed could simply be redacted? 

Be that as it may, even the submissions that the DTIC was willing to disclose are revealing. Of those 10 submissions, just three supported extending the PPS.  

One of these was an artless one-liner in support of the PPS, after the DTIC had sent a reminder to that gentleman that it was waiting for some input from him. 

The second was a simple note to the effect that the PPS was good for foundries.

The third — and the only substantive submission in support of extending the PPS — came from a company called Scaw.

Now, Scaw’s submission is interesting, because Scaw is a “significant subsidiary” of the Industrial Development Corp (IDC), which at one point held as much as a 100% stake in the company. 

And the IDC, of course, is owned by the SA government. 

The IDC itself has noted that it is “heavily challenged by [Scaw] because unfortunately they’re not on a sustainable path and they are a big drain on the IDC”. 

Importantly, there have been calls for Patel to account to parliament about Scaw’s dismal performance. And the IDC’s exposure to Scaw? A hefty R1.9bn.

Perhaps if I were in Patel’s shoes, I’d also be keen to protect the government’s investment in Scaw and keep it afloat. The question is, is he sacrificing the interests of an entire industry just to protect one company the government has a substantial stake in? In Scaw’s submission, it says it “was always short of scrap supply and there was never enough scrap available and very little good-quality scrap was made available to Scaw by scrap dealers”. The submission goes on: “In 2020, Scaw had to temporarily halt operations due to the lack of raw materials. Scrap dealers would export the good-quality scrap and deprive the local market of quality raw material.” 

And that’s it. As far as we know, this is the only substantive argument in support of the PPS being extended. 

By contrast, the other submissions mounted compelling arguments against the PPS being extended. 

This includes the fact that the system is “anticompetitive”; it fosters collusion between foundries and large recyclers; it, along with export duties, constitutes a double-whammy for smaller players in the industry; and it gives the domestic industry the power to dictate pricing levels.

Tellingly, the submissions point out that the ITAC’s own investigation had concluded that the earlier PPS had not achieved its goal of supporting the local foundries and steel mills, and that the PPS should be axed and replaced with export duties. 

Glaring conflict of interest

Now, there is nothing inappropriate about Scaw’s submission. It makes a simple argument aimed at securing its continued existence – as do the other companies in their submissions. 

But the DTIC’s role as policymaker is to find a way of integrating those competing interests into a cogent, responsive system for the common good.

Ultimately, this isn’t about whether extending the PPS was the most appropriate policy choice. It’s entirely possible that it was. 

Rather, this is about whether the process followed in making that policy choice was appropriate. It’s about the fact that the perception of propriety is as important as actual propriety. 

And when the only substantive submission in favour of the policy was made by a company in which the government itself holds a large stake — and whose continued survival and profitability is a strategic objective for the IDC — that process requires far greater scrutiny and far greater transparency. 

Because intentional or not, it creates a space where policy positions, yet again, may end up favouring the well-connected.

Policymaking is not a democracy. Nor should it be, since the majority is not necessarily always right.  But when the majority of submissions make a compelling, seemingly well-argued business case for the scrapping of the PPS, and the only argument being advanced for its extension comes from a company in which the government has an interest in rescuing, surely something is amiss?

*Snyckers is an independent illicit trade expert. Her exposé on the role of Big Tobacco in fuelling illicit trade – Dirty Tobacco – was released in 2020 and has recently been shortlisted for the prestigious ANC / Sunday Times (previously the Alan Paton award) for non-fiction. You can follow her on Twitter @telitasnyckers