Genesis Analytics, an economics-based consulting firm based in Johannesburg, Gauteng and with offices in Abidjan, Nairobi, Lagos, London and Toronto, have also submitted comment to The Department of Trade, Industry and Competition (the DTIC). This comment has been posted on the metal Recyclers Association of South Africa (MRA) website.
Executive summary
Internationally, metal theft is a serious problem. Metal prices, including scrap metal prices, are multiple times higher than they were at the turn of the 21st century when the world entered a super commodity cycle, driven by the industrialisation of China. High metal prices are the key driver of theft: They motivate criminal syndicates to extract metal from installed infrastructure and sell it for scrap. In both developed and developing countries, there is a significant upward trend in the number of reported incidents.
Copper theft is the most serious concern. The Federal Bureau of Investigation (“FBI”) recently concluded that “copper thieves are threatening US critical infrastructure by targeting electrical sub-stations, cellular towers, telephone land lines, railroads, water wells, construction sites […] for lucrative profits.”
It is an especially intractable problem in countries with significant infrastructure, high levels of poverty, and weak police enforcement. In South Africa, copper theft: a) constitutes a serious threat to national infrastructure, undermining the country’s low-cost rail advantage and the performance of its electrical grid; b) imposes a gross annual economic cost exceeding R46 billion (2020/2021); c) leads to loss of life and disruptions to critical services (including hospitals); and d) decreases confidence among businesses and general society.
The costs imposed from the theft of steel and other metals have been less well quantified at this stage, but the problem is also serious. The damage from stolen steel lattices alone was R100m in 2020/2021. Furthermore, the trade of steel and other metals often provides a cover for stolen copper, in terms of storage, transport, local sales and export.
Stolen scrap may pass through many hands, and change form in various ways, but it is ultimately sold to mills operating in the formal economy, either locally or overseas. The mills process the scrap into new, finished metal for on-sale into formal markets. There is a well-travelled pipeline from stolen scrap to formal mills and it is used by criminal syndicates at great cost to the rest of society.
Yet scrap is crucial to the metal supply chain. It is significantly cheaper to use compared to mined ore, and it is much more environmentally friendly. In South Africa over 50% of steel production is based exclusively on scrap. Moreover, the other 50% of production includes both ore and scrap as adding scrap makes the overall smelting operation more efficient. Thus, practically all metal produced in the world contains scrap. A portion of the scrap is stolen metal that was ripped out of critical infrastructure, from South Africa and from countries all around the world.
Globally, there have been varied responses from authorities, including a) banning the use of cash in scrap transactions, b) mandating video recording of transactions, c) banning exports, d) strict licensing and e) simply placing a complete ban on all scrap transactions. Genesis Analytics considered the viability and economic impact of various theft-reducing measures. In the end, Genesis Analytics recommend the implementation of a “new trading regime for scrap metal”, which we outline below.
In conclusion Genesis Analytics says: “It is our recommendation that South Africa implements a temporary export ban and proceeds to formalise the scrap metal industry through banning cash and implementing a strict licensing regime.” The full comment can be found at: https://mra.co.za/genesis-sa-policy-options-to-reduce-metal-theft/
