Unintended consequences of war on copper cable theft – proposed export curb will cause huge job losses

The impact of South Africa’s copper cable theft scourge is personal. Were it not for thieves putting the Graceland Farm studio out of service, our lives would be very different today. No regrets. But the reality is copper prices are at a multiple of where they were a decade back. So the incentive for thieves to rip out cables is high. And the scourge extends far beyond the now denuded Mooi River district in KZN. South Africa’s Government is determined to fight back and is proposing curbs on all scrap metal exports. . Rael Solomon’s investigation into the matter suggests the unintended consequences could be severe. – AH

By Rael Solomon*

The SACCI Copper Theft Barometer shows that about R120m  worth of

Historical Copper Prices - Copper Price History Chartcopper is being stolen annually in South Africa. Copper waste exports are around R360m.  Draw your own conclusions! In July 2013 SACCI’s index reported an increase of 10% in copper theft after the declines of previous months.

The theft of copper cable impacts daily on the quality of life. This runs from delays for the Gautrain due to signaling problems to telephones not working and accidents at faulty robots causing traffic jams. The copper thieves have a ready market for their wares from “bucket shops” to unscrupulous scrap metal dealers.

In a June 2013 Media Release SACCI advised that it “is once again calling on members of the public to help in the fight against copper theft. They should be aware of criminals who are pretending to be contractors to Telkom.”

The scrap metal industry in South Africa is worth over R15bn, perhaps as much as R20bn  a year says an executive committee member of the Metals Recycling Association of South Africa. With so much business at stake, MRASA members are doing their utmost to ensure that criminal activities are stamped out. Not surprisingly, as SA Government Ministers are calling for cable theft to be declared economic sabotage. And for punishment to fit the crime.

The MRASA executive, who preferred  not to be named, said the association “would most definitely support the escalation of this type of crime to that of economic sabotage. It is justifiable.”

Government has even suggested the possibility of implementing an export tax on copper and  ferrous metals.  The question is do draconian interventions of this kind work as intended?

Economic Development Minister Ebrahim Patel said at a media briefing in May that “I have chosen to go with a mechanism that will have the effect of reducing the level of exports of scrap metal. In many countries today these restrictions can vary from outright prohibition to market mechanisms, requiring scrap metal exporters to offer the metal first to the domestic users, sometimes with a price discount.”

I spoke to the CEO of an independent recycling company. He said efforts by the SA Police to stamp out copper theft were beginning to pay off as reflected by the recent decline in monthly amounts of copper stolen. He says his company is no longer prepared to pay cash for copper and ensures that all statutory steps, required by law, are followed when purchasing scrap metals.

The key to the business model of the thieves is being able to dispose of the stolen copper cable. To do this they are introduced to a receiver or the goods are sold on through a third party known to unscrupulous receivers who usually run bucket shops. The thief and the receiver may not know each other. Traps are set by the police and some are arrested.

Professional scrap dealers shun these thieves and will not risk their businesses for paltry sums. For the police the key is to arrest the receiver of the stolen copper. Then the cycle has to start all over again. The weak link is there is really no honour among thieves and the police rely upon this factor.

The recycling company bossman says he  has invested millions on sophisticated processing machines and is focussing on the domestic market and on exporting to India and China. The SA market cannot absorb all the recycled copper, hence the need for exports. He predicts metal export demand will grow rapidly with the resurgence of the Chinese market and the growth of its urbanisation.  With waste copper exports at only R360m compared to the tens of billions of rends of ferrous metal exports; iron and steel are still the backbone of the metal recycling industry in South Africa.

He warned that proposed legislation to restrict exports of waste metals could result in the closing of hundreds of scrap dealers and exporters operating all over the country and bring with it the loss of thousands of jobs.  These losses exclude hundreds of legal collectors of scrap metal who queue up at his yard every day to sell their wares, would now have no income. Many families would fall back into living below the breadline.

The real problem is that copper is easily stolen, almost impossible to secure, and has become a secondary industry for people living on or below the breadline. Even death by electrocution is a risk worth taking for some copper thieves. If the value of the rand were to fall further, copper, chrome and ferrous metals would become even more valuable commodities. But does this justify curbing exports? Would it work? And at what cost to jobs and the economy?

* Rael Solomon Pr Eng is a professional engineer who specialises in labour and business law. You can email him direct at [email protected]