Scrap export ban a disaster

The 2010 mid term fiscal policy review proposed that scrap metal generated as a by-product of the production process be exempt from the export ban. Do we have any idea what harm this might cause?

With baby strapped to her back, scrap metal collector Judith Sibanda prepares to leave for “work”.  (CREDIT: Ignatius Banda)
With baby strapped to her back, scrap metal collector Judith Sibanda prepares to leave for “work”. (CREDIT: Ignatius Banda)

This proposal implies that the ban on export of scrap metal, which was put in place on 1 August 2004, would be lifted. The ban was put in place to encourage value addition of locally available raw materials. Some steel manufacturers have already indicated that the Government did not widely consult when it made the proposal to lift the ban. The decision was based on the Government’s conviction that the local market had no capacity to absorb the output of scrap metal due to liquidity challenges. The Government also argued that local merchants pay low prices on scrap metal due to subdued demand, and that this has resulted in accumulation of scrap metal that cannot be offloaded on the local market.

Regional market prices

It would appear that the Government only took into account the views of the dealers who are looking for higher prices of scrap metal in the regional markets. A tonne of scrap metal fetches as little as $60 locally, and as high as $400 in the regional markets. Dealers know that if the ban is lifted, they can get up to six times what they are currently being paid locally.

While Zimbabwe is proposing to lift a ban on export of scrap metal, an association in Zambia has actually urged its Government to maintain a ban on the export of scrap metal to safeguard local businesses. A number of regional countries such as Botswana, Tanzania, Mozambique and Kenya have also banned the export of scrap metal.

The policy framework set by the Industrial Development Policy is geared towards the increased contribution of the manufacturing sector to the gross domestic product through value addition of raw materials. It would appear that the proposal to lift the ban would be working against the spirit and letter of the IDP.

There would also be serious consequences for the operations of all metal industries, including steel foundries. For starters, this would result in high quality scrap metal exported – leaving only poor quality scrap for local foundries. This might force production costs of steel to rise, forcing the final prices of steel to rise, and resultantly affecting the competitiveness of Zimbabwean steel on local and external markets.

International exploitation

The lift of the ban on scrap metal would attract international scrap metal traders to set up shop in the country. They can do this directly or indirectly by fronting local merchants, who are already dissatisfied with the prices on the local market. The Indigenous Scrap Metal Merchants Association is on record calling for the gazetting of scrap metal prices to protect dealers from being exploited by buyers of scrap metal.

Apart from revenue loss to local companies in the steel sector, the lifting of the ban would also cause unemployment. The move might also affect business viability, since it would mean that steel would have to be imported for development activities, which would put a serious strain on our delicate economy.

The export of scrap metal might also fuel vandalism and the theft of national strategic infrastructure from companies such as National Railways of Zimbabwe, TelOne and Zimbabwe Electricity Supply Authority. This was also the case prior to the ban that was put in place in 2004.

Post published in: Business

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