By Zandi Shabalala

(Reuters) – South Africa’s economic problems are compounded when large amounts of money were stolen from Transnet and Eskom, which in turn is smuggled abroad, accounting for billions of rand annually.

Eskom, a power company, expects to post a net loss of 15.2 billion rand ($1.1billion) for the current year. Eskom said that its “unrelenting copper theft” was costing Eskom 5-7 Billion rand annually. Additionally, Eskom spends 2 Billion rand a year replacing stolen cables.

Transnet Freight Rail reported that copper thefts rose 177% during the past five year and was particularly high during the COVID-19 outbreak.

In 2020, cables were stolen from hundreds of thousands of metres. The company reported that 20 trains had to be cancelled each day.

According to Transnet, “the cumulative damage copper cable theft has on the economy and the public is astounding.”

Transnet and Eskom have disclosed financial losses that could be devastating for South Africa. In a country where there are frequent power outages, this has slowed growth and lowered investor confidence.

Copper theft isn’t a new problem, but South African state companies and players on the market say that it has increased in recent years. Due to low inventories and tight supply, the global demand for copper scrap is on the rise. This has driven prices to new records.

South African scrap dealers may buy stolen copper and melt it down to make ingots or granules. These products do not need scrap export permits and can be removed from identifying markings. This is according to four local recycling and manufacturing companies that told Reuters.

Sources said that smugglers sent scrap to Asian market, using often export codes for textiles or shoes to avoid detection.

“There is almost no way to identify where scrap has come from once it’s been granulated, sheared or shredded as the processing machinery damages any identifying marks on metal surfaces” said Ross Bartley, head of trade and environment at the Bureau of International Recycling (BIR).

Smugglers’ PROFITS

The South African scrap market’s transformation is shown in previously unpublished government data compiled from confidential reports.

ITAC (the government agency responsible export permits) granted copper export permits to 9,956 tonnes scrap in 2019. This is a fraction of 2012.

Six manufacturing and scrap sources claimed that scrap was moving out of the country in less processed or mislabeled forms. ITAC stated that the decrease in permits is due to scrap deals being made domestically in the Price Preference System of the country (PPS) and not a rise in smuggling.

Scrap exporters were required to sell scrap material to local producers at a reduced rate under the PPS.

However, industry sources claimed that it had not helped much as domestic scrap prices were usually lower than international profits from selling or smuggling.

South African Revenue Service spokesperson declined to provide details about the cost of the scrap metal stolen from the country.

“CONCERN IN THE INDUSTRY”

Evert Swanepoel (chairman of Copper Development Association Africa), which represents producers that use copper scrap said that illegal markets were driving law-abiding businesses out of business.

Since 2004, the CDAA membership has nearly halved and many thousands of jobs have been lost as manufacturers are unable to get the basic materials they require for production.

“If we do not act soon, the industry will be doomed.”

In August, to promote more scrap of high quality to be kept in the country by the government, they added an export levie to the PPS.

Donald MacKay of XA International Trade Advisors estimates that the increased costs to legitimate scrap exporters is about 300 millions rand per annum.

MacKay who consults with exporters about trade laws stated that “there is serious concern over this.” This enforcement issue is a problem.

Criminals trading illegally in scrap metal will not develop any conscience when it comes to submitting an export declaration.

($1 equals 14.1673 rand).