Introduction

The scrap metal industry plays a crucial role in South Africa’s economy, contributing significantly to the country’s gross domestic product (GDP). However, this sector is fraught with challenges, particularly regarding theft of valuable metals like copper and steel. This article explores the economic contributions of the scrap metal industry, the extent of losses due to metal theft, and the impact of these activities on small and medium-sized enterprises (SMEs).

Contribution to the Economy

The scrap metal industry in South Africa is a vital component of the manufacturing and industrial sectors, recycling materials that are essential for various manufacturing processes. According to industry estimates, the sector is said to contribute in excess of R15 billion per year to the country’s GDP. It employs approximately 300 000 people which makes it a significant contributor to the national economy. By recycling metals, the industry helps conserve natural resources and reduce environmental impact, further supporting sustainable economic practices.

Losses Due to Metal Theft

Metal theft, particularly of copper and steel, poses a significant challenge to the industry. The South African Police Service and various industry reports indicate that the country loses an estimated R47billion per year due to copper theft. The continuous stripping of copper cables causes not only economic loss but also severe disruptions to these critical services. This is especially problematic due to its high value and extensive use in electrical and telecommunication infrastructure.

Regulation and Government Intervention

To improve the scrap and waste metal trade’s regulatory framework, the Minister of Police published draft regulations on 12 July 2024, amending the Regulations for Dealers and Recyclers under the Second-Hand Goods Act 6 of 2009 (www.gov.za).

This is to assist in the implementation strategy of the amendments gazetted by the Minister of Trade, Industry, and Competition.

He has invited the public to share comments on the proposals. Currently, only buyers are required to register under the SHGA, but going forward, sellers must also comply. Waste pickers will likely be exempted, except for copper scrap and waste metal.

Enhanced registration requirements

“Registration as scrap and waste metal buyers and sellers will only be granted to businesses that have a satisfactory Tax Compliance Status.” read the gazette.

Enhanced reporting requirements

An input-output reporting system via the Metal Trading System will be implemented for purposes of compliance monitoring and for monitoring exports of scrap and waste metal and semi-finished products.

This system will require monthly electronic reports from scrap and waste metal dealers, detailing purchases and sales by volume and value to International Trade Administration Commission.

Reports will include specific details like purchase date, metal type and grade, tonnage, total cost, and seller’s business registration or individual identity number.

Impact on SMEs

The proper regulation of this industry is welcomed as Small and medium-sized enterprises, particularly those in sectors reliant on telecommunications and power, suffer considerably from copper theft. The disruption of services due to cable theft leads to significant financial losses, operational inefficiencies, and lost productivity. For instance, when telecommunication lines are cut, businesses experience communication breakdowns that affect customer service and transaction processes. Similarly, power outages caused by stolen copper cables can halt production lines and impact business operations severely.

Conclusion

While the scrap metal industry is a valuable contributor to South Africa’s GDP, it faces significant challenges that hinder its potential. Metal theft, particularly of copper and steel, not only leads to economic losses but also severely impacts SMEs and critical infrastructure. The South African government’s regulatory measures are steps in the right direction to mitigate these issues. However, continued efforts are necessary to strengthen these measures and protect the industry from exploitation. Effective regulation, combined with industry compliance, can enhance the sustainability and profitability of the scrap metal sector, contributing more significantly to the national economy.

Call to the Army of accountants

CIBA encourages its members with clients in the Scrap metal industry, to familiarise themselves with the proposed reporting requirements and prepare to comply with all the tightened regulatory requirements.

Advise your clients correctly, enroll to CIBA’s Accountant in practice plus Tax subscription

Subscribing to the Accountant-in-Practice plus Tax series offers CPD-accredited monthly webinars covering ethics, financial reporting, audit, law, technology, and management, alongside tax-related topics. This subscription ensures practitioners stay updated on legislative changes, improve efficiency in financial statement preparation, issue reliable reports, and enhance tax advisory and business valuation skills. With access to over 170 CPD units and technical support, it aligns with international standards and supports continuous professional development for licensed tax practitioners aiming to advance their careers in SME accounting and taxation services.

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