Enhancing investment for domestic foundry and mill markets

Project name:
Economic assessment of an export tax on scrap metal

Service:
Damages, trade and other litigation
Regulatory economics and accounting

Sector:
Manufacturing

Client:
Department of Economic Development

Date:
2019

Country:
South Africa


Scrap metal is an important input to beneficiation and the foundry and mini-mill industry in South Africa. These industries are of significant importance for industrialisation and the potential creation of jobs in the country. The inability to access affordable scrap because of rising exports is a major factor in the ailing sector’s performance.

The South African government is seeking to implement an export tax on scrap metal as an alternative to the current Price Preference System (PPS) implemented by the International Trade Administration Commission (ITAC). The PPS required scrap dealers to first offer scrap to domestic customers at preferential prices before being granted a permit to export scrap at higher prices. This was not effective because of implementation inefficiencies and the ability of exporters to circumvent the policy.

Genesis was previously contracted by ITAC to conduct research into the effect of the PPS. Based on the report’s findings, Genesis proposed applying an export tax to replace the PPS. This led to the Economic Development Department (EDD) contracting Genesis to undertake an economic assessment of whether an export tax on scrap metal will achieve the objectives of improving availability of quality scrap metal at affordable prices for foundries and mills in the domestic market. Our work also included examining what may be an optimal tax to achieve the necessary input price to support industrialisation and achieve diversion to domestic supply.

Genesis proposed tax levels between 5% and 25% for various metals and quantified its benefits to output, employment and investments within the foundry sector. Genesis’s expert input resulted in an announcement by the Minister of Finance in the 2020 budget speech, which stated that the Government will commence consultations with industry regarding the introduction of an export tax on scrap metal.

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