Government Interference Hurts Low Wage Earners

South Africa—A recent scrap metal recycling decision by the government of South Africa is having the effect of depressing scrap metal prices and causing a shortage of scrap metals in that country. The actions of the government point out how micromanaging an industry may sound good but in practice cause unforeseen problems and economic trouble.

Johannesburg South Africa scrap metal recycling
Johannesburg South Africa scrap metal recycling

South Africa has banned exports of scrap metal in such a way that metal recycling centers must first offers their products to consumers or businesses within South Africa and at a significant discount prior to applying for a permit to export that scrap. The system causes problems in a variety of ways. First, it forces metal recyclers to sell their products at an artificially reduced price, lowering their profit margin. The fact that they cannot (easily) export scrap metal removes another profitable market.

As Recycling Today reports the policy is the baby of South African trade minister Ebrahim Patel who wishes to bring back to life the country’s steel mill industry and the use of electric arc furnaces which power those mills. Under the current regulations, when a South African foundry or mill offers to purchase ferrous scrap metal, recycling centers must accept the reduced price offer (in accordance with the country’s “price preference system”).

Scrap metal regulations in South Africa hurt the poor the most

The move to protect South Africa’s steel industry is having a deleterious effect on one specific class of workers in the industry: so-called waste-pickers whose job it is to remove impurities from scrap metal before it gets recycled. Already a very low-paying job, the 300,000 or so workers who hold these jobs now see their wages decrease even more as a result of the government restrictions.

Industry watchers such as XA International Trade Advisors say they cannot determine given the regulations whether South Africa’s scrap metal industry can survive. Without higher prices and profits many of the scrap metal buyers and sellers may be forced out of business and extra scrap will end up as garbage, going to landfills instead of being recycled.