OPINION | Gadifele Mokgabudi: Stop exporting our jobs, and implement the ferrochrome tax now

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Stats SA released first quarter GDP results on Tuesday.
Stats SA released first quarter GDP results on Tuesday.

The export of chrome ore should be implemented now and re-create the thousands of jobs already lost, writes Save SA Smelter's Gadifele Mokgabudi, who was retrenched from the Glencore Lydenburg Smelter. “Save SA Smelters again warns of a continued jobs bloodbath if the situation is not arrested.” 

Our government seems to have locked the door that creates jobs, and misplaced the key.

Its policies seem to be favourable to other countries, and their sectors, and in the process, killing the only little jobs we have enjoyed in the mining sector for so long.

SA has the world’s largest deposits of chrome, but we import stainless steel from China, the world’s biggest producer of ferro-alloy products.

The devastating impact of the coronavirus pandemic is visible through the high numbers of unemployment in our country, the highest the Republic has had. Despite having those large deposits of chrome ore, breadwinners have now turned to be beggars or mere acceptors of the demotions they have experienced. Those working in the smelters' industry have not been spared of the effects of the expensive Eskom tariffs, which have led to near-impossible business operation models. Jobs have been shed.

When the government announced in October 2020 that the Cyril Ramaphosa led Cabinet has approved measures to support the domestic ferrochrome industry, including through an export tax on chrome ore, a sigh of relief was heard in communities that were fast losing hope of ever finding work again, and bemoaning the future of the inevitable closure of all remaining smelters in their reach.

Why the delay, I ask.

According to Save SA Smelters, a relatively new lobby group in the country that has been asking the government to urgently implement the tax, should SA introduce an export tax on chrome and chrome ore, the country could very well reposition itself as the global leader in ferrochrome production due to local product beneficiation, as opposed to the current position of largely exporting raw materials (chrome ore). 

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To address the destructive effect of the oversupply of a bi-product mineral labelled UG2, such a tax would have to be implemented at differentiated rates as the cost of producing UG2 is significantly lower than the cost of traditional chrome ore mining.

I agree with several analysts, including Herman van Dyk who is a Chartered Accountant here in South Africa, and Associate Chartered Accountant at the Institute of Chartered Accountants in England and Wales, when he asserts that the principle of certainty entails that the tax imposed must be certain and not arbitrary. The proposed tax on the exportation of chrome and chrome ore would therefore have to be clear on its application, rates imposed, and the tax base to which it is applied. 

Economic recovery in South Africa a state of emergency 

I understand fully that the implementation of new legislation would necessitate the promulgation of one or more acts of Parliament or the amendment of existing legislation. But I beg to say that the economic recovery of our country at this stage is an emergency, and if the President can include the imposition of the tax in his economic reconstruction and recovery plan, then it can be expedited through processes allowed in the National State of Disaster. These are tough times that need extraordinary measures for the country to reconstruct itself and have the economy emerge once more as one of the strong developing countries.

Last Tuesday, the President bemoaned the processes of his own government and labelled them slow. He expressed his frustration over how long it takes to get things done because of red tape: 

"I have said that I continue to be extremely concerned about the long periods it takes to get things done in South Africa, and that must be cut in half - either regulatory process or permit process - if it takes six months, it must now be done in three".

I agree Mr President, and the tax on the export of chrome ore should be now and re-create the thousands of jobs already lost. Save SA Smelters again warns of a continued jobs bloodbath if the situation is not arrested.

Not easy for China to replace us 

In early June, Trade, Industry, and Competition Minister Ebrahim Patel formally launched the implementation of export tax on scrap metal. I understand from that process that export taxes are preferable to export bans and quotas, as the latter serves as the price link between the domestic and international markets. 

I understand fully that China sources most of its chrome ore from SA, and that this may change if the product was available in a cheaper form from other countries. But we should equally note that China sources an astonishing 83% of its chrome ore imports from South Africa and increasingly the lion's share of this is in the form of UG2.  Years of low prices and increasing volumes have made it increasingly dependent on our ore and it would not be easy for China to replace us.  

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The goal here is for all of South Africa to win. The imposition of a tax will still allow ore exporters to run their businesses profitably while aiding the local Ferrochrome smelting industry and adding much-needed tax revenue to the government.  

I argue that an export tax does not sever the link between domestic and global markets, but rather creates a wedge between domestic and international prices. This accords a cost advantage to domestic consumers, but the two prices will continue to move in tandem, providing better efficiency incentives to domestic consumers. It is our time to proudly have South African decisions made for South Africans, which will, in turn, benefit the ailing South African economy.

 - Gadifele Mokgabudi was retrenched from the Glencore Lydenburg Smelter as an Engineering Coordinator, and lost his position as Numsa deputy chairperson in the Mpumalanga province as a result. He is now a member of lobby group Save SA Smelters.

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