Scrap metal export ban offers EAC firms lifelineThursday August 12 2010
The East African Community has banned the export of scrap metal, offering a lifeline to the region’s metal-related industries which are facing closure due to shortage of raw materials.
In a gazette notice released this week, the EAC Council of Ministers has stopped the export of used automobile batteries, lead scrap, crude and refined lead, and all other forms of scrap metals.
The development, analysts said, was meant to seal loopholes that have seen traders export scrap metal to countries like China, draining the five EAC economies of much needed raw materials in metal-related industries.
The move is likely to jolt Kenya’s mult-billion shilling scrap metal industry as the country has for years left its doors open to exporters.
The ban will be a reprieve to firms like Associated Battery Manufacturers (ABM), EAC’s leading cell maker, which had threatened to close down before the end of the year due to shortage of raw materials.
The emergence of electric car markets in Western economies and high demand for car batteries in China has fuelled a global demand for lead-acid batteries, with entrepreneurs turning to Africa where recyclable lead is categorised as scrap metal.
“We needed to support the region’s demand for metals by banning exports of any form of scrap,” said David Nalo, the Permanent Secretary at the EAC ministry.
“It makes no sense for the region to be exporting cheap scrap metal and importing expensive steel and other metals for local use,” said Mr Nalo.
Kenya introduced a 20 per cent export duty on lead and scrap lead in 2007, which was removed in 2008 when Finance minister Uhuru Kenyatta exempted scrap lead dealers at the Export Processing Zones (EPZs) from the duty.
Mr Kenyatta’s predecessor, Amos Kimunya, had imposed the tax in 2007 to cushion the sector against Chinese demand for lead used to manufacture batteries for its emerging motor industry.
Mr Kimunya defied pressure from Kenya Iron and Scrap Metal Association (Kisma) and proposed the duty, saying the move was necessary to protect local battery recycling plants from losing a major source of raw materials.
Mr Kenyatta’s removal of the duty allowed unscrupulous smelters to invade EPZs from where they ship lead and other scrap metal out of the country, in what has become Kenya’s largest source of income from China.
“The intention of putting a blanket ban on all scrap metal exports is to protect local industries in all the five countries and curb vandalism, ” said Trade minister Amos Kimunya.
“The rules have been gazetted for avoidance of doubts as unscrupulous smelters defied previous bans,” Mr Kimunya told Business Daily.
He said the move would complement a previous ban on export of scrap aluminium, steel, copper wires and cables.
Scrap metal dealers, however, said the export of scrap lead, just like other metals, generates a large amount of foreign exchange for the country adding that the ban was punitive.
Kenya earned Sh1.7 billion in 2009 from scrap metal exports, more than double the figure in 2006, according to the Economic Survey 2010.
Revenue from scrap metals exported to China in the recent past outweighs that from other Kenyan products including tea and coffee.
Kenya Power and Lighting Company, for example, incurs a Sh1.2 billion loss annually through vandalism of electric cables.
Associated Battery Manufacturers managing director John Kinyanjui said prices of scrap batteries have almost doubled.
ABM says it produces 50,000 batteries monthly and pays over Sh450 million in taxes annually.
Once content to sell their stocks of used batteries to local auto part shops for recycling, Kenyan junk merchants have entered the international marketplace lured by the high prices offered by Chinese dealers.
ABM said it produces at least 50,000 batteries monthly, making it the biggest player in the industry said to contribute over Sh450 million in taxes annually.
Less than a year ago, ABM was recycling about 200 tonnes of used car batteries a month at its foundry in Athi River.
But by July that figure had plummeted to just 20 tonnes, according to Mr Kinyanjui who fears that raising the price he offers scrap dealers for batteries will be met by higher Chinese bids.
In the wake of the shortage of raw materials, Mr Kinyanjui said, prices of scrap batteries have almost doubled, shooting from Sh30 in June to Sh52 this month.
This has meant higher production costs for the manufacturers who are already grappling with high energy costs.
Yet the players cannot increase the selling price because imported batteries are cheaper.
Nor can they import raw materials, which have in the recent past suffered from price fluctuations in the global lead market.