South Africa has the largest chrome reserves in the world. Zimbabwe has about 12% of global deposits. South Africa and Zimbabwe cumulatively hold over 90% of the world’s chrome reserves. By that virtue, these two countries should not settle for producing chrome at unviable prices, at any stage within the value chain.
Rather, they should ensure chrome production is done at prices sufficiently beneficial to their respective governments.
Sadly, chrome production has become unviable in South Africa and Zimbabwe. Several smelting companies have closed due to the unavailability of electricity, depressed prices, and expensive electricity.
Overall, South Africa’s industrial energy users, including mines, mineral smelters, and refineries, consume a combined 30% of electricity. Some of these industrial entities consume the 17,27% portion of grid electricity.
What is shocking is this 17,27% only generates 8,5% of revenue from electricity sales. In essence, this implies some industrial entities are accessing grid electricity at heavily discounted prices.
Existing chrome smelters who are still open, survive on discounted electricity. Ideally, this should not be so because it reveals households and other industries, which pay undiscounted rates electricity are subsidising chrome smelters. Considering that chrome is one of South Africa’s inherent competitive advantages, this state of affairs is misaligned with logic.
It shows a deficiency of thinking at policy making level, or betrays a global chrome market operating upside down for decades. The same chrome smelters still open have already indicated they will need more assistance if global chrome prices decrease further. If this were to continue into the medium and long term, the irony would be that South Africa is failing to leverage its inherent competitiveness.
Informal chrome miners are damaging the environment. They are notorious for excavating anywhere where chrome has been identified, even right at door steps and back yards of people’s homes.
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Once they have exhausted chrome in an area, they leave without rehabilitating the land. They leave open pits and other forms of hazards, which are a threat to local communities. Villagers in such areas lose livestock, or their own lives and limbs, due to accidentally falling in open pits. Rock falls are equally disastrous in such areas. Illegal miners are also given to all forms of violence and lawlessness, including murdering each other for “mining rights”.
It is unfortunate that the South African government does not have the capacity to provide adequate police and other security services to curtail illegal mining.
Illegal miners have developed their expertise so much that some of them have become sophisticated criminals. They have mastered the art of combining their merchandise exports with those of legitimate miners to conceal the illegitimacy of their commodities.
Some smuggle their contraband outside the country, evading customs. Others are reported to mislabel their chrome. These smuggling activities present loopholes were the government is losing tax revenues. Some illegal miners are reportedly using sophisticated mining equipment, which enables them to mine chrome even underground. Failure to apprehend them has enabled them to make sufficient revenues to become this sophisticated.
It is fair to pose these questions: Do the aforementioned challenges in South Africa’s chrome value chain speak of a nation with enough intellect to utilise its position as the world’s dominant supplier? Or do they speak of a country that has become a victim of its own chrome resources?
It is essential to highlight that chrome has no feasible substitutes. It is also regarded as a critical mineral by most countries.
Zimbabwe is facing similar challenges.
Proposed solutions
There are only about 10 countries which produce significant amounts of chrome, in the world. Some of them do not have sufficient quantities to export, since they use much of their resources domestically. South Africa, Turkey, Pakistan, Kazakhstan, Zimbabwe and Albania are the only six countries with capacity to export significant amounts of chrome ore and concentrates.
Since there are only six producers who matter, South Africa should attempt to engage these countries so there is a coordinated and universal implementation of chrome ore export tax. This is because any attempt to implement it individually could result in global consumers buying it from countries which have not implemented the tax.
The purpose of the export tax would be for producer countries to mobilise the development of chrome manufacturing facilities within their jurisdictions.
Local jobs would be created and such economies would become more diverse and resilient. In the case that ore exports occur, the respective governments would generate additional revenues.
It is obvious that most of the countries which have chrome deposits are facing economic challenges. They are predominantly developing economies. Overall, the emerging global threats such as the US reciprocal tariffs, fragmented global geopolitical alliances, and climate change imply that all chrome producing countries are currently vulnerable to future economic shocks. Therefore, if South Africa engages these nations in its lobby for a universal chrome tax on exports, it is likely to get a favourable response.
South Africa produces around 18 million tonnes of raw chrome per year. It controls over 60% of the world’s exports for chrome ores and concentrates. However, it only refines less than four million tonnes. In 2023 only 3,2 million tonnes of ferro chrome were produced in South Africa.
That means the country exports a minimum of around 14 million tonnes of raw chrome and primary intermediates, each year. A universal chrome ore export tax of US$100 per tonne would yield around US$1,4 billion of extra revenue per year for South Africa. The chrome ore tax would produce additional government revenues for each producing country. It would also immediately raise the price of chrome products on the international markets.
A tiny portion of these higher tax revenues can be effectively used to improve security in areas where illegal chrome mining has been problematic. South Africa can eventually be able to look at chrome as a useful and strategic resource. The additional tax revenues can be used to jump start the economy. Demand for chrome and its processed products is generally inelastic because it has no substitute. Indeed, global demand for chrome and associated products might slump marginally but due to inelastic demand, it will not collapse. This makes this proposed intervention of ore and concentrates tax, very lucrative.
Once the tax has been implemented and the price of chrome products has increased, domestic smelters would be able to get higher profit margins for their products. In that case, their discounted electricity could be repealed.
This means households and other industries will no longer need to subsidise chrome and ferro chrome production. Such a move makes it possible to eventually reduce electricity tariffs for households and industries.
If electricity tariffs are normalised for chrome producers, this creates room for more investments in new power generation.
Investing in them would become feasible because large energy users such as chrome smelters would be paying normal market-rate tariffs. The bottom line is, sensible countries do not hesitate to make decisions in their best interest.
Tutani is a political economy analyst. — [email protected].
