The six-month export ban on the local scrap iron industry has stymied a lucrative foreign exchange black market that some small and medium-sized businesses relied heavily on to sustain their operations.
Sources close to the trade revealed to the Sunday Guardian that the local commercial banks’ inability to supply sufficient forex to these businesses seeking US dollars spurred the black market trade among the scrap iron dealers.
In many cases where businesses obtain forex, it is in much smaller quantities than they need, and they are forced to wait several weeks before they can access the funds. Larger businesses, in most cases, are given preference by the banks.
Former Central Bank governor Jwala Rambarran during a 2015 speech at the Central Bank of Trinidad and Tobago’s Monetary Policy Forum named the top five local users of foreign exchange. They were mainly large conglomerates.
According to economist and University of the West Indies Finance Lecturer Dr Vaalmikki Arjoon, although he had no information on the dealers and the US black market trade, data shows that the industry is a contributor to foreign exchange through the official channels.
He said the total exports by scrap iron dealers over the last six years amounted to US$205.7 million, of which US$43 million was exported in 2021, a figure that is 65 per cent higher than 2015.
Assuming they maintained their 2021 levels, “their value of exports will amount to almost half a billion worth of forex in ten years”, he said.
According to sources, for years the scrap iron industry helped fill the gap on the black market with the high demand for foreign exchange among local importers of food items, grocery items, cigarettes, tyres, and batteries.
“The scrap iron yards are buying material from the van men for Trinidad and Tobago dollars. They pack it into containers and sell it to the end buyer abroad for United States dollars, so the scrap yard man now has the US. He is now going to sell this foreign exchange to these smaller local stores.
“How are all these goods coming into the country and the Government and banks don’t have all that US to sell? The scrap iron was the answer,” an industry source said.
“Even big conglomerates buying the US–mega companies–You don’t want to call their names.”
According to the source, a few scrap yards had issues with the bank regarding the number of transfers. “They were asking the yards, if you selling scrap, how come you transferring money to a grocery store? One of the biggest laundering businesses you would have seen was scrap.”
On Thursday, Senior Superintendent of the Trinidad and Tobago Police Service’s Southern Division Richard Smith revealed that a scrap iron dealer was arrested as part of the TTPS’ investigations into a protest that blocked the highway in Claxton Bay in August.
He said the scrap iron dealer was found with a firearm, ammunition, as well as $100,000 (TT) and US$3,000 in cash. The cash was seized by the Financial Investigation Bureau and he was charged for the firearm and ammunition, Senior Superintendent Smith said at a TTPS Media Briefing.
Industry sources said that when some scrap yard dealers obtained US dollars from the sale of scrap iron containers to foreign clients, they would negotiate with local importers to either purchase items on their behalf or to sell the US to them directly.
The sources said the local importers and scrap iron dealers capitalised on the lack of regulation in the industry to solve their long-standing issues of getting adequate access to foreign exchange via the banks and other legal means.
Backlash…the price of US on the black market could go to $10
The issues with local businesses getting access to foreign exchange are well-documented.
According to a Market Challenges Update on Trinidad and Tobago from the United States of America Department of Commerce, issued in August, access to foreign exchange remains the biggest challenge to bilateral trade with T&T.
The update said, “Due to an overvalued currency and excess demand for foreign exchange, smaller local companies and those that do not generate their own US dollars through exports often face lengthy delays in acquiring foreign exchange to pay US suppliers. Red tape within the regulatory framework can be a challenge.”
Between January and October 2021, the Central Bank injected more than US$1 billion into the foreign exchange market. However, access to adequate foreign exchange remains an issue for many businesses.
And, now, with the six-month scrap iron ban, the sources said, many importers will have to find alternative means of obtaining forex, likely increasing the black market exchange rate. This, they believed, will also likely increase the price of goods the importers provide in the coming weeks.
The sources said while the scrap iron dealers and importers benefited from the black market trade of forex, the Government was losing out through the prevalence of money laundering, the loss of potential tax earnings, and the leakage of foreign exchange.
“Let’s say a container of scrap iron is worth $60,000 (TT), with 400 of those containers gone, that’s $24 million (TT). That’s around US$3.54 million.
“So these scrap iron men–the people who are buying, the big traders, will now sell back the US to grocery stores, hardware stores, and importers of general items,” a source said.
“They send their workers to these grocery stores and pick up cash in T&T and then pay the scrap yard for the goods, so the money has no paper trail.”
The source, who is afraid of being identified, said, “It’s a big thing. I know the market. The moment my name comes out, it has death in it. That’s death.
“Check things like copper, aluminium, and brass. Those people who sell used parts, do you think the bank giving these people enough money to bring in used parts?
“The bank doesn’t have the US to suffice these businesses. I am telling you this is going to have one of the biggest backlashes you will see…the price of US on the black market is usually $7.50, it could go to $10.”
The sources believed the Government turned a blind eye to the industry for too long, saying that it should have been regularised years ago.
Figueira: There will always be people who depend on the black market
According to criminologist Dr Daurius Figueira, he is not yet informed about the impact of the scrap iron export ban on the foreign exchange black market.
However, he said for many years, importing businesses have relied on the black market for sufficient access to foreign exchange to purchase products.
“There is a whole slew of people, in order for them to keep their businesses afloat, they have been going to the black market for years now. So what is going on with them is that in the traditional banking system they are last in line because what is happening is that the big players and big businesses are always the first in line,” he said.
“There will always have people who will depend on them fellas (exporters) who when they sell, they get paid in forex and they pass the forex onto those people. What is going on is those people are looking to pick up foreign exchange anywhere they can get it, so they will establish a relationship with businesses who earn in forex because, remember, they export.”
Figueira said there are various sources of funds that flow into the local foreign exchange black market and many of these sources, which are criminal–drugs etc–continue to provide foreign exchange for certain individuals and businesses in large amounts.
Economist: Mistake to shut down scrap industry, it brings in forex through official channels
Meanwhile, Dr Vaalmikki Arjoon believes that given its contribution bringing in forex through official channels, it was a mistake by the Government to shut down the scrap iron export industry until February 2023.
The solution lies in consultation and regulation, Arjoon said.
“They ought to meet with the dealers and articulate the concerns of the State and listen to the concerns of the dealers themselves, while at the same time develop a better understanding of how the industry works as it seems to me that the authorities do not have a proper appreciation for how the industry works.
“The key here is allocating more resources for better regulation and supervision in the industry,” he said, but this can be costly. “So one way the State can get the funds to do this is to attach it to the licence fee for dealing in scrap iron. This fee could contain the cost for supervision as well, and the bigger the dealer/exporter, then the more supervision you may require so the higher the fee, keeping it at a reasonable level.”
State’s utility companies vandalised
In the last two years, but especially within the last ten months, the infrastructure of the state’s utility companies has been vandalised by copper and metal thieves.
According to Public Utilities Minister Marvin Gonzales, the illegal trade cost the state’s utility companies approximately $25 million in the last two years. In August, Gonzales said that in the past year the trade cost TSTT alone $15 million.
Also in August, Minister of National Security Fitzgerald Hinds said that there were 218 arrests by the Trinidad and Tobago Police Service in connection to the theft of copper and other metals since 2020. He estimated that copper sells for as much as $15,000 per tonne.
In June, thieves broke into a National Gas Company facility in Moruga, stealing batteries, a digital video recorder system, and copper fittings. Losses were estimated to be $115,000. In July, thousands of TSTT customers experienced technical issues after thieves stole 500 meters of copper cables in San Fernando.
According to National Security Minister Fitzgerald Hinds, losses were close to $ 1 million.
In August, police recovered steel poles and I-Beams, from a scrap iron yard near the Munroe Road Overpass, that were stolen from the Ministry of Works and Transport’s Caroni office.
Police arrested two men.
Also in August, thieves stole electrical cables, equipment, and metal sheets from WASA’s California Booster Station in Point Lisas.
Since the scrap iron ban began in August, there have been several protests across the country.
Chairman of the Trinidad and Tobago Scrap Iron Dealers Association Allan Ferguson said that the ban unfairly punishes law-abiding scrap iron dealers for the wrongdoings of a few in the industry. He said the ban has resulted in thousands of people losing their jobs.
Questions sent to the Finance Ministry
On Friday, Sunday Guardian sent questions to the Corporate Communications Unit of the Ministry of Finance about the claims made by industry sources.
1)Firstly, scrap iron industry sources and import business sources claimed that the scrap iron industry has been providing foreign exchange to the forex black market for a number of years, is the Finance Ministry aware of such claims? Have the claims been investigated?
2)The sources also claimed that the scrap iron industry, and its contribution to the foreign exchange black market, has been a source of possible money laundering, foreign exchange leakage and losses in potential tax earnings. Is there any truth to these claims as far as the ministry is aware?
3)How much of a concern is the forex black market to the ministry? What sort of risks and consequences could arise from a forex black market?
4)The industry sources complained about the difficulty in accessing forex through official, legal means like the banking system. What steps have been taken and will be taken to improve the functionality of the system?
Up to late yesterday, no responses were received.