South Africa: the empowerment debate

Barry Baxter, Africa Correspondent, World Coal.

There have been repeated allegations from the South African government and unions that the mining industry has not complied with the National Mining Charter. This defines a Broad Based Black Economic Empowerment (BBBEE) code to which the mining industry subscribed in 2004 and was updated in 2010. The mining companies have refuted the allegations.

Recently provoked by the government is a current dispute around the future of those companies, which, under threat of losing mining rights, sold 26% of their equity to black groups, some of which included employees. Some of these shares, which were initially sold at heavily-discounted prices, were resold on to non-black or not “previously disadvantaged” groups for substantial profits. The companies now have to face up to diluted black shareholdings and non-empowered ratings but are arguing that ‘once-empowered’ means ‘always empowered’. The government disagrees, saying they must build up a 26% black shareholding again. It is also proposed, until virtually forced to succumb to unexpected pressure from the National Union of Mineworkers (NUM), to drastically reduce the recognition given to employee share-acquisition schemes in the final calculation of shares that count towards so-called ‘meaningful economic participation’ in the measurement of empowerment.

Few goals scored

At a meeting in May, the Department of Mineral Resources (DMR) said that while 90% of the companies achieved the 26% target on an employment weighted basis, when the issue of meaningful economic participation was taken into account, only 20% had complied.

The department also claimed an estimated 45% of mining rights holders did not meet the target for improving living conditions of mineworkers and only 36% of mining rights holders met their target on mine community development. Additionally, while an average employment target of 40% black South Africans had been exceeded, it was in lower level jobs. The industry remained dominated by white males.

The industry, represented by the Chamber of Mines, reacted furiously, claiming that 100% of its members had achieved the 26% ownership target. “The government is shifting the goalposts mid-stream by incorrectly accusing the industry of non-compliance, which is damaging to trust and investment in the mining sector,” the chamber said.

The issue has become more clouded with the government saying that empowered status was granted to some companies as a result of empowerment deals done before the legal start date of the Mining Charter or not strictly within the provisions of the charter. The government is now claiming that these deals cannot count in assessing a companies’ status, ignoring arguments that these deals were done in the true spirit of empowerment before it became legally necessary.

The Department of Trade and Industry is now seeking a High Court ruling on the issue. Theoretically, the South African government has the authority and ability to suspend mining licences if miners fall short of empowerment targets, although the practical problems associated with this would probably be a major deterrent to it taking such action.

Union on-side

Coming down on the side of the industry on the issue of meaningful economic empowerment, the National Union of Mineworkers (NUM), which has historically supported the government but is now becoming more critical, went as far as not ruling out mass protests against the proposed changes. Echoing the view of many South Africans, the union said the move would not help workers, only further enrich the growing government-supportive black elite, many of them politically engaged. “We are not going to allow workers to continue enriching monopoly capital and DTI-sanctioned black elites,” the NUM said. Empowerment is an overall programme for all industry and therefore under the auspices of the DTI.

To some surprise, Ngoako Ramatlhodi, the Minister of Mineral Resources, said he had not had notice of the statement relevant to the issue of ‘once empowered, always empowered’, issued by the DTI, but added: “mining companies may have to brace themselves for more stringent black economic empowerment requirements [then] the ownership targets set out in the [original] mining charter,” he said.

Commenting on the decision to seek a High Court ruling, Ramatlhodi said only that the outcome would definitely set out what needed to be done. “We must look at loosening and tightening some aspects. For all intents and purposes, we want investment but it must be sustainable – in other words, it must be done in such a way that black people are taken fully into account,” he said.

No forward play

Noting that the Chamber of Mines had expressed concern about the merits of resolving the issue through the courts, he said: “we are engaging all parties and considering concerns, including [those of] the NUM and the South African Mining Development Association (SAMDA).” Asked about progress with the application to the High Court, he said: “it is early days, I’m not going to go into details.” Analysts were later to comment that presumably he expected international investors and markets to go on hold, while the issues were sorted out.

One of South Africa’s top mining analysts, David McKay, said that if Ramatlhodi took a practical approach to the issue, he would first avoid being tied up in a backward-looking court contest and win time and space to give forward-looking pointers on where black empowerment ought to be moving and how. A DTI spokesman said the application was still being finalised. Such is the mood that another commented: “it’s all a waste of time. If the ruling goes against it, the government will change the rules.”

Written by Barry Baxter. Edited by Jonathan Rowland. This article first appeared as part of a regional report on the South African coal industry in the June 2015 issue of World Coal.

Read the article online at: https://www.worldcoal.com/special-reports/10062015/south-africa-the-empowerment-debate-coal2401/