How long-term black ownership is key to SA’s mining success
The South African economy’s stubborn lack of growth shows that we have still not recovered fully from the 2008 economic crisis.
While the World Bank forecasts an average 4.5% GDP growth for emerging markets, our growth forecast is 1.1%. There are many reasons for this dismal performance, but most would agree that policy uncertainty in crucial areas of the economy, especially relating to transformation, is a leading factor.
In that context, and given mining’s important role in the economy, it is imperative that the Mining Charter be accepted and implemented as quickly as possible.
The most contentious issue in the charter proposed by the Department of Mineral Resources is the question of black ownership. All parties agree that enabling a substantial black stake in mining is vital; the sticking point is whether, once an empowerment partner exits the deal by selling to a non-empowered party, new black partners must be brought on board. The department unequivocally believes the requirement of the act to ensure black ownership is a continuing obligation, while the Minerals Council SA argues that once the empowerment threshold is reached the obligation does not continue.
The courts have decided in favour of the council, but the department is taking the case to the appeal court. We support the department’s appeal because without the participation of blacks as owners and managers of mines, we simply lack the social licence to operate.
From that lack springs all sorts of challenges for the industry, not least of which is a permanent state of mistrust between management and workers, dysfunctional labour relations and conflict with local communities.
Having said that, of course one must recognise that the obligation to ensure black ownership at the 30% level suggested by the charter is a challenge. If nothing else, the continued dilution of shareholder funds will discourage investors, who are an imperative and must be encouraged and developed.
The charter does recognise this dilemma and proposes that broad-based black economic empowerment (BBBEE) shares should only be sold to entities or individuals who fall into the same category. They should be supported by financial institutions that recognise the issues and bigger transformation picture.
This provision actually disadvantages the BBBEE stakeholders because it automatically restricts the marketability, and thus the value, of their investments.
If we stand back and look at the big picture, it is only too apparent that in most cases the exit of black investors from empowerment schemes in mining is typically driven by the realities of the financial disadvantage from which they suffer. For historical reasons black individuals and entities are likely to be saddled with high levels of debt. By contrast, mining is a long-term investment that does not necessarily deliver steady returns in the short and medium terms. Black investors are thus likely to exit to relieve financial pressures.
Given the importance of maintaining black ownership to legitimise the industry, and putting the legalities aside, surely we can come to some practical ways of making it easier for BBBEE investors to retain their investments for the long term, thus maximising the benefits both for them and the mining companies? One obvious avenue would be for institutions such as the Industrial Development Corporation and the Development Bank of Southern Africa to accept share certificates as collateral for short-term loans.
Making black shareholding of mines more secure is necessary, and it can be accomplished without unduly prejudicing the relevant parties. The industry should also give attention to ensuring that blacks participate at all levels. A BBBEE first step would be to educate shareholders about their rights and responsibilities as part owners.
In line with that thinking, the requirement that 50% (up from 40%) of all management be black should also be seen as an opportunity to legitimise the industry. Given the current talent pool this will take time to achieve, but transparent succession planning will pay huge dividends. Share incentive schemes to ensure managers have skin in the game should also be pursued.
Such an approach would create policy certainty while protecting the interests of both shareholders and black investors. More important still, it would ensure that black participation in the mining industry is strengthened across the board, with the inevitable benefits this will provide in terms of improved labour and community relations. Meaningful black participation is essential to the future of mining in SA; we have the framework and we should work within it now.
• Mareda is Makole Group chairman.