Anthea Jeffery: Time to take Mining Charter from BEE to EED

Anthea Jeffery is South Africans very own canary, at the forefront of informing all when the gas coming from government starts to get toxic. And in her latest submission, off the back of disastrous unemployment figures, where 4 000 jobs were shed in the country’s mining sector, she’s calling for urgent resolution on the Department of Mineral Resources Mining Charter. Black Economic Empowerment in its current form is failing and Jeffery says it’s time to switch to a more inclusive policy of economic empowerment for the previously disadvantaged. Another must read. – Stuart Lowman

By Anthea Jeffery*

Dr. Anthea Jeffery is Head of Policy Research at the IRR and author of Patents and Prosperity: Invention + Investment = Growth + Jobs, published this week by the IRR and available on the IRR website.
Dr. Anthea Jeffery is Head of Policy Research at the IRR.

Employment figures released on Monday show that the mining sector shed 4 000 jobs in the first three months of the year. A further 30 000 mining jobs were lost in the last six months of 2015. Close on 450 mine closure certificates have been issued in the past five years, while mining production has slumped and many mining companies, including Anglo American, are looking to disinvest rather than expand their operations here.

The government blames the mining malaise on the global commodities slump, but much of the problem lies rather in its own poor policy decisions. These were compounded in April 2016 by the unexpected and unilateral gazetting of a damaging draft mining charter, which the Department of Mineral Resources (DMR) is now busy reviewing. A revised version is due in July.

Mining companies have already made huge efforts to comply with the 2002 mining charter, as amended by the DMR in 2010. However, they have never been given adequate credit for transferring more than R159bn in value to black South Africans and exceeding many of the charter’s targets.

On BEE ownership, for example, a DMR audit of compliance with the charter from 2004 to 2014 stated that, if the ownership target as agreed in 2002 was used, then 90% of mines had increased black ownership to an average of 32.5%, so exceeding the 26% target.

The DMR nevertheless went on to put black ownership within the sector at 20% on average (well below the 26% target), for two main reasons. First, it declined to include deals which did not meet new requirements for employee and community participation introduced in 2010. Second, it refused to recognise deals from which BEE investors had sold out.

Whether mines should be penalised because BEE investors choose to cash in their shares is a key question. Whether the 2010 requirements should apply retrospectively to ownership deals done before then is also far from clear.

Read also: SA Mining Charter: Madness continues, job-killing transformation paramount

However, these vital issues were simply brushed aside by the then mining minister, Ngoako Ramatlhodi, who said the DMR ‘would have to take steps to cancel the mining licences’ of non-compliant companies. This raised mining risk in South Africa into the stratosphere.

This background makes the unilateral gazetting of the draft charter particularly disturbing. Equally worrying is the draft charter’s demand that black ownership be maintained at 26% throughout the life of a mining operation, which could be 30 years or more.

Having to do ever more BEE ownership deals will place a crippling burden on many mining companies. It will also dilute the value of other shares, many of which are owned by pension funds. (Much of the cost of enriching a relatively small elite will thus be borne by ordinary pensioners, both black and white.) In addition, the new requirements are intended to apply retrospectively, which is contrary to the rule of law and in breach of the Constitution.

The draft charter also raises employment equity and preferential procurement targets to unrealistic levels, while giving mining companies a scant three years to comply with these demands. It further requires high levels of expenditure on skills development, housing programmes, and community development, which mining companies are expected to maintain irrespective of their profitability.

Read also: Solidarity: Mining Charter ill-timed. Expect ‘devastating consequences’.

According to the draft charter, mining companies must attain 100% of the stipulated targets on ownership, housing, and skills development. This goes beyond what the revised BEE generic codes require and is extraordinarily onerous.

Ever stricter BEE regulation, whether in mining or elsewhere, cannot empower the millions of South Africans who are unemployed or otherwise live in poverty. This can be achieved only through policies that attract investment, generate jobs, and raise the economic growth rate at least ten-fold (from the 0.5% of GDP projected for 2016 to 5% of GDP each year).

Particular care must be taken in developing policies for the mining industry, where investments are enormous, lead times long, and prices volatile. Mining rules must thus be clear, stable, and predictable.

The DMR’s draft charter contradicts all these needs and should be scrapped. Instead, the DMR should embrace an alternative policy of ‘economic empowerment for the disadvantaged’ (‘EED’), which would be far more effective in helping the poor.

EED differs from BEE in two key ways. First, instead of using race as a proxy for disadvantage, EED cuts to the heart of the matter by focusing directly on socio-economic status. This allows racial classification to fall away, so helping South Africa to fulfil the principle of ‘non-racialism’ embedded in the Constitution.

Read also: Anthea Jeffery: Ratcheting up the BEE rules, yet again

Second, EED focuses not on outputs in the form of racial targets, but rather on the inputs necessary to empower poor people. Instead of overlooking key barriers to upward mobility, it seeks to overcome these by promoting investment, growth, and jobs. It also aims to liberate the poor by freeing up labour markets, expanding property ownership, providing sound education and health care, and improving living conditions.

EED policies aimed at achieving these objectives should be accompanied by a new EED mining scorecard, to replace both the current charter and the proposed draft. Under this revised scorecard, mining companies would earn (voluntary) EED points for:

  • all direct investment within the country;
  • maintaining and, in particular, expanding jobs;
  • contributing to tax revenues;
  • generating export earnings;
  • appointing staff on a ‘wide’ definition of merit (which takes account of how people have had to cope with poor schooling and the like);
  • providing particular mentoring for people appointed on this basis;
  • entering into employee share ownership programmes with all staff; and
  • topping up the state-funded vouchers which the government should provide to help poor households obtain better education, health care, and housing than is currently available to them.

After years of damage to the mining industry, it is time to call a halt to bad policies. South Africa cannot hope to expand opportunities for the disadvantaged, whether in mining or elsewhere, unless it raises the annual growth rate to 5% of GDP or more. A shift to EED in the mining sector, coupled with other reforms to mining legislation, would help achieve this.

By contrast, the introduction of the draft charter in anything like its present form will further hobble the mining sector and help push the faltering economy into recession. Any such outcome will greatly harm all South Africans – and especially the poorest.

  • Dr Anthea Jeffery, Head of Policy Research, Institute of Race Relations