Black empowerment in South Africa

The past year was momentous for South African mining. The adoption of radical regulations ushers in a non-racial, competitive and socially inclusive era in the industry.

It is unrealistic to imagine that South Africa has a long-term future based on the status quo of a mostly exclusive economy. The vision of a prosperous, more inclusive economy is one to which all South Africans can subscribe.

Indeed, the development of social, economic and political capital will reduce the risks of investment. For a long-term industry such as mining, this is crucial.

The reforms, which are part of a much broader transformation of the South African economy, aim to:

q assert state sovereignty over mineral resources;

q expand opportunities for historically disadvantaged persons to enter the mineral industry;

q promote economic growth and mineral development; and

q encourage ecologically sustainable development.

The Mineral and Petroleum Resources Development Bill was approved by South African Parliament in June 2002 and received presidential assent four months later. However, the act cannot come into force until such time as the related Money Bill, which governs the issue of royalty payments under the new act, is made public. Also outstanding is a set of accompanying regulations.

In the meantime, a draft of the charter provided for in the act was published in October. The industry has agreed to the provisions of the charter, which are aimed at forging a more socially inclusive, politically acceptable, and commercial mining industry.

Black empowerment

Transformation and commercial empowerment are among the most effective ways of releasing many South Africans from the debilitating grip of poverty.

With this objective in mind, the industry has insisted its empowerment initiatives address four distinct concerns: ownership, management and employment equity, procurement, and rural development.

The industry’s commitment to empowerment is demonstrated by the significant number of agreements that have been concluded, most notably in the platinum and diamond sectors.

Since 1997, the industry has been working to achieve empowerment deals at the ownership level, and these are valued at R9 billion (US$1 billion). At present, about 10% of South Africa’s gold mines and about 8.5% of its collieries are owned by black South Africans.

Procurement is actively being used to promote empowerment. Estimates show that procurement by mining companies from black businesses is valued at more than R5 billion (US$500 million) per year.

Charter

Against this background of empowerment accomplishments, the country’s mines minister released a draft charter aimed at transforming the South African mining industry into one that:

q facilitates meaningful and sustainable change in ownership and eliminates racial prejudice;

q attracts domestic and foreign investors;

q provides training and skills development;

q develops strategies that focus on major labour-sending areas; and

q encourages greater levels of procurement from black South African-owned companies.

While it is government policy to facilitate transformation of ownership in the mining industry, the charter confirms the government’s determination to ensure that the market plays a role in achieving this end.

The charter is arguably the second most important event in the country’s transition to democracy after the Convention for a Democratic South Africa in the early 1990s. It plots a course for dismantling the legacy of apartheid while acknowledging the need for economic competitiveness within an expanding economy.

The charter was developed through an inclusive multi-stakeholder process that balances the government’s transformation agenda with commercial imperatives and reflects the compromises made by all parties in the negotiation. The fact that no one group emerged entirely satisfied indicates that a balanced outcome was reached.

Under the charter, the mining industry is required to facilitate, over five years, a 15% mining company ownership stake by black South Africans, worth about US$10 billion.

The chamber of mines believes that this transfer of assets can be achieved without value loss for existing owners. Furthermore, the principle of fair market value enshrined in the charter dictates that assets not be sold at a discount and that shareholders receive full value.

The charter also prescribes a 26% ownership target for black South African companies within 10 years. This second-stage target clearly will require the active support and participation of major stakeholders.

There are also provisions for ensuring that, within five years, 40% of management positions are held by blacks and that at least 10% of the mining workforce be female.

Companies will report annually on their progress in achieving these commitments and will undergo external auditing.

In a nutshell, South Africa now has a new minerals act and a flexible and commercially realistic empowerment charter, which other industries in the country are set to emulate.

The spirit of trust and commitment in which government, industry and labour are working to achieve empowerment cannot help but inspire confidence in the future of South African mining.

— The preceding is an edited version of a speech presented at Euromoney, a recent gold conference in London, U.K. The author is the chief executive officer of the South African Chamber of Mines. For further information on the Mineral and Petroleum Resources Development Bill, visit www.polity.org.za