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New empowerment policy needed for mining in SA - IRR

Sep 10 2017 16:40
Liesl Peyper

Cape Town – The ownership targets set out in the third revision of the Mining Charter will primarily benefit South Africa’s state mining company and a small elite at the pinnacle of the ANC, says Anthea Jeffery, head of policy research at the Institute of Race Relations (IRR). 

In a report released this week, Jeffery said that an entire new approach to empowerment in mining is needed with a different scorecard that will focus on economic empowerment for the disadvantaged. 

New Charter will fuel abuses

The new Mining Charter, gazetted on June 15 this year, has upped black ownership targets significantly – all existing holders of mining rights are required to increase their black economic empowerment (BEE) ownership from 26% to 30% in a year. 

There are also additional BEE requirements, such as that applicants for new prospecting rights will need to have a minimum 50% plus one black person shareholding, while mining companies will be compelled to distribute 1% of their annual turnover to BEE shareholders every year.

“A key risk from the new Mining Charter,” Jeffery notes, “is that its onerous requirements and often vague terms will pave the way for further abuses of its kind.

“Gupta-linked companies are thus likely to benefit substantially from the new rules. So too will South Africa’s state mining company – the African Exploration Mining and Finance Corporation.”

She points out that the ANC and its allies like to pretend that state ownership and control of the mining industry will increase and spread the benefits of South Africa’s mineral wealth.

“But international experience shows that state mining companies generally fail, managing to produce only a fraction of what the private sector is able to achieve.”

The reasons for this is that state mining companies are often plagued by poor management and diminishing competitiveness.

“State mining companies are often captured by small and privileged elites, which use them for their own gains rather than in the national interest,” Jeffery opines.

Meaningful empowerment

The IRR is currently busy developing an alternative policy to BEE, which focuses on disadvantaged South Africans.

The proposed policy is called economic empowerment for the disadvantaged (EED) and has a three-pronged approach: emphasis on economic growth, an EED scorecard that rewards the private sector for contributing to growth and empowering the truly disadvantaged.

The IRR suggests the introduction of tax-funded vouchers where disadvantaged individuals receive tax-funded vouchers to pay for the schooling, housing and healthcare of their choice.

Businesses would earn voluntary EED points for topping up such vouchers – especially for the poor – and participating in public-private partnerships.

EED in the mining industry

Jeffery says the benefits of shifting from BEE to EED will be felt throughout the entire country, but the gains will be particularly evident in the mining industry where the contrast is stark between the harm the new charter will cause and the advantages of the EED.

Under an EED mining charter, companies would earn voluntary EED points for their contributions in four categories: economic, labour, environmental, and community.

“Given the overarching importance of growth, their economic contributions would count the most,” Jeffery suggests.

In the economic sphere, mining companies would gain EED points for capital invested, minerals produced, profits earned, dividends declared, and contributions made to tax revenues, export earnings, and R&D spending.

In the labour sphere, companies would earn EED points for jobs provided and salaries paid, as well as for initiatives to improve skills, health, and mine safety, among other things.

As regards the environment, companies would obtain EED points for reducing electricity and water consumption, minimising rock and other waste, treating polluted water, rehabilitating land, and so on.

As for their community contributions, companies would earn EED points for topping up the education, housing, and healthcare vouchers of poor households in mining communities, or for helping to improve provision in these three spheres. Companies could earn EED points, for instance, for helping to develop innovative ways to treat polluted water for the benefit of mine communities.

“A shift to EED in mining (and elsewhere) would free the country from the leg-iron of ever more damaging BEE requirements,” says Jeffery.

“It would also empower the majority in a way that BEE interventions – and the new mining charter in particular – will never be able to achieve.” 

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