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THE R9bn EMPOWERMENT deal between ArcelorMittal and a consortium that includes Imperial Crown Trading (ICT) at Kumba’s Sishen Iron-Ore confirms how South Africa’s empowerment culture has morphed into one where the spoils are legally divvied up between political insiders.
While Government – which has been left a little red-faced by the ArcelorMittal empowerment deal – scrambles to placate critics, including Cosatu, with promises to ensure empowerment benefits are shared, political economist Moeletsi Mbeki says it’s “fantasy” to think black empowerment is ever going to be anything more than a system “designed for wealth transfer to the black political elite”. Everything else, he says, is “window dressing”.
There’s certainly nothing disadvantaged about the empowerment beneficiaries of the ArcelorMittal deal, which was necessitated by ArcelorMittal’s negligence to convert its prospecting rights at its Sishen mine in Limpopo province to new order rights. When those rights reverted to the State, Kumba – which had been supplying ArcelorMittal with iron ore at a fixed and heavily discounted price – applied for the conversion rights for itself. But that plan was thwarted when the little-known ICT instead applied for and secured the prospecting rights at the mine. ArcelorMittal then offered ICT R800m for those rights, plus shares worth R9bn in Mittal itself.
Trade union federation Cosatu is furious. It’s called on the ANC – and the ANC-led Government – “to mandate the Cabinet to intervene to reverse these seriously embarrassing deals”.
Cosatu spokesman Patrick Craven says: “Black empowerment promotes self-accumulation and that can’t be allowed to continue in its current form. There’s nothing broad-based about empowerment deals like this one.”
This sort of reaction has put Mining Minister Susan Shabangu under pressure to make the ArcelorMittal empowerment deal more palatable, politically speaking. While she’s argued she has no legal standing to take ICT’s prospecting rights away, Shabangu has placed a moratorium on the issuing of all prospecting rights. That’s to give state legal teams time to close what she calls “gaps” in the legislation (read: a lack of transparency in licence allocations). Shabangu is also expected to put pressure on ArcelorMittal’s new empowerment partners to extend the benefits of its windfall to poor, black communities to align it to Government’s promise to broaden empowerment. She can do that by making broader empowerment a condition of converting the prospecting rights to mining rights.
While the debate about broadening so-called “narrow” empowerment heats up ahead of the ANC’s policy conference, Mbeki suggests empowerment in SA has already morphed into something more ominous than just empowering the same few well-connected individuals.
Says Mbeki: “You (the press) are misleading us when you talk about politically connected individuals in this deal. These aren’t an ad hoc bunch of individuals – they’re the children of the President (Jacob Zuma) and are closely linked to the Deputy President of the country. These people are the family of the top, top families in Government. The ICT deal is a quasi nationalisation: the rights have been privatised to the ruling political families (in Government).”
Zuma’s son Duduzane is a key figure in ICT, along with the Gupta family, who are wealthy immigrants from India who are also bankrolling a new pro-ANC daily newspaper called New Age. And while the CE of the Gupta family’s investment arm – Jagdish Parekh – also enjoys a shareholding in ICT, Zuma’s other son Duduzile (Duduzane’s twin brother) is a business partner of the Guptas. ICT’s board also includes Prudence Zerah Mtshali, who is reported to be romantically linked to Deputy President Kgalema Motlanthe.
Critics of the ArcelorMittal/ICT empowerment deal have also questioned the involvement of mining entrepreneur Sandile Zungu, who is head of the Ayigobi empowerment consortium, which is a constituent of ICT and, therefore, also part of the ArcelorMittal empowerment deal. Zungu is also head of Zuma’s empowerment advisory council that was, ironically, appointed to review the policy and to devise a way in which Government could broaden its benefits to poor black communities.
The sequence of events leading up to ArcelorMittal’s empowerment deal didn’t help disprove critics, including Mbeki. He blames big South African companies such as Sanlam and Anglo American for “giving politicians the impression” business is willing to give politicians stakes in their operations when they set up empowerment structures: for example, New Africa Investments Limited (Nail) and Real Africa Holdings. “Now politicians are picking and choosing which businesses they want (a slice of),” adds Mbeki.
While empowerment assessments by the Department of Trade & Industry have all but acknowledged that companies have been led to think there’s an incentive to use empowerment to buy influence by “empowering” a slice of the ANC’s power structure, the ANC says it’s waiting for the Zungu-led empowerment advisory council to table proposals about broadening empowerment at the ANC’s National General Council (NGC) meeting next month.
Parliament’s mining portfolio committee chairman Fred Gona (ANC MP) – who says he’s “not impressed” with the ArcelorMittal arrangement” – agrees deals such as this put the ANC under a lot of pressure from communities who see “those things happening” that aren’t in line with what black empowerment was promised to be (inclusive). However, Gona is hopeful the ANC’s NGC and policy conference will make changes that ensure empowerment’s “unintended consequences” are eliminated.
Gona is also optimistic that SA’s Mining Charter, which is under review, will determine mechanisms that ensure “if a mine is operating in a particular locality, the community in that locality must be beneficiaries. We (portfolio committee) just returned from an oversight trip to Namaqualand. The people there are swimming in abject poverty. They have no roads or schools. The unemployment there is so high and that’s happening despite mining operations taking place in the area. So we’re saying the framework of empowerment must benefit communities and the deliberations at the NGC will be about that issue.”
Lisa Tait, of Transcend Corporate Advisors, says it doesn’t take rocket science to understand why empowerment as a redistributive tool has gone wrong. She says the ArcelorMittal deal is one of the “worst empowerment deals” seen in SA. It epitomises how, instead of an empowerment ownership policy that encourages entrepreneurship or focuses on poor communities, political influence and connection now officially count most when clinching such deals. Tait fears the debate about broadening empowerment and its impact – to ensure transformation is delivered – incorrectly obsesses with and is hijacked by the issue of redistributive ownership. That, she says, is likely to be costly and keep empowerment deals more exclusive.
In her book Trick or Treat: Rethinking Black Economic Empowerment, Jenny Cargill points out that, to date, black empowerment ownership deals have absorbed by far the greatest amount of capital to redress imbalances – estimated between R500bn and R600bn, compared with less than R150bn on affordable housing and land reform. Concerns about the cost of those deals to SA’s economy form the basis of the “once empowered, always empowered” debate. For example, sectors such as mining and finance want to retain their empowerment credentials after they’ve conducted one ownership empowerment deal, even if their empowerment partners sell their stake in the company.
While the ANC is currently sitting on the fence on that issue, there’s a strong push within the party and Parliament not to allow companies to be empowered in perpetuity if their empowerment partners sell their shares, as the “once empowered, always empowered” concept would require.
The reality is the ANC has a vested interest in maintaining the current status quo. For example, its own investment company – Chancellor House – relies on empowerment deals and on the funding those generate from black business. In turn, black business relies on the ANC-led Government for tenders.
Ultimately, the symbiotic relationship between the ANC and black business fuels the patronage that characterises so many empowerment deals. The so-called unintended consequences of empowerment currently suit the ANC – and so-called ruling families – very well. The question is whether the empowerment policy review and legislative tinkering will dare to mess with that.
While Government – which has been left a little red-faced by the ArcelorMittal empowerment deal – scrambles to placate critics, including Cosatu, with promises to ensure empowerment benefits are shared, political economist Moeletsi Mbeki says it’s “fantasy” to think black empowerment is ever going to be anything more than a system “designed for wealth transfer to the black political elite”. Everything else, he says, is “window dressing”.
There’s certainly nothing disadvantaged about the empowerment beneficiaries of the ArcelorMittal deal, which was necessitated by ArcelorMittal’s negligence to convert its prospecting rights at its Sishen mine in Limpopo province to new order rights. When those rights reverted to the State, Kumba – which had been supplying ArcelorMittal with iron ore at a fixed and heavily discounted price – applied for the conversion rights for itself. But that plan was thwarted when the little-known ICT instead applied for and secured the prospecting rights at the mine. ArcelorMittal then offered ICT R800m for those rights, plus shares worth R9bn in Mittal itself.
Trade union federation Cosatu is furious. It’s called on the ANC – and the ANC-led Government – “to mandate the Cabinet to intervene to reverse these seriously embarrassing deals”.
Cosatu spokesman Patrick Craven says: “Black empowerment promotes self-accumulation and that can’t be allowed to continue in its current form. There’s nothing broad-based about empowerment deals like this one.”
This sort of reaction has put Mining Minister Susan Shabangu under pressure to make the ArcelorMittal empowerment deal more palatable, politically speaking. While she’s argued she has no legal standing to take ICT’s prospecting rights away, Shabangu has placed a moratorium on the issuing of all prospecting rights. That’s to give state legal teams time to close what she calls “gaps” in the legislation (read: a lack of transparency in licence allocations). Shabangu is also expected to put pressure on ArcelorMittal’s new empowerment partners to extend the benefits of its windfall to poor, black communities to align it to Government’s promise to broaden empowerment. She can do that by making broader empowerment a condition of converting the prospecting rights to mining rights.
While the debate about broadening so-called “narrow” empowerment heats up ahead of the ANC’s policy conference, Mbeki suggests empowerment in SA has already morphed into something more ominous than just empowering the same few well-connected individuals.
Says Mbeki: “You (the press) are misleading us when you talk about politically connected individuals in this deal. These aren’t an ad hoc bunch of individuals – they’re the children of the President (Jacob Zuma) and are closely linked to the Deputy President of the country. These people are the family of the top, top families in Government. The ICT deal is a quasi nationalisation: the rights have been privatised to the ruling political families (in Government).”
Zuma’s son Duduzane is a key figure in ICT, along with the Gupta family, who are wealthy immigrants from India who are also bankrolling a new pro-ANC daily newspaper called New Age. And while the CE of the Gupta family’s investment arm – Jagdish Parekh – also enjoys a shareholding in ICT, Zuma’s other son Duduzile (Duduzane’s twin brother) is a business partner of the Guptas. ICT’s board also includes Prudence Zerah Mtshali, who is reported to be romantically linked to Deputy President Kgalema Motlanthe.
Critics of the ArcelorMittal/ICT empowerment deal have also questioned the involvement of mining entrepreneur Sandile Zungu, who is head of the Ayigobi empowerment consortium, which is a constituent of ICT and, therefore, also part of the ArcelorMittal empowerment deal. Zungu is also head of Zuma’s empowerment advisory council that was, ironically, appointed to review the policy and to devise a way in which Government could broaden its benefits to poor black communities.
The sequence of events leading up to ArcelorMittal’s empowerment deal didn’t help disprove critics, including Mbeki. He blames big South African companies such as Sanlam and Anglo American for “giving politicians the impression” business is willing to give politicians stakes in their operations when they set up empowerment structures: for example, New Africa Investments Limited (Nail) and Real Africa Holdings. “Now politicians are picking and choosing which businesses they want (a slice of),” adds Mbeki.
While empowerment assessments by the Department of Trade & Industry have all but acknowledged that companies have been led to think there’s an incentive to use empowerment to buy influence by “empowering” a slice of the ANC’s power structure, the ANC says it’s waiting for the Zungu-led empowerment advisory council to table proposals about broadening empowerment at the ANC’s National General Council (NGC) meeting next month.
Parliament’s mining portfolio committee chairman Fred Gona (ANC MP) – who says he’s “not impressed” with the ArcelorMittal arrangement” – agrees deals such as this put the ANC under a lot of pressure from communities who see “those things happening” that aren’t in line with what black empowerment was promised to be (inclusive). However, Gona is hopeful the ANC’s NGC and policy conference will make changes that ensure empowerment’s “unintended consequences” are eliminated.
Gona is also optimistic that SA’s Mining Charter, which is under review, will determine mechanisms that ensure “if a mine is operating in a particular locality, the community in that locality must be beneficiaries. We (portfolio committee) just returned from an oversight trip to Namaqualand. The people there are swimming in abject poverty. They have no roads or schools. The unemployment there is so high and that’s happening despite mining operations taking place in the area. So we’re saying the framework of empowerment must benefit communities and the deliberations at the NGC will be about that issue.”
Lisa Tait, of Transcend Corporate Advisors, says it doesn’t take rocket science to understand why empowerment as a redistributive tool has gone wrong. She says the ArcelorMittal deal is one of the “worst empowerment deals” seen in SA. It epitomises how, instead of an empowerment ownership policy that encourages entrepreneurship or focuses on poor communities, political influence and connection now officially count most when clinching such deals. Tait fears the debate about broadening empowerment and its impact – to ensure transformation is delivered – incorrectly obsesses with and is hijacked by the issue of redistributive ownership. That, she says, is likely to be costly and keep empowerment deals more exclusive.
In her book Trick or Treat: Rethinking Black Economic Empowerment, Jenny Cargill points out that, to date, black empowerment ownership deals have absorbed by far the greatest amount of capital to redress imbalances – estimated between R500bn and R600bn, compared with less than R150bn on affordable housing and land reform. Concerns about the cost of those deals to SA’s economy form the basis of the “once empowered, always empowered” debate. For example, sectors such as mining and finance want to retain their empowerment credentials after they’ve conducted one ownership empowerment deal, even if their empowerment partners sell their stake in the company.
While the ANC is currently sitting on the fence on that issue, there’s a strong push within the party and Parliament not to allow companies to be empowered in perpetuity if their empowerment partners sell their shares, as the “once empowered, always empowered” concept would require.
The reality is the ANC has a vested interest in maintaining the current status quo. For example, its own investment company – Chancellor House – relies on empowerment deals and on the funding those generate from black business. In turn, black business relies on the ANC-led Government for tenders.
Ultimately, the symbiotic relationship between the ANC and black business fuels the patronage that characterises so many empowerment deals. The so-called unintended consequences of empowerment currently suit the ANC – and so-called ruling families – very well. The question is whether the empowerment policy review and legislative tinkering will dare to mess with that.
