Adding value at the rock face

Empowerment lessons from the mining sector

The experience of government's approach to empowerment in the mining industry offers valuable lessons for efforts to achieve broad-based empowerment in other parts of the economy, writes Phumzile Mlambo-Ngcuka.

The mining industry plays an important role in the South African economy. The notion that the South African mining industry is a sunset industry is disproved by the facts, figures and analysis of both the Department of Minerals and Energy and Chamber of Mines.

The empowerment of historically disadvantaged South Africans has to take place within sectors and enterprises that have a sustainable future to be truly meaningful and empowering. This will give the newly empowered partners a possibility to add value and ensure optimum growth and benefits for their shareholders. The mining industry is one of the sectors that presents opportunities for growth to new entrants in large, junior and small-scale mining, or in the supply and other indirect commercial activities that are stimulated by the sector.

GOVERNMENT BEE POLICY FRAMEWORK

Some commentators on black economic empowerment (BEE) mislead the public on the true policies and practices of government on BEE. That is done without bothering to check the easily accessible facts on government's BEE policies and what the policy is based on. Such comments often claim, wrongly and absurdly, that government has a say or even determines who benefits from all large BEE deals. They suggest the only deals happening are the ones reported in the media, often involving prominent people. Their definition of empowerment is confined to equity; people who are not shareholders in companies are, by their definition, not being empowered. This is a disturbing assumption as it completely ignores and trivialises all other forms of empowerment that the policy embraces. These commentators also claim that BEE transactions are discounted and lead to value leakage.

But the facts about BEE and government's policy are quite different. In reality:

• Most deals and transactions take place in the open market, without government involvement. The selection of partners has nothing to do with government, except where government is the owner of assets. While the private sector chooses its partners, government often urges that the broad based principle is upheld through employee share ownership schemes or community and professional shareholders.
• There are many unreported deals that catch limited or no media attention. Critics pretend these deals do not happen.
• Access to capital will always be a tall order as only a few blacks currently have access to large capital, which tends to give them greater advantage.
• Government's policy defines empowerment to include employment, equity, human resource development, affirmative procurement, enterprise development and community development. Equity alone is not appropriate to most target groups who may need short term benefits, have no capital and may require skills to get jobs to meet their basic needs.
• Empowerment deals are not discounted or leak value. They mostly fetch market price and in many cases are over priced. ARM Gold is a good example of a BEE transaction that lead to great value adds. Loss making shafts that Anglo Gold was getting rid of were turned around by ARM Gold and became profit making enterprises, thus saving jobs. There are many such examples, especially in mining.
• A recent study by Empowerdex has shown that companies with empowerment partners have performed better that those without.

Human resource development and employment equity are key pillars of BEE, fundamental for building and controlling the real economy. Skills and experience cannot be lost once gained. Both are needed not only for job creation but also for sustainability, innovation and competitiveness. Managers and technocrats in modern corporations are responsible for driving corporations and not shareholders. Technocrats have control and powers to build and destroy enterprises.

Government empowerment policy also seeks to correct market failures in particular industries, because these failures contribute to marginalisation of particular constituencies leading to inefficiencies, and in many cases entrench the divide between the first and second economy. Empowerment in mining, for example, addresses the abnormal situation caused by migrant labour. The Financial Services Charter addresses access to finance for the poor, because the lack of access contributes to an economically and socially abnormal society.

EMPOWERMENT IN MINING

The Mining Industry is a capital-intensive, but more importantly, people-intensive industry. It makes significant impact on the lives of its workers, especially migrant workers, and on the lives of people affected by mining. The dense labour sending areas, ex-mining areas and mining areas are also affected and impacted upon by the mining industry.

The Broad Based Socio-Economic Empowerment Charter was conceptualised with socio-economic challenges of the mining industry in mind. The challenges affecting workers and communities are as much socio-political as they are economic. In each pillar of the Mining Charter there is a different target group that the charter seeks to address. The benefits might range from poverty alleviation to enrichment, all of which are perfectly legitimate.

The Mining Charter has seven pillars:

• Equity, which should include employees, BEE investors, large and junior entrepreneurs;
• Human resource development, targeting unskilled workers through adult basic education and training (ABET), and training for middle and senior level through higher education;
• Employment equity, with a target of 40% black and 10% women representation in five years;
• Beneficiation, which is a new economic path for South Africa to expand the impact of the mining industry in the economy;
• Housing for mineworkers, which includes turning hostels into homes and ensuring proper nutrition to benefit workers;
• Affirmative procurement, to benefit entrepreneurs and contribute to high South African content in the supply industry;
• Community development, to benefit communities affected by mining.

All of these are licensing requirements and conditions that must be met by operating mine licenses holders. What the seven pillars create is a shared responsibility between those who enjoy licenses and profits of mining and the rest of a society to make a better life through mining.

Between 2002 and 2004, a total of 78 BEE deals of different sizes were concluded in the mining industry, with a total value of up to R25 billion.

However, the benefits to women are disparagingly low; women empowerment accounted for less than 5% of these transactions. Yet black women constitute more than 50% of the black population and are not less capable entrepreneurs.

A tripartite approach to negotiating the charter was critical. The fact that the charter is not only enforceable in law but a licensing condition has played a major role. The progress made is also a result of greater recognition in many sections of the industry that BEE and transformation are a fundamental requirement to doing good business in South Africa.

For the ANC and the alliance the benefits of these changes to the different stakeholders needs to be protected. It also needs to be noted that BEE is not a panacea for all of our economic problems.

Empowerment takes place in a capitalist society where there will always be those who will be richer. The steps taken by the state to force entry of historically disadvantaged South Africans through BEE policy is itself not consistent with the classic tenants of capitalism. Government and those who are already significant beneficiaries of this favourable economic policy must ensure that this unusual phenomenon of opening markets and forcing mergers and acquisitions benefits more, and not less, people.

Empowerment policies are fairly new and bound to face many challenges, but also to record many successes. The excessive criticism of BEE policy is grossly unfair and premature. For example, the Mining Charter was only promulgated in May 2004. The challenges faced by the sector can still be reduced. The medium and small-sized transactions must be given greater support, not squashed out of the BEE race by prejudice which argues big is always better.

BENEFICIATION

Beneficiation will be a major thrust in the next few years. Work is being done on the level of beneficiation required in each commodity so that companies comply with the requirements of the Mining Charter. The legal framework (or the absence of one) in many mineral-producing countries has historically left the producer nation disempowered and at the mercy of their colonisers, who have manufacturing economies. Additional laws were passed in some cases to incentivise exports of raw material instead of manufacturing; such has been the case in South Africa.

The Mining Charter responds to this but does not address the entry barriers to beneficiation caused by problems of access to minerals. In the diamond mining sector access to rough diamonds for people wishing to do value addition has been a problem. These people have had problems if they are not in the big producers' supply chain, who supply to a mostly global clientele leaving locals with little or very expensive access to rough diamonds.

President Thabo Mbeki, at a diamond function in Antwerp, Belgium in November 2004, made this observation about the current dispensation and relevance of a globalised diamond industry to Africa: "With regard to our own continent, it is our firm view that this cannot be done on the basis of the perpetuation of the old relationship according to which we as colonies produced and exported raw materials and imported high value added manufactured goods from the colonising countries. This also led to the building of an infrastructure directed at servicing this particular relationship." To empower African countries as producing nations those relations have to change.

The case for beneficiation with empowerment is compelling. Beneficiation is extremely limited in South Africa and empowerment in beneficiation even more so. The established industry in South Africa still has great reservations about South Africa's role in beneficiation.

Empowerment of individuals also depends on a change of economic power relations between nations. As we see in beneficiation, there is no shortage of arguments to maintain the status quo by those who feel Africa must accept its fate as the supplier of raw material.

LESSONS FROM MINING AND BEE

Black economic empowerment in mining would never have taken off to the extent that it had if government did not take deliberate measures to intervene, such as through legislation and licensing. The lessons learnt from mining and BEE include:

• Regulation and Policy must be enforceable and provide benchmarks against which to measure performance.
• Key Performance Indicators and scorecards are important to ensure and monitor implementation and progress.
• All aspects of the BEE policy need to be highlighted to ensure equity is not prioritised at the expense of other pillars which are meant to benefit different target groups and to promote broad based empowerment.
• Critics of broad based empowerment would help greatly by monitoring how companies, including black-owned companies, perform on human resource development, employment equity and community investment, which are all areas where we have major problems.
• Government must maintain macro and global pictures to remove barriers not only to achieve the empowerment of individuals, but broader social groups and the entire nation, and specifically develop strategies to empower women and other marginalised social groups.

Phumzile Mlambo-Ngcuka is a member of the ANC National Executive Committee and Minster of Minerals and Energy.

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