Rather, the mining industry should voluntarily adopt a very different approach to empowerment that seeks not to create a narrow group of black capitalists but to help the truly disadvantaged get ahead.
Mining companies would increase their investment in South Africa by between 80% and 84% if the BEE ownership issue could be put to bed and regulatory certainty could be achieved, said Tebello Chabana, senior executive at the Minerals Council South Africa, earlier this week.
BEE requirements in mining have undoubtedly helped create a number of ‘black capitalists’. This is also the primary purpose of BEE, according to mining and energy minister Gwede Mantashe in his address to the Joburg Mining Indaba a fortnight ago. Yet BEE in mining has harmed the great majority of disadvantaged South Africans, who need investment, growth, and jobs to get ahead.
The mining industry has nevertheless been ‘going along to get along’ on BEE for more than two decades. But the regulatory certainty they expected in return has not been forthcoming. Instead, BEE requirements keep shifting and becoming more onerous. So much so that potential investors are generally unwilling to commit to fresh projects because they cannot predict what additional BEE burdens might lie ahead.
The mining industry’s initial error was to acquiesce in the transfer of all privately-owned mineral resources – two-thirds of the total – into the ‘custodianship’ of the state under the Mineral and Petroleum Resources Development Act (MPRDA) of 2002.
Having decided to go along to get along on this vital issue, they soon found that they had lost not only their property rights but also their capacity to object to ever more onerous BEE obligations.
The initial mining charter (Charter 1) required mining companies to transfer 26% of their assets or equity to historically disadvantaged South Africans by the end of 2014. It also said that ‘the continuing consequences of all previous deals must be taken into account’, even if BEE investors later sold out.
Other Charter 1 goals were largely aspirational – calling on companies to ‘increase procurement’ from black firms, co-operate in drawing up development plans for mining communities, and ‘aspire’ to 40% black participation in management, for instance.
Charter 1 is the only BEE charter that can lawfully be adopted under section 100 of the MPRDA. This clause empowers the mining minister to ‘develop a broad-based socio-economic empowerment charter’ within six months of the Act’s becoming operative. It says nothing about the minister being able to amend, repeal, or replace this charter.
The government nevertheless introduced Charter 2 in 2010. This turned previously aspirational goals into hard numerical targets, severely limited the ‘continuing consequences’ principle, and stated that non-compliance with its terms was a punishable breach of the MPRDA. These shifts were major and unlawful, but the industry – not wanting to jeopardise its now tenuous mining rights – went along once again.
The negative consequences became apparent in 2015, when the Department of Mineral Resources (DMR) measured the industry’s compliance with its BEE obligations. The DMR agreed that average BEE ownership stood at 32.5% under the terms of Charter 1. But it insisted on applying Charter 2 instead, using this – with its limits on the continuing consequences principle – to claim that only 20% of companies had met their ownership obligations.
The DMR also criticised the industry’s performance on other Charter 2 targets, and warned that many mining rights might now be cancelled for non-compliance. But a failure to comply with the charter is different from a breach of the MPRDA, so any such cancellation would have been unlawful.
The mining industry finally took legal action in 2017, when former mining minister Mosebenzi Zwane gazetted a third charter. This contained a 30% BEE ownership target for all mining rights, both new and existing, plus a 51% target for all prospecting rights.
The current Charter 3, gazetted by Mr Mantashe in September 2018, exempts prospecting rights from BEE and limits the 30% target to new mining rights – plus any existing rights that need to be transferred or renewed. Though better than the Zwane document in various ways, it too is ultra vires the MPRDA.
Charter 1 remains the only valid charter under Section 100 of the Act. The Pretoria high court referred to this in April 2018, when it upheld the validity of the ‘continuing consequences’ principle in Charter 1 and questioned the lawfulness of Charter 2.
The mining industry seems reluctant to pursue this latter point. But until Section 100 has been amended, the minster has no capacity to alter or repeal Charter 1. Any attempt to do so is not only ultra vires the MPRDA but a breach of the rule of law.
Mining companies have more than complied with Charter 1, as the DMR acknowledged in its 2015 report. In addition, the value of BEE deals concluded since 2000 exceeds R205bn, while the economic value transferred totals around R160bn.
Charter 1 has thus done much to create black capitalists. (In 2003 Mzi Khumalo, for example, reportedly made a R1bn profit by selling off most of Harmony Gold’s BEE shares within two years of the company’s doing its deal.) At the same time, however, ever more onerous BEE requirements have discouraged investment, curtailed growth, reduced employment, restricted tax revenues, and prevented the mining industry from living up to its potential.
The government is nevertheless appealing against the Pretoria high court decision and is determined to have the ‘continuing consequences’ principle set aside by the courts. If it can achieve this, it will be able to insist on ever more ‘top-up’ deals for new mining rights and, in some instances, for existing ones too. The Minerals Council is now equally determined to fight for the retention of the principle. In March 2019 it also challenged the validity of the 2018 charter on various grounds.
While these disputes are wending their way through the courts, the mining industry should voluntarily adopt a very different approach to empowerment – one that seeks, not to create a narrow group of black capitalists, but rather to help the truly disadvantaged get ahead.
On this ‘economic empowerment for the disadvantaged’ or ‘EED’ approach, mining companies would earn EED points for their environmental, health, and safety contributions as well as for sustaining and expanding jobs, making fixed investments, adding to capital inflows and export earnings, funding research and development, and boosting the tax revenues vital to fixed investment, education, healthcare, and a host of other needs.
These are by far the most important contributions to upward mobility that the mining industry can make – yet every mining charter has sedulously ignored them.
With an EED approach in place, mining investment could start to expand by the 84% that Mr Chabana has mooted. This would do far more to help the truly disadvantaged than any number of ownership deals for the benefit of a narrow political elite.
Other sectors now under threat from the expropriation without compensation (EWC) demand, the National Health Insurance (NHI) scheme, and the prescribed assets’ proposal for pension funds should also heed the lessons from the mining industry.
Property rights are vital to successful enterprise and need to be strongly defended from the start. Going along to get along may secure some short-term gains – but it is also sure to generate a litany of ever more damaging and dirigiste demands.
Dr Anthea Jeffery is Head of Policy Research at the IRR
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