Black Economic Empowerment and Transformation in the South African mining industry - a preliminary assessment

BEE and transformation in the Mining Industry The South African mining industry, led by the Chamber of Mines, is strongly committed to the transformation of the mining sector. We firmly believe that South Africa’s abundant mineral resources can serve as an engine for the normalisation and future prosperity of our society. To this end the Chamber is formulating a range of financial, technical and other schemes to facilitate genuine BEE and transformation.

Defining BEE: In broad terms BEE can be defined as the creation of economic opportunities for previously disadvantaged individuals (PDIs), thereby facilitating their accumulation of skills and wealth and enabling them to participate in the mainstream of the economy. BEE is made up of a number of processes, such as affirmative action, preferential procurement policies, the redistribution of productive assets, rural development, urban renewal, education, etc., with the intention of achieving the above aims.

For the mining industry BEE is not just about ownership but includes other important areas: Ownership (which does not imply control) Board representation (can the new BEE participants influence the strategic direction of the company?) Management (can the BEE partners second people into management to ensure sustainable projects?) Employment (ABET and illiteracy levels, do the HRD strategies of the companies promote career paths?) Procurement Rural development

Placing BEE in context: South Africa has a population of about 44,3 million people, (34,7 million blacks, 3,9 million coloureds, 1,1 million Indians/Asians and 4,5 million whites). According to the official definition 25.8% of the economically active population of 15,8 million people are unemployed. The country has one of the most skewed distribution of incomes in the world with the poorest 20% of the population earning only 2.8% of national income, while the richest 10% earn 41% (similar to Brazil, Malaysia, Thailand and Venezuela). The distribution of wealth and income follows a mostly racial bias, as does education and skill levels. The Gini coefficient (a measure of inequality) is 0.59

Getting people into jobs can play a major role in reducing income inequality and economically empowering people:  If unemployment were to fall to a level closer to 10% it is estimated that the Gini-coefficient will decline to about 0.41 and thus the level of inequality would decline to a much more reasonable level.  A critical part of real empowerment could be construed to be getting people into jobs.

International experience: Malaysia: In 1969 the Malaysian government initiated a New Economic Plan (NEP) which was designed to eliminate poverty and to promote greater economic equality between the Bumiputra (ethnic Malays, 58% of the population) and the Chinese (26% of population) and the Indians (10% of population). The NEP incorporated strategies of significantly growing the economy whilst ensuring that a greater number of people could participate in the economy. Greatly expanded education opportunities were afforded to the Bumiputra while employment quotas and incentives for corporate restructuring were introduced. The results of the NEP have been good when considered over a 20-year period.

International pointers for South Africa: There is a vital need to build support for BEE amongst all racial groups based on a common understanding of what needs to be achieved and why? BEE is not an event, but a process that requires time to work. In the USA and Malaysia over two decades were required. Economic growth has to be an absolute top priority since it provides the opportunity for all people to participate in a growing pie Specific focus must be placed on ensuring that the education system delivers effectively to both school children, and those previously excluded. South Africa spends nearly 8% of GDP on education, which is very high by international standards, yet the results are poor.

International pointers for South Africa cont.: Focus on skills development. One of the key issues is to develop skills in the areas of finance, marketing and entrepreneurship for PDIs. Again this is a process which requires time and can be done through mentorship programmes, learnerships, etc. Support a synchronised asset redistribution model of BEE (i.e. a parallel process of rapid economic growth and redistribution). Focus on the delivery of employment opportunities to the unemployed. A significant decline in unemployment rates will significantly reduce the high Gini-coefficient and will empower a significant portion of the population to participate in the mainstream economy. Ensure that the programme has a sunset clause. When sufficient critical mass for BEE is reached start phasing out the programme.

The Mining Industry BEE experience thus far:  The mining industry starts from a low base regarding BEE. The legacy of exclusionary legislation (ownership, women excluded from underground work, migrant labour and job reservation) means that the situation in mining is generally more acute than other sectors.  The failure of the early JCI-Khumalo deal resulted in a more cautious approach being adopted by the industry.

BEE mining projects:

Lessons learned from the mining industry experience thus far:  BEE is not just about ownership, but includes board representation, management participation, employment and procurement practices.  Highly leveraged financial deals with little accompanying business, technical and managerial expertise place BEE on an insecure footing. Capacity mentoring is thus a critical component.  The considered projects must be commercially viable and decisions to invest must be based on sound business principles.  The barriers to entry for BEE in mining are not insignificant.

Barriers/hurdles to entry for BEE in mining:  Access to mineral rights.  Access to reasonably priced finance.  A lack of business, technical and managerial skills and experience.  A lack of capacity to handle the legislative burden and the compliance costs of being in business.  A lack of access to markets.

Access to mineral rights: An agreement on an appropriate mechanism for the state to become the custodian of the country’s mineral resources has been reached – which should be good for the country.

The African Junior Mining Fund: The Fund has been established with the intention of raising US$ million to support the development of the Junior mining sector and to facilitate BEE in the sector. This represents a significant effort by the industry to facilitate genuine and sustainable BEE in the mining sector. Attached to the fund is the “Mentorship Program” designed to facilitate the development of technical/financial and management skills of BEE projects to promote real sustainable projects.

Developing career paths in the industry: Significant work has been done by the Chamber and its members to design appropriate career paths via appropriate recognition of prior learning and modulating the accumulation of skills. The ABET agreements signed in the mid-1990’s has resulted in significant declines in functional illiteracy. This has resulted in a significant increase in the number of trainable workers. The industry is then providing the opportunity for employees to accumulate skills to progress up career paths. The work of the MQA is addressing the skills profile of the sector.

Issues around legislative and compliance costs are being considered within the Chamber of Mines.  The Chamber is broadening its representative base.  Capacity and structures are being considered to facilitate entry into the Chamber and to promote discussion on critical issues facing BEE participants in the industry.

The road forward: The industry, through the Chamber is currently taking stock of progress and initiatives on the BEE front. Government and the Chamber have agreed to meet and progress the BEE agenda. Proposals emanating from research done within the Chamber will be considered at a senior executive level workshop in September. Examples of these proposals include ESOP, procurement policies, mentoring programs, accelerated skills development, union pension fund participation in mining companies, targets and a broad framework to address BEE in a holistic and sustainable manner.