This is the second post of a two part series. The earlier post appears here.
Earlier this month, Aaron Kharivhe, a regional mines manager, sent London based miner Lonmin a letter ordering it to “refrain from selling nickel, copper, chrome or any other minerals other than platinum group metals with immediate effect. Like all other multi metal mines in South Africa, Lonmin had been selling byproduct metals those contained in the same rock as the principal metal being mined as a routine practice up to then. It is understood that the order was connected with Holgoun a company controlled by Sivi Gounden, a former government minister who applied for prospecting rights over a portion of Lonmin’s land in March 2009.
All foreign miners are required to have local partners under the country’s black economic empowerment (BEE) legislation. The government has said it wants all mining companies to have 26% of their equity held by black South Africans by 2014 regardless of whether they bring any managerial or economic benefits to the organization. It would not be surprising if companies favored granting equity to those with political connections under such rules, if you have to give away part of your company you want to secure something of benefit and political connections have always been paramount in Africa.
But choosing partners based on their proximity to political office reached such levels last week that Susan Shabangu, South African mining minister, was forced to rush out a statement saying, “I want to reassure stakeholders that South Africa is indeed a mining jurisdiction worthy of future investment, following uproar that ArcelorMittal appeared to be doing a deal with a shell company to circumvent its dispute with Kumba Iron Ore. Last week Mittal announced it would buy Imperial Crown Trading (ICT) for 800 million Rand (US$100 million) a shell company owning nothing other than recently awarded prospecting rights over 21.4% of the Anglo American subsidiary Kumba Iron oOe Sishen mine. ICT is controlled by a former government minister with connections to the president according to Times Live a local website and was unheard of before the surprise award was made during Kumba’s high profile dispute with ArcelorMittal over the price at which Kumba would sell ArcelorMittal SA iron ore. Passions were further inflamed when Sandie Zungu, a beneficiary of the BEE deal was heard to say it was “money for jam. The dispute has even added to calls for the mining and metals industries to be nationalized. Numsa, the National Union of Metalworkers of SA points out in the article that both Arcelor and Kumba were borne out of the un-bundling of Iscor (South African Iron and Steel Industrial Corporation) as it was first privatized and then parts sold to multi-nationals. The government stipulated two conditions at that time – first, that iron ore be supplied at a cheaper price (set at cost plus 5%) to ArcelorMittal and second, that ArcelorMittal supply cheap steel to downstream industries to bolster local manufacturing capability (one of the founding principals of Iscor when it was set up in the 1920’s). In Numsa’s opinion (and many others) however “ArcelorMittal has, abused its access to a cheap supply of iron ore by, in return, fixing import parity prices for steel in South Africa (and pocketing the difference).
The rights or wrongs of Kumba and ArcelorMittal’s pricing structures aside, the fear in South Africa is that decisions about BEE and arbitrary confiscation and transfer of mineral rights to companies with nothing more than proximity to those in power will scare off foreign investment that South Africa desperately needs. Support has come from some surprising quarters, the National Committee of the Young Communist League of SA (YCLSA) recently came out with demands for a law to prohibit politicians from taking part in business and said they would campaign to ensure that relatives of politicians are prohibited from doing business with government.
Maybe Mandela’s legacy of fairness and justice is not lost in South Africa but rather is being championed by a younger generation still full of idealism and a desire to build a better future.