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South Africa’s New Mining Charter Could Impoverish the Very People it is Intended to Help

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It is not unusual for the wrong thing to be done for the right reasons.

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Whether it is the rule of unexpected consequences or blind adherence to doctrine, there are countless historical examples of individuals, companies and governments that made decisions, claiming the moral high ground, which have resulted in damage or impoverishment to those the decision was intended to assist.

The mining sector and even some unions have reacted angrily to South Africa Minister of Mining Mosebenzi Zwane’s announcement last week at a presentation in Pretoria of a new mining charter intended to further extend South Africa’s Black Economic Empowerment (BEE) rules.

The charter sets out a number of significant changes to the rules governing ownership of South Africa’s vast mining industry.

Currently, companies must be 26% black-owned. Under the new charter, this is to rise to 30%, split between black entrepreneur investors who will take 14%, employees who will receive 8% and communities getting the remaining 8%.

What seems to have upset the mining companies is a change from the previous legislation, which said, “once empowered – always empowered,” meaning if firms achieved 26% black ownership what those black investors decided to do with their shares afterwards was up to them. The new rules, however, require companies to top up their BEE ownership to 30% should investors sell —  an expensive and involved process to continually requalify their credentials.

The charter also requires all boards to be made up of a minimum of 50% black directors and requires all companies to pay their BEE shareholders 1% of revenue before they pay any dividends, the 1% being over and above dividend payments to both BEE and institutional shareholders.

Lastly, the charter increases the requirement for companies to buy a larger proportion of goods and services from black-owned companies. It increased the minimum for goods from 40% to 70% and of services 70% to 80% from BEE companies.

Past legislation setting minimum levels of black shareholders and reserving a minimum number of places on the boards of mining companies has done little to help the black community. Rather, the result has been the growth of a small but extremely wealthy black elite. If anything, it has further exacerbated the divide between rich and poor in an already polarized society.

The mining industry directly employs over 450,000 people and, according to the Daily Maverick, contributed over R300 billion to South Africa’s GDP last year — almost 8% of the country’s growth.

Yet, mines are still predominantly white-owned, as are many of the companies that supply and serve them notes Greg Nicolson in the Daily Maverick.

Although much has been done by some mining companies to improve local communities, many miners still live in poverty with poor housing, sanitation and local infrastructure.

Whether the new charter will do anything to improve their situation seems doubtful.

Many fear the charter could do the exact opposite, deterring investment and hastening multinational mining companies’ plans to divest their South African investments at a time when commodity prices are weakening.

Not surprisingly, Anglo American plc‘s share price fell 5% following release of the news. South32, the BHP spin-off, fell 4.2% and Lonmin was down 2%.

Analysts fear the changes will convince investors that South Africa is an increasingly unattractive place in which to invest.

The South African Chamber of Mines, representing the industry, has threatened legal action. While trade unions have welcomed greater worker participation, they have also expressed frustration at not being engaged in the decision-making process.

This story looks like it has far to run, but one thing does seem sure: Although Zwane may have been motivated by the best of intentions, the result of his actions may be to the long-term detriment of the people he is trying to help.

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South Africa is at risk of, if not killing its golden goose, at least severely injuring it.

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