Mining Charter: obsession with the colour of ownership a setback for mines - Business day, 27 November 2017

The prioritisation of the ownership issue sidelines all the other empowerment channels that could make an impact
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Mining Charter: obsession with the colour of ownership a setback for mines - Business day, 27 November 2017

The prioritisation of the ownership issue sidelines all the other empowerment channels that could make an impact

 

By David Christianson

The case brought by the Chamber of Mines, in which it sought a declaratory order on the issue of the consequences of empowerment transactions in the extractive industry, was heard in the High Court in Pretoria recently.

Unfortunately, for an industry in desperate need of regulatory stability, the court chose to reserve judgment.

The issue is an old one that has been outstanding since the second iteration of the Mining Charter in 2010.

As matters stand, the action has done little more than once again illustrate how damaging is the overemphasis on ownership as an empowerment vector.

The chamber seeks a decision that allows observance of the "continuing consequences principle" where mining companies can continue to claim empowerment credits even after black owners have cashed out (once empowered, always empowered).

The Department of Mineral Resources, however, wants to limit the principle. But it has gone beyond this and not only insisted that black ownership levels be maintained in perpetuity but raised the required quantum from 26% to 30% in the (currently suspended) 2017 version of the charter.

What is remarkable is that the government and industry are unable to agree on measurement of progress.

Back in 2009-10, when the Department of Mineral Resources conducted a mid-term review of empowerment progress, it and the industry produced vastly different numbers.

The department claimed that the industry was only 9% black-owned.

The chamber asserted that all its members had met and exceeded the target of 26% black ownership.

The department has not produced recent figures, an omission that is in itself a dereliction of duty on the part of an entity that appears interested in little else.

But the chamber has. It says 39% of the industry was owned by "historically disadvantaged South Africans" in 2016.

The numbers naturally reflect the chamber’s preferred methodology — using the "continuing consequences principle". They probably also include another category of shareholding the department may not accept: "encumbered" shares (shares purchased using credit and not yet fully redeemed).

What the current minister has in no way acknowledged is that this transfer represents a mighty effort on the part of the industry since the original Mining Charter was agreed on back in 2004.

Another way of understanding the scale of the effort is to consider the total value of empowerment market transactions — R205bn — between 2000 and 2014.

This is nearly half the current market capitalisation of the industry, which was R420bn at mid-2017.

What should be much more significant in the minister’s mind is that market capitalisation of the South African mining industry dropped 25% between 2016 and 2017.

In this period, net fixed investment has fallen into negative territory, barely covering depreciation.

Real mining GDP was smaller in 2016 (R266bn) than it was in 1994 (R242bn).

At the same time, the assessed quality of the mining jurisdiction — the minister’s primary responsibility — has plummeted down the Fraser Institute’s rankings to a record low of 84th (out of 104) in 2016.

The prioritisation of the ownership issue tends to sideline all the other empowerment channels through which the mining industry makes an impact.

These are not only the other mechanisms formally recognised by the Mining Charter. The other mechanisms include procurement, supplier and community development, and affirmative hiring and promotions but, more importantly, job creation and tax contributions to the national fiscus.

It is the last two issues that should be the focus of attention, not the opaque debate over the pigmentation of the industry’s owners.

That requires focus on the issue the current minister prefers to ignore — the enabling environment for mining investment.

The fact is that capital is colour-blind and its very defining characteristic is that it always seeks the best possible returns.

In the process, it generates a range of positive externalities — jobs, suppliers, infrastructure — unparalleled by any alternative system.

It is only in the eyes of ideologues that capital has "colour" or racial attributes.

• Christianson is with the Institute of Race Relations, a think-tank that promotes political and economic freedom.
 

Read article on Business Day here

IRR TV

 

By David Christianson

The case brought by the Chamber of Mines, in which it sought a declaratory order on the issue of the consequences of empowerment transactions in the extractive industry, was heard in the High Court in Pretoria recently.

Unfortunately, for an industry in desperate need of regulatory stability, the court chose to reserve judgment.

The issue is an old one that has been outstanding since the second iteration of the Mining Charter in 2010.

As matters stand, the action has done little more than once again illustrate how damaging is the overemphasis on ownership as an empowerment vector.

The chamber seeks a decision that allows observance of the "continuing consequences principle" where mining companies can continue to claim empowerment credits even after black owners have cashed out (once empowered, always empowered).

The Department of Mineral Resources, however, wants to limit the principle. But it has gone beyond this and not only insisted that black ownership levels be maintained in perpetuity but raised the required quantum from 26% to 30% in the (currently suspended) 2017 version of the charter.

What is remarkable is that the government and industry are unable to agree on measurement of progress.

Back in 2009-10, when the Department of Mineral Resources conducted a mid-term review of empowerment progress, it and the industry produced vastly different numbers.

The department claimed that the industry was only 9% black-owned.

The chamber asserted that all its members had met and exceeded the target of 26% black ownership.

The department has not produced recent figures, an omission that is in itself a dereliction of duty on the part of an entity that appears interested in little else.

But the chamber has. It says 39% of the industry was owned by "historically disadvantaged South Africans" in 2016.

The numbers naturally reflect the chamber’s preferred methodology — using the "continuing consequences principle". They probably also include another category of shareholding the department may not accept: "encumbered" shares (shares purchased using credit and not yet fully redeemed).

What the current minister has in no way acknowledged is that this transfer represents a mighty effort on the part of the industry since the original Mining Charter was agreed on back in 2004.

Another way of understanding the scale of the effort is to consider the total value of empowerment market transactions — R205bn — between 2000 and 2014.

This is nearly half the current market capitalisation of the industry, which was R420bn at mid-2017.

What should be much more significant in the minister’s mind is that market capitalisation of the South African mining industry dropped 25% between 2016 and 2017.

In this period, net fixed investment has fallen into negative territory, barely covering depreciation.

Real mining GDP was smaller in 2016 (R266bn) than it was in 1994 (R242bn).

At the same time, the assessed quality of the mining jurisdiction — the minister’s primary responsibility — has plummeted down the Fraser Institute’s rankings to a record low of 84th (out of 104) in 2016.

The prioritisation of the ownership issue tends to sideline all the other empowerment channels through which the mining industry makes an impact.

These are not only the other mechanisms formally recognised by the Mining Charter. The other mechanisms include procurement, supplier and community development, and affirmative hiring and promotions but, more importantly, job creation and tax contributions to the national fiscus.

It is the last two issues that should be the focus of attention, not the opaque debate over the pigmentation of the industry’s owners.

That requires focus on the issue the current minister prefers to ignore — the enabling environment for mining investment.

The fact is that capital is colour-blind and its very defining characteristic is that it always seeks the best possible returns.

In the process, it generates a range of positive externalities — jobs, suppliers, infrastructure — unparalleled by any alternative system.

It is only in the eyes of ideologues that capital has "colour" or racial attributes.

• Christianson is with the Institute of Race Relations, a think-tank that promotes political and economic freedom.
 

Read article on Business Day here

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