By David Christianson
The third iteration of SA’s Mining Charter (Mining Charter 3), published by Mineral and Resources Minister Mosebenzi Zwane in June, is ultra vires [beyond one's legal power or authority] and can thus not be implemented. But it is worth examining.
Its key provisions are a textbook example of what empowerment should not be unless we want to so hobble the beneficiaries as to reduce them to perpetual dependency.
The minister claims that Mining Charter 3 is the "practical expression [of] radical economic transformation". He argues that those who criticise it are opposed to transformation and that the Charter advances "the interests of South Africans". The Chamber of Mines has countered that Mining Charter 3 inflicts such financial and reputational damage on the industry and the country at large that it requires urgent redress.
What tends to be a little lost in all this is that if the terms of Mining Charter 3 were ever implemented, the supposed beneficiaries would be reduced to never-ending reliance on state largesse.
The Charter rules that past empowerment deals do not count and that black ownership has to be maintained at a specified level in perpetuity. At first glance, the requirement that black ownership be set at 30%, up from 26%, looks like a positive empowerment measure, but the mechanism specified for maintaining this undermines all it might achieve and more. For the Charter specifies, in paragraph 2.1.1.4, that black entrepreneurs (who need to own 14%) will be allowed to sell their shares only to other black entrepreneurs; that community trusts (which need to own 8%) will be allowed to sell only to other community trusts; and employee shareholder trusts (which also need to own 8%) can sell only to other employee shareholder trusts.
There is a certain logic to this requirement. If Mining Charter 3 refuses to accept the "once empowered, always empowered" principle, it makes sense that it specifies how its perpetual ownership requirement is to be achieved.
The problem is, of course, that there is no market for these shares. No one wants to purchase equity so encumbered, nor are financial institutions likely to be willing to lend money to these imaginary prospective purchasers — or to the original owners. In the case of community or employee trusts, there can, by definition, not be other such vehicles waiting in the wings.
The 30% equity required by the Charter would be worthless. There is no point in holding shares that cannot be leveraged for other investments. Because of this, presumably, the Charter promises another revenue stream, effectively a bribe to passive shareholders. It requires that new mining rights holders pay 1% of annual turnover to their empowerment partners. This means that anyone who has purchased shares through the market, including black individuals as well as investment vehicles that represent substantial numbers of black people (such as the Public Investment Corporation and other retirement funds), will be paying "empowerment shareholders" throughout the lifetime of the asset.
Under Mining Charter 3, such remarkable empowerment stories as Royal Bafokeng Holdings and African Rainbow Minerals simply couldn’t happen.
The Charter treats the supposed empowerment beneficiaries as passive recipients of patronage channeled through a single point: the office of the minister himself. It implies, in the face of hundreds of thousands of counter-examples, that black South Africans cannot cope with the market, and that the government has to do business for them.
Mining Charter 3 is set up to keep black South Africans out of the market. That’s exactly what apartheid tried to do. Only someone obsessed with political power — as opposed to economic empowerment — could propose such a strategy. And while this might suit the minister, it certainly isn’t "in the interests of South Africans". None of them.
*Christianson is a policy fellow at the Institute of Race Relation, a think-tank that promotes political and economic freedom.
Read article on Business Day here
