With so many commentators determined to say that the draft Mining Charter released last week is, in the words of the Minerals Council of South Africa, ‘a material improvement on the 2017 Mining Charter’, it is all too easy to lose sight of what a disaster Minister Gwede Mantashe’s department has produced.
We at the Institute of Race Relations have consistently argued that if mining in South Africa is to live up to the country’s resource potential, an investment-friendly enabling environment is necessary. We have stressed that this requires not only more predictability but, critically, less governmental meddling in pursuit of ‘social’ ends which compromise business practice. If achieved, such an environment has the potential to unleash investment on a scale needed for true transformation of the sector.
Last year, the Minerals Council of South Africa (MCSA), conducted a survey of its members where it asked what they would do if South Africa got back into the Fraser Institute’s Top 25 mining jurisdictions, ranked by quality of regulation. South Africa is currently ranked 81st (out of 91) on that index’s policy perceptions component. The Council’s members indicated they would double the investment.
This is impossible under Mantashe’s new draft charter because key investment considerations are observed only in the breach. The minister might seem to have made a big concession on the ‘once empowered, always empowered’ issue, but in truth, he is only complying with April’s High Court ruling on the matter. Beyond this, the 30 percent black ownership provision was not unexpected and the granting of a five-year window to achieve it is, at least, less deranged than previous minister Mosebenzi Zwane’s twelve months. But even this was something the MCSA did not agree to.
The Council argues, quite correctly, that ‘elements of the charter do not promote competitiveness’ and that ‘without competitiveness, investment in new exploration and mining will be limited and the current mining sector will continue to decline, to the detriment of all citizens’. The Council singles out the ten percent ‘free carry’ to labour and communities as particularly problematic. But this is a primary concern of its constituency, dominated as it is by bigger mining companies.
For the junior mining sector, anything less than a complete exemption from the provisions of the charter is a death knell. At the Junior Mining Indaba in early June, Bernard Swanepoel said that, according to his researchers, ‘exactly zero’ had been spent on greenfields exploration in the previous year. This will not improve under Mantashe’s charter. His only concession to the junior sector is the statement that ‘a right holder may make representations to the minister regarding the extent to which the Mining Charter elements shall apply’.
So, mining development and explorations companies may be allowed some sorts of (unspecified) exemptions if they catch the minister in a good mood. But first, they have to obtain a mining right and to do this they need to hand 30 percent of their high-risk investment over to a BEE owner. This will almost certainly be a free carry as no responsible financier will lend to this sort of operation under such conditions of uncertainty.
And furthermore, they will have to comply with Mantashe’s new requirements, that boards have to be 50 percent black South Africans, 20 percent of whom must be black women. The demographic make-up of boards of private sector entities should be no business of any government minister. These decisions should be the responsibility of shareholders alone, as they are in all of the top 25 mining jurisdictions.
Mantashe swept into office on a wave of goodwill, driven at least in part by the contrast with his predecessor. While he still looks like the honest alternative, he’s clearly listening to the wrong people. He remains trapped within the ANC’s resource ultra-nationalism and has failed to put clear blue water between his brand and that of his racketeering predecessor. In the opinion of the Institute of Race Relations that is the minimum needed to salvage a viable future for South African mining.
* David Christianson is a policy fellow at the IRR – a think tank that promotes political and economic freedom. If you agree with what you have just read then click here or SMS your name to 32823.
** The views expressed here are not necessarily those of Independent Media.