Transcript Pay-limit Presentation - Alan Munro

Black Economic Empowerment and
Transformation in the South African
mining industry - a preliminary
assessment
BEE and transformation in the Mining Industry
The South African mining industry, led by the Chamber of
Mines, is strongly committed to the transformation of the
mining sector. We firmly believe that South Africa’s
abundant mineral resources can serve as an engine for the
normalisation and future prosperity of our society. To this
end the Chamber is formulating a range of financial,
technical and other schemes to facilitate genuine BEE and
transformation.
Defining BEE:
In broad terms BEE can be defined as the creation of
economic opportunities for previously disadvantaged
individuals (PDIs), thereby facilitating their accumulation
of skills and wealth and enabling them to participate in the
mainstream of the economy.
BEE is made up of a number of processes, such as
affirmative action, preferential procurement policies, the
redistribution of productive assets, rural development,
urban renewal, education, etc., with the intention of
achieving the above aims.
For the mining industry BEE is not just about
ownership but includes other important areas:
•Ownership (which does not imply control)
•Board representation (can the new BEE participants
influence the strategic direction of the company?)
•Management (can the BEE partners second people into
management to ensure sustainable projects?)
•Employment (ABET and illiteracy levels, do the HRD
strategies of the companies promote career paths?)
•Procurement
•Rural development
Placing BEE in context:
•South Africa has a population of about 44,3 million people, (34,7
million blacks, 3,9 million coloureds, 1,1 million Indians/Asians
and 4,5 million whites).
•According to the official definition 25.8% of the economically
active population of 15,8 million people are unemployed.
•The country has one of the most skewed distribution of incomes in
the world with the poorest 20% of the population earning only 2.8%
of national income, while the richest 10% earn 41% (similar to
Brazil, Malaysia, Thailand and Venezuela).
•The distribution of wealth and income follows a mostly racial bias,
as does education and skill levels.
•The Gini coefficient (a measure of inequality) is 0.59
Comparison of the share of national
income for poor households and rich
households
60
%
51.3
50
42.7
37.1
40
30
41.9
37.9
22.1
20
9.3
10
5.6
3.6
2.1
2.8
4.6
0
Poland
Thailand
Venezuela
Brazil
South Africa
Malaysia
Share of
income of
poorest
20%
Share of
income of
richest
10%
Getting people into jobs can play a major role in
reducing income inequality and economically
empowering people:
If unemployment were to fall to a level closer to 10% it is
estimated that the Gini-coefficient will decline to about 0.41
and thus the level of inequality would decline to a much more
reasonable level.
A critical part of real empowerment could be construed to be
getting people into jobs.
International experience:
•Malaysia: In 1969 the Malaysian government initiated a New Economic
Plan (NEP) which was designed to eliminate poverty and to promote
greater economic equality between the Bumiputra (ethnic Malays, 58%
of the population) and the Chinese (26% of population) and the Indians
(10% of population).
•The NEP incorporated strategies of significantly growing the economy
whilst ensuring that a greater number of people could participate in the
economy.
•Greatly expanded education opportunities were afforded to the
Bumiputra while employment quotas and incentives for corporate
restructuring were introduced.
•The results of the NEP have been good when considered over a 20-year
period.
International pointers for South Africa:
•There is a vital need to build support for BEE amongst all racial
groups based on a common understanding of what needs to be
achieved and why?
•BEE is not an event, but a process that requires time to work. In
the USA and Malaysia over two decades were required.
•Economic growth has to be an absolute top priority since it
provides the opportunity for all people to participate in a growing
pie
•Specific focus must be placed on ensuring that the education
system delivers effectively to both school children, and those
previously excluded. South Africa spends nearly 8% of GDP on
education, which is very high by international standards, yet the
results are poor.
International pointers for South Africa cont.:
•Focus on skills development. One of the key issues is to develop
skills in the areas of finance, marketing and entrepreneurship for
PDIs. Again this is a process which requires time and can be done
through mentorship programmes, learnerships, etc.
•Support a synchronised asset redistribution model of BEE (i.e. a
parallel process of rapid economic growth and redistribution).
•Focus on the delivery of employment opportunities to the
unemployed. A significant decline in unemployment rates will
significantly reduce the high Gini-coefficient and will empower a
significant portion of the population to participate in the mainstream
economy.
•Ensure that the programme has a sunset clause. When sufficient
critical mass for BEE is reached start phasing out the programme.
The Mining Industry BEE experience thus far:
The mining industry starts from a low base regarding
BEE. The legacy of exclusionary legislation (ownership,
women excluded from underground work, migrant labour
and job reservation) means that the situation in mining is
generally more acute than other sectors.
The failure of the early JCI-Khumalo deal resulted in a
more cautious approach being adopted by the industry.
BEE mining projects:
BUYER/EMPOWERMENT
COMPANY
Mvelaphanda
Mvelaphanda
Eyesizwe Mining
Enderbrooke Investments
To be advised
African Rainbow Minerals
Kimberly Multi-stakeholder
Forum with the Kimberly
Small Mining Forum.
Kuyasa Mining
African Rainbow Minerals
Komanani Mining
SELLER/ SOURCE
COMPANY
Amplats & Northam
Platinum
Transhex
Anglo Coal and Ingwe
(Newcoal)
E.R.P.M.
RBCT coal terminal
expansion
Anglo Gold (seven Vaal
reef shafts)
De Beers (Sedibeng Mining
company)
Size of
stake
22.5%
Ingwe
Anglo Platinum to develop
the Maandagshoek mine
Harmony
Rand value
R’m
550
n/a
80%
n/a
360
n/a
n/a
58
300
n/a
40
n/a
2.7
n/a
50%
n/a
625
10%
400
Occupational distribution by population group for
mining
% of category
120
100
Black
80
White
60
40
20
0
Managers,
senior of f icials
Prof essionals
Technicians
Clerks
Service
Craf t & relat ed
Plant &
Labourers &
workers
workers
machine
relat ed occup.
operat ors
Educational achievement of the
workforce in mining
60
% of total
50
40
30
20
10
0
Qualification
unknown
ABET 1 TO 4
Standard 8 to
9
M atric
Diploma/
certificate
Under-grad & Post-graduate
higher diploma
Lessons learned from the mining industry experience
thus far:
BEE is not just about ownership, but includes board
representation, management participation, employment and
procurement practices.
Highly leveraged financial deals with little accompanying
business, technical and managerial expertise place BEE on an
insecure footing. Capacity mentoring is thus a critical component.
The considered projects must be commercially viable and
decisions to invest must be based on sound business principles.
The barriers to entry for BEE in mining are not insignificant.
Barriers/hurdles to entry for BEE in mining:
Access to mineral rights.
Access to reasonably priced finance.
A lack of business, technical and managerial skills and
experience.
A lack of capacity to handle the legislative burden and the
compliance costs of being in business.
A lack of access to markets.
Access to mineral rights:
An agreement on an appropriate mechanism for the state
to become the custodian of the country’s mineral
resources has been reached – which should be good for
the country.
The African Junior Mining Fund:
•The Fund has been established with the intention of raising
US$100-200 million to support the development of the Junior
mining sector and to facilitate BEE in the sector.
•This represents a significant effort by the industry to facilitate
genuine and sustainable BEE in the mining sector.
•Attached to the fund is the “Mentorship Program” designed to
facilitate the development of technical/financial and
management skills of BEE projects to promote real sustainable
projects.
Developing career paths in the industry:
•Significant work has been done by the Chamber and its
members to design appropriate career paths via appropriate
recognition of prior learning and modulating the accumulation
of skills.
•The ABET agreements signed in the mid-1990’s has resulted
in significant declines in functional illiteracy. This has resulted
in a significant increase in the number of trainable workers.
•The industry is then providing the opportunity for employees
to accumulate skills to progress up career paths.
•The work of the MQA is addressing the skills profile of the
sector.
Issues around legislative and compliance costs are being
considered within the Chamber of Mines.
The Chamber is broadening its representative base.
Capacity and structures are being considered to facilitate
entry into the Chamber and to promote discussion on
critical issues facing BEE participants in the industry.
The road forward:
•The industry, through the Chamber is currently taking stock of
progress and initiatives on the BEE front.
•Government and the Chamber have agreed to meet and
progress the BEE agenda.
•Proposals emanating from research done within the Chamber
will be considered at a senior executive level workshop in
September.
•Examples of these proposals include ESOP, procurement
policies, mentoring programs, accelerated skills development,
union pension fund participation in mining companies, targets
and a broad framework to address BEE in a holistic and
sustainable manner.