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BEE Transformation Sector - South Africa - July 2017
A process to review and amend South Africa’s mining charter “has been concluded” and Mineral Resources Minister Mosebenzi Zwane will hold a press briefing at 10:00 am in Pretoria, the capital, on Thursday, the Department of Mineral Resources said in an emailed statement on Wednesday.
The Chamber of Mines, which represents the nation’s biggest operators including Anglo American Plc and Sibanye Gold Ltd., received an invitation on Wednesday afternoon for a meeting with the ministry that is scheduled for an hour before the start of the press briefing, the industry lobby said in an emailed statement.
The chamber “will not be co-opted into participating in an attempt by the department to provide any support into what we believe has been a flawed process,” it said in the statement. The ministry has “not seen fit” to engage properly with stakeholders about the content of the charter, the chamber said.
(Bloomberg) – South African Mines Minister Mosebenzi Zwane has proposed raising the mandatory black ownership of mining assets to 30 percent from 26 percent, drawing opposition from some ruling-party officials who fear it will deter investment, two people familiar with the situation said.
The proposal is part of a long-delayed draft mining charter outlined by Zwane, an ally of President Jacob Zuma, to the African National Congress’ economic policy committee on May 13.
Senior party policy officials warned of the potential negative consequences of his plans, said the people, who asked not to be identified because Zwane hasn’t formally proposed the changes for public comment before they become binding.
Zuma’s cabinet on Wednesday approved the draft mining charter, which will be released for public comment once it has been gazetted. ANC spokesman Zizi Kodwa didn’t answer calls seeking comment. It’s unclear whether the cabinet demanded changes.
South Africa’s Chamber of Mines said this week that the government needs to finalise its mining regulations if falling investment in the industry is to be reversed. Zuma, who’s due to step down as leader of the ANC in December and as the nation’s president in 2019, has called for “radical economic transformation” to more fairly distribute the benefits of South Africa’s economy among the black majority.
“The mining industry has been the bedrock of the South African economy for over 100 years. The sector has made many positive contributions to the development of our economy, and some of the infrastructure and industries thriving today are as a direct resulting of mining.
“We cannot deny, however, that there have been some undesirable effects, brought on by decades of colonialism and apartheid.
“Unemployment, inequality and poverty have been growing over the years, creating an untenable situation.
“Of course, people like to blame the ANC for the widespread unemployment. They say we lack ideas, are anti-business, don’t know what we are doing, etc. But we’ve been in power for, what is it, just under a quarter of a century—that isn’t long, is it?
“What is comforting is that today a poor rural shack dweller visiting the city can see many blacks who are rich, indeed some who are very rich. So, even though it is taking a little bit longer than we wish, we are getting there, aren’t we? Anyway, we’d like to spread this type of wealth around a little more. And that’s the purpose of this Mining Charter.
“The birth of South Africa’s democracy in 1994 brought about political freedom for all. Vast economic imbalances remain a challenge, particularly when the majority of South Africans have yet to see meaningful economic participation or ownership of these minerals.
“Naturally, I am not discounting the 40% of earnings the mining industry contributes to government in tax, a rate which many say is among the highest in the world. And I am not denigrating the mining industry’s contributions by way of licenses or its royalty payments to communities. Or that mining employs half a million people who in turn pay taxes to the government. I am also not unmindful of the dividends the mining companies pay to the state’s Industrial Development Corporation and to the government employees’ pension fund. Or even the R200 billion that has already been transferred to black individuals or organisations in empowerment deals. We, as government, see none of these contributions as a problem.
“We encourage the young people who are the future of this country to embrace the Mining Charter by exploiting the opportunities to be unleashed by this instrument of change,” Zwane said.
“We will be embarking on provincial roadshows in the next two weeks to raise awareness and to take the Charter to the people.”
Zwane said this when he was tabling the R1.779 billion Budget Vote of the Mineral Resources Department in the National Council of Provinces on Wednesday.
The reviewed Mining Charter has caused a lot of uncertainty for stakeholders and the markets by setting new black ownership targets for the industry.
The Chamber of Mines vehemently rejected it, saying that the department had not held meaningful consultations before the introduction of some of the items, and thus it would approach the courts to interdict its implementation.
The targets include new mining rights, holders having 30 percent black ownership to be shared among employees, communities and black entrepreneurs. Mining rights holders who have complied with the previous target of 26 percent have to “top up” to 30 percent within 12 months.
Those applying for prospecting rights would be required to have a “minimum of 50 percent plus one black person shareholding”. These shareholders must have voting rights.
The National Union of Mineworkers (NUM), on the other hand, welcomed the reviewed Mining Charter, saying that it appreciated the increase from the initial 26 percent to the 30 percent minimum BEE shareholding in the industry.
Zwane said the majority of the people of South Africa who make up 90 percent of the population remained excluded from the economy. He said the economy remained lopsided, unequal and non-inclusive because of the legislative framework.
Zwane said this was a huge detriment to South Africa’s socio-economic growth efforts, adding that the need for radical economic
transformation was more imperative than ever before because it sought to redress the institutionalised monopoly of the economy.
“Economic reforms are needed to ensure broader and inclusive participation to enable the attainment of a far more inclusive and competitive economy,” Zwane said. Read More ….
BEE Transformation and Jobs - South Africa - July 2017
In a finding released in the institute’s latest South Africa Survey, it said this did not bode well for the economy because government would find it harder to expand the rollout of grants or to increase their value.
“The numbers are a recipe for social and political chaos,” the institute’s analyst Gerbrandt van Heerden said.
“As the economy stagnates, and tax revenue slows, demand for more grants will increase. The government will then have to cut other areas of expenditure in order to meet popular demands for more and higher grants. We predict that this will lead to much higher levels of violent protest action.”
The latest jobs data by StatsSA showed a quarter -on-quarter increase of 0.8% in average monthly earnings paid to employees in the formal non-agricultural sector to R18,687 in February 2017.
BankservAfrica’s Disposable Salary Index (BDSI) showed a more realistic ‘take home’ picture averaging at R13,790 in May 2017, slightly lower than April’s R13,914.
The OECD data uses the total wages paid out to employees, hence the Stats SA data makes for the best comparison. It should also be noted that the OECD is also adjusted for purchasing power parity.
Jobs data by StatsSA for 2016 showed that average monthly earnings paid to employees in the formal non-agricultural sector was at R17,517 per month – translating to R210,200 annually.
South Africa’s average salary per year translates to $15,861, but the country has a local purchasing power almost twice the value of the US$ – a fair value exchange of R5.81 to the dollar, according to the IMF (2016).
Compared to the most recently available OECD data, South Africa falls somewhere in the middle of the country’s covered, with the dollar equivalent (US$36,180, adjusted for purchasing power parity) placing around the same levels as Italy and Spain.
Two recent but disparate events bring Black Economic Empowerment (BEE) into sharp focus.
The first is the new Mining Charter, the second, the predicament of the Democratic Alliance (DA) in light of its leadership crisis.
Sara Gon is a Policy Fellow at the IRR, a think tank that promotes economic and political liberty There are multitudinous criticisms of BEE: it benefits only a small elite, it has progressed from voluntary compliance to obligatory quotas, its processes are complex, and it has failed to take account of the impact of economic and financial realities on its implementation.
For the first time, the mining industry is staring down a politically compromised and dishonest minister in Mosebenzi Zwane.
“This charter’s not going to see the light of day anytime soon,” says mining law expert Peter Leon. “We’re looking at years of protracted litigation.” (‘Zwane’s controversial mining charter won’t see light of day’ – analyst, Paul Burkhardt and Kevin Crowley, BizNews, June 19, 2017).
In the same article, Ben Davis of Librium Capital Limited says: “The value destruction is hard to quantify and the uncertainty will persist. What is certain is that South Africa continues to be a terrible destination for mining investment and assets in South Africa will continue to trade at a discount”.
In a letter to Business Day on June 20, 2017, John Louw asks incredulously how a charter can force mining companies to pay dividends over a 10-year period to facilitate the repayment of finance extended to empowerment “partners”, with a penalty if the dividends fall short of extinguishing such debt at the end of the period? This imposition on a listed company is contrary to the most elementary principles of capital management. Dividends should only be declared and paid by the directors of a company after due consideration of numerous factors, not least of which are ongoing liquidity and solvency.
Carol Paton points out (By Playing two sides, Malusi Gigaba takes a gamble on the economy’s strength, Business Day, June 20, 2017) that it was no coincidence that at his press conference on 15 June, 2017, Gigaba promised imminent policy certainty through inter alia the Mining Charter.
BEE Transformation Sector - South Africa - July 2017
Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa (Naamsa), the representative body of new vehicle manufacturers, said on Friday that the idea of establishing a sector code had been abandoned and the seven locally based original equipment manufacturers (OEMs) would operate independently in terms of the generic BBBEE scorecard.
However, Vermeulen said these OEMs had a major challenge in regard to ownership, because they did not have any equity for sale as they were wholly-owned subsidiaries of global multinational companies.
“In that regard, the OEM venture capital (transformation) fund was formulated and is now the subject of discussion and negotiation with the Department of Trade and Industry (dti),” he said.
Jeff Nemeth, the former chief executive of the Ford Motor Company of South Africa and president of Ford sub-Saharan Africa, told Business Report in 2015 that multinationals did not like to dilute their brands and found the ownership pillar in the new codes “very onerous”.
Nemeth said most sector specific codes had been more onerous than the general codes and this was one of the issues the industry would have to work its way through.
The automotive industry executives announced last week that the seven OEMs in the country planned to create a transformation fund that would allocate funds to develop black ownership in the car industry supply chain and vehicle dealership network.
They also provided details of the industry-developed vision and master plan to 2035.
Stelio Zakkas, the manager at Monitor Deloitte, on Wednesday unpacked the six compliance areas of the charter during a discussion on the strategic implications of it. It was hosted by legal experts from Deloitte and Webber Wentzel and held in Sandton, Johannesburg, yesterday.
He told the 186 member audience comprising mining executives that ownership, one of the six elements which had attracted the most controversy, was the need for right holders to have a 30percent plus one black person shareholding within a year.
The 30percent target is split between an 8percent for employees through share ownership schemes, 14percent for black entrepreneurs and 8percent for mining communities.
Read also: Mining sector faces unrest and other woes
The shares issued to a community must be held in a “community trust”, which must be created and managed by the yet to be constituted Mining Transformation and Development Agency (MTDA).
Zakkas argued that the MTDA should be a non-profit company, which was established as a National Government Business Enterprise under the Public Finance Management Act, 1999.
“Depending on the rights accruing to the shares held by the community trusts, the assigning of control of a plethora of community trusts to the MTDA may result in a violation of the Competition Act, 1998,” Zakkas said.
“In our view, the MTDA patronisingly deprives communities of the ability to manage their asset for their own benefit and, in fact, contradicts Mining Charter III’s objective of “redressing historical, socio-economic inequalities and ensuring broad based and meaningful participation of black persons in the mining and minerals industry”, he said.
In terms of black empowerment entrepreneurs, “BEE entrepreneur” was defined as a black-owned company or a black person who acquires an equity interest in a holder through a BEE transaction.
“While this is a seemingly good development, in our experience, the Department of Mineral Resources (DMR) does not view all ‘established’ black-owned companies as BEE entrepreneurs.
“Further, while this provision may have provided an efficient segue to the Department of Trade and Industry’s (dti) Black Industrialist Scheme, it is unclear if the DMR and dti have considered the possibility of jointly broaching this issue, leading to yet another instance of non-cohesive policy development,” he said.
Radical economic transformation is “the gospel truth”, according to President Jacob Zuma. Both of the two main candidates touted to take over as ANC president – Nkosazana Dlamini-Zuma and Cyril Ramaphosa – have also embraced the phrase.
What it means for policy and politics, however, is still up for grabs. Does it mean unprecedented overhaul of the economy or is it old policy cloaked in a new catchy slogan? Is it an empty “ideological smokescreen” for state capture, as suggested by authors of the Betrayal of the Promise report, or a visionary call-to-action?
Here are (simplified) key strategies from the ANC’s policy discussion document on how they plan to realise economic transformation:
The country must sever its old growth path, largely dependent on exporting raw materials. Instead, government must create the conditions for the economy to industrialise through manufacturing and beneficiation, or processing, of raw materials. It must use industrial policy - such as providing incentives for manufacturers - to promote a more diverse economy and generate mass employment.
Priority must be given to generating black ownership in emerging new, and old, sectors of the economy including mining and manufacturing. Revised BEE codes also need to be enforced across a range of sectors.
Targeted financial support - such as tax breaks and improved market access - for black enterpreneurs and small businesses is listed as crucial for equitable growth.
Supporting land reform and “returning the land to our people”, along with investment in farming equipment and technical skills transfer to beneficiaries, is a priority policy intervention.
JOHANNESBURG – African National Congress (ANC) Treasurer General Zweli Mkhize says if the country doesn’t move to implement radical economic transformation, it risks losing its democracy.
Mkhize on Saturday addressed the business community and ANC members at the Progressive Business Forum’s breakfast.
The ANC is holding its fifth national policy conference in Nasrec, south of Johannesburg.
Mkhize says the business community shouldn’t be spooked by radical economic transformation as it isn’t aimed at fighting the private sector.
“It has nothing to do with fighting the private sector. No, it’s about helping the private sector and saying that the future belongs to a much broader base.”
The ANC’s programme of radical economic transformation has its roots in the Freedom Charter, which was adopted at the Congress of the People in Kliptown 62 years ago this week.
The Freedom Charter captures perfectly the intent and, to some extent, the content of radical economic transformation. It was at the Congress of the People that representatives of the people of this country gathered to declare that: “The People Shall Share in the Country’s Wealth.”
Given the extent of dispossession, discrimination, exploitation and exclusion, this call in the Freedom Charter was a call for radical and fundamental economic transformation.
Over the intervening six decades, the principles of redress, redistribution, social justice and equality have been at the centre of ANC economic policy. These principles have underpinned the ANC’s policies in government, notably in the Reconstruction and Development Programme (RDP) and the National Development Plan (NDP).
At the ANC’s Mangaung Conference in 2012, the organisation adopted the NDP as an overarching framework for the second phase of our democratic transition – the pursuit of socio-economic freedom. The Mangaung Conference recognised that in the nearly two decades since the advent of democracy, political freedom had largely been achieved. The priority now was to pursue economic freedom.
The workshop, convened by President Jacob Zuma, was aimed at scrutinising proposals to deal with the “systematic and structural implementation challenges” of the Broad-Based Black Economic Empowerment Act and engage on the proposed recommendations to realise government’s ambitions on radical socioeconomic transformation.
Trade and Industry Minister Dr Rob Davies, briefing the media prior to the workshop, said the proposals intended to strengthen empowerment in South Africa, improve the participation of the marginalised and apply the lessons learnt form preceding initiatives. While details of the various proposals have not yet been released, with the council still mulling its options and ways forward post the workshop, Davies indicated that the council would work towards implementing various initiatives after securing Cabinet approval.
Davies noted that it was not a deliberate, decision-making meeting, but rather to engage ideas and gather information resulting in a clearer path forward. Four focus areas would be used to forge a way forward to enable further opportunities to develop higher levels of inclusivity.
Following the meeting, Davies said procurement as a driver of black business and transformation emerged as a strong theme, with general agreement that procurement needed to be more carefully considered and crafted, with some suggestions that another approach be adopted that expanded the participation of black business.