You can’t lift up the wage earner by pulling the wage payer down - BizNews, 30 June 2017

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?

 

By Sara Gon

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.

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.

Gigaba would have been aware of the imminent release of the charter. So, too, he would have been completely aware of the likely response from the industry. His message was explicit and repetitive: “Inclusive growth and economic transformation are the top priorities of government. We must, and will, advance both of these.” So, while the mainstream mining industry might have been in a fury, champions of empowerment were optimistic and buoyed by Gigaba’s message.

“While the Chamber of Mines is furious as it watches the assets of its members sink in value,” Paton writes, “the flipside (sic) for ‘BEE entrepreneurs’ – a term introduced in the new charter – is that the provisions will trigger a new round of black economic empowerment (BEE) deals at bargain prices as established firms are now obliged to complete new transactions within a tight time frame of the next 12 months.

“Worsening the value problem is that other provisions in the charter – such as the fact that all future prospecting licences must be owned 50% plus one by black South Africans – is that mining assets in SA just became a good deal less desirable to global mining companies, even those whose business is based chiefly in SA.”

Conventional wisdom is that the already precarious mining industry will dissipate. There will be no economic empowerment for those that really need it. Companies will fold, jobs will be lost, dependants will be impoverished, and more grants will have to be paid from a shrinking tax base.

There are more people receiving social grants now than there are people with jobs. IRR analyst Gerbrandt van Heerden reveals shockingly: “In 2016, there were 15 545 000 people with jobs in South Africa while 17 094 331 people were receiving social grants.” (South Africa Survey of the IRR, More South Africans receive grants than have jobs – a recipe for chaos and violence, June 2017).

The numbers are a recipe for social and political chaos. As the economy stagnates further, 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.

In 2001, there were 12 494 000 people in employment and 3 993 133 receiving social grants. By 2016 – eight years into Jacob Zuma’s presidency – grant recipients had increased by 328%, while those with jobs increased by only 24%.

As regards the DA, if the DA is going to make progress in the 2019 elections, it is going to have to impress with unambiguous and rational policies. It cannot be the ANC-lite.

It cannot simply regurgitate ANC policy on empowerment, only more opaquely. While political parties need to be alert to public opinion, they cannot do what they think voters want. Political parties develop policies, which must be presented to voters with conviction. Voters who share those beliefs will support the party.

The IRR’s research shows that on the question of whether affirmative action has helped poor Blacks, 53.6% of Blacks surveyed agreed. But only 16.6% said that affirmative action in employment had helped them personally (BEE doesn’t work but EED could, @Liberty, The policy bulletin of the IRR No 1/2016/6 April 2016/Issue 24 Anthea Jeffery). Thus, there is a considerable gulf between the perception created by government of the success of BEE, and the reality of how badly the policy has actually performed in overcoming disadvantage for most black South Africans.

Currently, the DA is trapped in the ANC’s BEE narrative. It must present a policy that is simpler, less arcane and of greater benefit to the majority, otherwise it has nothing to offer South Africa.

The IRR has proposed such a policy idea for years – a system of “economic empowerment for the disadvantaged” or “EED”. EED aims at empowering the many rather than the few.

EED does not use race as a proxy for disadvantage. It focuses directly on disadvantage, using income and other indicators of socio-economic status to identify those most in need of help. Thus, racial classification and racial preferences fall away.

Further, EED focuses not on outputs, measured by numerical quotas, but on the inputs necessary to empower poor people. Far from overlooking the key barriers to upward mobility, it seeks to overcome these by focusing on rapid economic growth, excellent education, very much more employment, and the promotion of vibrant and successful entrepreneurship.

An EED scorecard would earn businesses voluntary EED points for:

  • any direct investment within the country;
  • maintaining and expanding jobs;
  • contributing to tax revenues;
  • helping to generate export earnings;
  • appointing staff on a “wide” definition of merit which takes into account the extent to which people have succeeded in overcoming disadvantage, such as poor schooling, bad living conditions, etc;
  • providing intensified training and mentoring for people appointed on this basis;
  • entering into employee share ownership programmes with all staff, with additional points available for schemes that bring added benefits to the

disadvantaged;

  • participating in initiatives aimed at improving education, healthcare, and housing for the disadvantaged, and
  • entering into public-private partnerships to improve the delivery of essential services.

The ANC should heed Abraham Lincoln: “You cannot lift the wage earner up by pulling the wage payer down.”

And, for the DA, fortune favours the brave.

*Sara Gon is a Policy Fellow at the IRR, a think tank that promotes economic and political liberty. Follow the IRR on Twitter @IRR_SouthAfrica. 

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