'ONCE EMPOWERED, ALWAYS EMPOWERED' RINGS UNTRUE

This article first appeared in the Business Times section of The Sunday Times on 22 November 2015.

The results of the 10-year review of the Mining Charter and the subsequent squabble between the Chamber of Mines and the Department of Mineral Resources has brought up a key question about Broad-Based Economic Empowerment (BBBEE), and whether or not the policy can sustainably transform the ownership profile of the South African economy.   

The question of ‘once empowered, always empowered’ is central to the success of BBBEE and remains unresolved, perhaps for a good reason. 

Is it fair for a white-owned mining company to sell 26% of its equity to Black shareholders, often at a sizeable discount and great cost to its earnings, as well as practically finance the deal, only to end up with zero empowerment credentials when the Black shareholders settle their debt, sell and move on?  

On the other hand, can a South African mining company genuinely claim to have transformed an industry if it does not measure its transformation by taking a snapshot of its share register, at any given time, and see black shareholders owning more than 26%?  

And what about the right to sell? Surely the Black shareholders, assuming they are no longer encumbered and are past the lock-in period, have the right, like any other investor, to realise their investment and do as they wish with their wealth. 

The Chamber of Mines calls the charter ambiguos on this issue. I think what they meant is they find it unfair, not unclear. The charter states “In order to increase participation and ownership by Historicaly Disadvantaged South Africans (HDSA) in the mining industry, mining companies agree to achieve 26% HDSA ownership of the mining industry assets in 10 years by each mining company”.  

A lay man’s reading would therefore expect a measure that would value the total mining industry and compare that to the value of mining industry shares owned by black people. Apparently it is not that simple. 

Former Minister Ngoako Ramatlhodi tried arguing this. He was unsuccesful and eventually capitulated, leaving it up to the courts to decide.   

According to the Minister, he and the Chamber could not agree on the "principles applicable to assessing the ownership element" of the charter and therefore agreed to take the matter to the High Court for a declaratory order "to guide on the correct interpretation".   

It seems the Minister was happy to be bound by the interpretation of the courts, but not the Chamber of Mines.  They insisted on keeping the window open, and to appeal the decision, if it didn’t favour them.  

I don’t blame the Chamber for this stance. If the court found against them and their 72 members who represent more than 90% of mineral output in South Africa, its members would need to do brand new BBBEE deals or face losing their mining rights. 

However, the charter goes into great detail, outlining its principles and intentions, specifically in relation to ownership. With due respect, the Chamber’s issue is not and has never been about the principles. 

Ask any economically active South African what BBBEE is trying to achieve, and notwtshtanding their disappointment with its effectiveness, they will tell you its about trying to get Black people into the mainstream economy, and that’s the principle. 

When the government and the industry couldn’t take the public criticism of going to court to argue empowerment, they decided to attempt settling the matter out of court. Minister Ngoako Ramatlhodi was ‘reshuffled’ and enter new Minister Mosebenzi Joseph Zwane.  

The final outcome of these offline discussions was mining companies being temporarily exempt from the provisions in the Broad-Based Black Economic Empowerment Act ,which essentially means that mining companies, at least for the next 12 months, are governed by the DTI’s Codes of Good Practice and not the mining charter. 

This is meant to be a temporary measure while the Mineral and Petroleum Resources Development Act (MPRDA) and its underlying Mining Charter are being reviewed.  

Its taken the whole of 2015 for government and the industry to agree on what they signed 11 years ago, and there’s still no agreement. 

I suspect the industry has pulled one over the government here and created room for further extensions of this exemption. 

This will undoubtedly strengthen their leverage in having the provisions they want in the revised mining charter.  

Whilst all parties will keep fighting for their respective positions, the key issue of ‘once empowered, always empowered’ remains unresolved. 

I think this important question alone could mark the beginning of the end of BBBEE in its current form. Perhaps that too, is not a bad thing.