Pivotal moment for South African mining

South Africa is currently redrafting its Mining Charter, hopefully bringing to an end a long period of disagreement and uncertainty. The original Charter was passed in 2002 as part of the government’s black empowerment strategy, to overcome the historic economic imbalance in South Africa between black and white citizens that was cemented under Apartheid.

The Charter previously required a minimum 26% equity ownership by historically disadvantaged South Africans, but this will now be restricted to black South Africans. In addition, at least 5% of the 26% must be equally distributed among black entrepreneurs, employees through share ownership schemes and communities through trusts.

Companies will also be judged on their provision of housing and other services in mining villages, which are some of the most underdeveloped in the country. The redrafted Charter should become law by end-March. The Mineral and Petroleum Resource and Development Act, which is expected to give the state automatic 20% stakes in new projects, is scheduled for completion three months later.

The Chamber of Mines is particularly concerned about the stipulation that mining firms must maintain 26% ownership by black South Africans even when the original investors sell their stakes to investors that don’t qualify as empowerment interests. This would mean that a majority investor would be forced to sell a large proportion of its equity within three years of a sale by its empowerment partner, potentially giving up majority control. Such a position seems unreasonable and will surely discourage investment.

The CEO of miner Anglo American, Mark Cutifani, described the next few months as the most important for South African mining in 150 years. He called for regulatory certainty and the sanctity of private ownership. Mining companies want a policy of “once empowered, always empowered,” while some are going one step further and challenging the entire Charter in court.

However, it is clear that the balance of economic power still lies far too heavily in favor of white South Africans, who make up just 8% of the population. There are many more wealthy black South Africans than 20 years ago, but the country is estimated to have the second worst income inequality in the world and there is still a close correlation between wealth and ethnicity. Johannesburg is covered with districts where mansions lie adjacent to informal settlements.

A report published by UK nongovernmental organization Oxfam in January calculated that the wealth of South Africa’s three richest men is greater than that of the poorest 50% of the entire population. Even when the country’s new black middle class is taken into account, black South Africans earned an average of just Rand 92,893 ($6,875) in 2016, in comparison with Rand 444,446 ($32,895) for white South Africans.

As the biggest sector in the South African economy, it is right that the mining industry plays a substantial role in closing that gap. The big question is how this can best be done. A resolution will only be reached if the government accepts that it has to give investors a high degree of regulatory certainty, while mining companies, many of which profited a great deal under Apartheid, have to recognize that they have a role to play in achieving social justice.