10-point plan flatters to deceive
As government strikes an agreement over mining, we should consider the small pockets of wealth that fail to spread, and that’s what we’re getting, writes Christopher Rutledge
IF THE intention of the Mining Industry Growth and Development Task Team was to save jobs, or heaven forbid, create jobs, then the tripartite agreement reached between the exclusive club of the Chamber of Mines, the government and National Union of Mineworkers (NUM) this week has failed.
The current “crises” imposed on us, while certainly part of the global cyclical downturn, will more likely be used as leverage to further protect the profits of shareholders while transferring the social costs to the South African public.
The 10-Point Plan has not produced any evidence to suggest this analysis is unwarranted. In fact, it confirms that the measures introduced with much fanfare, and trumpeted in the media as a “welcome” attempt to “save” the industry, is little less than an expensive effort to hoodwink the public.
Despite a few contrarian views, most economists, based on the Keynesian models of full employment, will agree that the path to job creation within a capitalist economy requires particular types of interventions, namely investment spending by either the private sector or the government.
The basic assumption is that investment spending will spur multiplier effects in the economy that will spur further consumption, and in turn consumption will lead to higher demand, perpetuating the cycle.
However, a closer look at that plan reveals that only one item in it speaks to developing a comprehensive investment strategy that can use South Africa’s monopoly of the platinum industry. Even then, it’s rather short on ambition. The other nine points are remedial and designed to alleviate the social fallout and to protect and support mining companies.
The manner in which the 10-Point Plan places government and labour on the back foot, compels government to take an increasing responsibility for the externalised costs of mining and starts to deplete funds which were meant for grander socio-economic objectives, is indicative of the history of mining in this country. Mining has always managed to create small pockets of enormous wealth while passing the social costs on to society.
The mining sector constituted 21 percent of gross domestic product in 1970; today it accounts for less than 8 percent, while the number of people employed directly fell from 660 000 in 1970 to about 440 000 in 2004, even though it climbed back up to 510 000 by last year.
Worse, the shorter-term trends are negative too. During the commodity boom from 2001 to 2008, the mining industry shrank by 1 percent a year, compared to growth of 5 percent a year among the world’s 20 mining exporting countries. This is despite the gold price, for example, going from about $400 an ounce in 1994 to $1 800 an ounce.
Thus, the current arguments of the cyclical downturn should be read with some circumspection.
Despite this grim picture, the mining sector is enormously profitable, even if the narrative from the mining houses would have us believe they are in fact paupers, barely scraping by in the tough global market place.
South Africa’s total reserves remain some of the world’s most valuable, with an estimated worth of R20.3 trillion, according to a City Bank report. Overall, the country is estimated to have the world’s fifth-largest mining sector in terms of gross domestic product value.
The PricewaterhouseCoopers (PWC) 2012 report for trends in the mining industry, in which it tracks the financial results of 39 mining companies with a primary listing on the Johannesburg Stock Exchange (JSE), as well as those with a secondary listing whose main operations are in Africa, and which included companies with a market capitalisation of more than R200 million at the end of June 2012, claims that mining operations in these companies achieved an increased net profit of 25 percent over 2011, totalling R65bn for the period.
It is important to note that results for BHP Billition and Anglo American – the two biggest mining operators – were excluded from this report due to “international operations and the difficulty in separating the South African contributions”.
These 39 companies increased share- holder dividends from 12 percent of value created in 2011 to 18 percent in 2012. The distribution to shareholders more than doubled from the prior year – from 17 billion in 2011 to 36 billion in 2012 or by 116 percent in rand terms, while employee share of the value created by the compa- nies decreased from 29 percent in 2011 to 28 percent in 2012.
Solvency and liquidity ratios remained strong in the sector during this period, meaning no companies went bankrupt and had enough reserves to ensure a sustainable future. Borrowings in the mining sector remained at virtually zero up to 2012 while extraction-related industries are a key driver of the JSE, representing 42 percent, or R1.9 trillion.
Then, to top off this picture of a profitable industry, we should remind ourselves that Lonmin was fingered in an AIDC report which found that significant profit shifting had probably occurred which further underplays the extent of the profit reported in the industry.
The PWC 2014 report states that “the South African mining industry is less geared and less levered than the trends seen globally. This financial strength provides the industry with flexibility to operate and, where necessary, invest for the future”.
This is why this plan should be of concern to all right-thinking citizens. Much of it seeks to access funds meant for socio-economic development and to use it towards this short-term alleviation project.
The mining companies, which not so long ago were the beneficiaries of billions of rand of profits, are now wrapped in cotton wool and absolved of their socio-economic responsibilities.
The most disturbing aspect of the 10Point Plan for me though was the cavalier manner in which it was announced that funds, such as those from the highly secretive social labour plans, which were meant for community development, would be plundered.
All this while communities across the country are exploding in anger and rage at their continued dispossession and exclusion. While the announcement of the plan received widespread coverage, the uprising in the community of Mapela, just outside
Christopher Rutledge is the mining and extractives co-ordinator at ActionAid South
Africa. He writes in his personal capacity. ActionAid South Africa is a member of ActionAid International, a global movement working to further human rights and eradicate poverty
It’s little less than an expensive effort to hoodwink the public