SA’s most devastating financial meltdown in generations, caused by the combination of the Covid-19-induced financial crisis, the devastating impact of the Russia-Ukraine war and the collapse of parts of the state, will increasingly drive the poor to demand “public services” such as infrastructure, water and power from private companies, especially resource companies. This is over and above providing jobs and tender opportunities to local communities.
As SA’s financial crisis worsens — as it will, because of the lack of will, ideas and quality leadership by the governing ANC, which will continue the failure of the state — pressure on business to fill the gap will increase.
Traditionally, employees of mining companies have protested against poor wages, benefits and conditions. Local communities have, in the past, launched protests against mining companies over lack of implementation of promised housing, local economic development and environmental rehabilitation. However, the new trend mining companies will have to expect is for companies to deliver public services; in essence, for mining companies to play the role the state traditionally plays.
Rising resource nationalism
Over the past few years, disgruntled citizens, groups and opposition parties have increasingly protested, often violently, against government’s lack of public-service delivery, incompetence and corruption. During financial hardship in resource-rich developing countries, there is often a rise in resource nationalism, with local communities trying to take control of natural resources mined by companies in their area or wanting dividends in the form of local development, employment creation and greater environmental care from these companies.
The phenomenon of resource nationalism often happens during periods of high global resource prices, combined with high levels of local poverty and unemployment and national financial crisis. Populist governments and populist groups during such periods try to expropriate resource companies, mineral rights or agitate for state mining companies to control resource extraction. Alternatively, populist governments increase resource taxes, or cancel or do not renew existing contracts with private resource companies.
Mining companies that extract natural resources are often required to have a “social licence” to operate. This is seen as “having the approval, the broad acceptance of society to conduct its activities”. In SA, where mining companies have been associated with implementing the colonial and apartheid discriminatory systems in the workplace (job reservations for whites, low wages and benefits for blacks and the migrant-labour system whereby blacks were press-ganged to work on the mines away from their families), mining companies’ “social licence” to operate is heavily contested.
ANC leaders, members and supporters have been critical of private companies based purely on ideology, arguing incorrectly that only the state can deliver on inclusive development.
— William Gumede, associate professor at Wits University's School of Governance
Many black South Africans have been critical of mining companies for their active apartheid collaboration in implementing workplace apartheid, which deprived generations of blacks of opportunities, skills and benefits. They want mining companies to do more in terms of reparations for past injustices. In other instances, ANC leaders, members and supporters have been critical of private companies based purely on ideology, arguing incorrectly that only the state can deliver on inclusive development.
Rising private-sector corruption has also increased societal distrust against corporates. As the Zondo state capture commission showed, there is also a culture of systemic corruption within the private sector. The department of water affairs & sanitation revealed that 36 mines operate without water licences, violating the National Water Act as they use water, waste and pollute without being monitored.
In five case studies completed by the Centre for Applied Legal Studies (CALS) at the University of the Witwatersrand on mines ranging from platinum to coal, it was found that very little of the social and labour plans mining companies signed up to were implemented. Many mining companies struck opportunistic BEE deals with politically connected ANC leaders and traditional leaders to protect their mining licences and shield them against local community demands for “public services”.
However, the decline of the ANC and the groundswell of opposition to autocratic local traditional leaders, especially from young people, has made mining companies that did so more vulnerable to community agitation for them to give more substantially to local communities, which have traditionally not directly received the dividends of mining operations. Communities are increasingly violently challenging the makeup of BEE deals that have benefited small elites, whether local political strongmen or traditional leaders, and this trend is likely to continue.
Excessive dividend payouts to shareholders and bonuses and incentives to mining executives, increases the belief among ordinary citizens that mining companies do not deserve their social licence to operate and must, at the least, provide more public services for local communities.
SA corporates take out higher profit yields than their international peers — often on the back of squeezing the rights, benefits and jobs of ordinary, mostly black employees. This is based on figures from the global industry cash flow return on investment (CFROI) performance handbook produced by Credit Suisse, which measures cash-flow return on operating assets, adjusted for inflation.
The Credit Suisse study showed that between 2000 and 2008, payouts to shareholders in South African mining companies “were significantly above the average for the wider economy”. These trends show the overwhelming prioritisation of shareholder value maximisation, which dictates that costs are minimised, especially labour, social investment and environment sustainability costs.
Corruption, ethical breaches and behaviour inconsistent with declared organisational values, and excessive shareholder maximisation at the expense of social value, undermine credibility, trust and public approval, and ultimately the social licence of mining companies.
The reality is that because the state fails, mining companies will have to deliver public services to local communities, meaning they will have to build roads and share renewal power generation and water with local communities. For starters, companies will have to take lower profits, shareholder dividend payouts and executive benefits to channel funding to deliver “public services” to their surrounding communities.
Employees as stakeholders
In India, the Tata company has provided public services such as building and staffing hospitals, roads and schools for generations. A case in point is Tata’s Devapur Project, in which the company built water-delivery infrastructure, electrified the area and built up the capacity of farmers to increase their cultivation efficiency.
South Korea’s Pohang Iron & Steel Company has since World War 2 built altogether 14 educational institutions, including nursery schools, primary and high schools and a university where its employees, their children and the local community can study.
Crucially, democratic corporate citizenship starts with valuing employees: giving them shares, housing and education. Satisfied employees will be the first to defend the company against populist calls for nationalisation, arbitrary government cancellation of mining licences and community attacks on company assets.
Employees must be seen as stakeholders helping to solve problems, seek solutions and develop strategies. Their input into strategy formulation and implementation must be actively sought, recognised and rewarded. They must be empowered to make decisions in their own sphere at their work stations without having to wait for approval from supervisors.
Employees must be rewarded for increases in productivity, just as CEOs are rewarded, in the form of bonuses, shares and increasing employee ownership. It is crucial that employers provide employees with training that will not only make them productive in their current jobs, but in the broader economy. Social pacts at company level among employees, management and trade unions, in which they agree on productivity targets, industrial relations and return for rewards, has great potential.
The current BEE policy, in which individual political capitalists close to the ANC leadership are given a slice of white-owned companies, must be scrapped. Employee economic empowerment (EEE), where employees are empowered with company shareholding, profit-sharing, relevant skills training and asset transfer, such as housing, are more sustainable options.
BEE must include giving surrounding communities stakes in companies through community trusts or co-operatives in which they have a direct stake, with every community member being a shareholder. Employees and communities, as co-owners, would then share in the yearly dividends when profits are made — and in the losses during downturns.
Mining companies could establish industry-relevant vocational and technical training colleges open to both employees and non-employees. Lastly, mining companies must provide reparations for past black employees and their families who, for whatever reason, have not received pensions, other benefits or compensation for occupational illnesses.
In essence, mining companies must show greater corporate democratic citizenship and behave — while pursuing growth, profit and engaging with their environment, stakeholders and society — according to the values of SA’s democratic constitution.
Good democratic citizenship increases the social-licence value of corporates, the approval to operate by the community, stakeholders and wider society.
• Gumede is associate professor at Wits University's School of Governance. This is an extract from his remarks at the recent Anglo Platinum Sustainability Day.
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