A new, inclusive pact involving all stakeholders about the future of the mining industry is fast emerging. On taking office, Minister of Mineral Resources Gwede Mantashe embarked on a rigorous process to bring calm to the industry following a period of unease and animosity. Uppermost was the engagement of social partners and all stakeholders to create trust, and to ensure policy and regulatory certainty in the sector.
The draft Mining Charter, gazetted by the minister for public comment on June 15, is a result of this broad and extensive consultation with mining communities in all provinces and all industry stakeholders.
The charter recognises both national and industry challenges and, therefore, the need for trade-offs to build social capital and achieve social cohesion.
One of the necessary trade-offs is the 10% nontransferable free-carry interest to mining communities and qualifying employees over five years, which also provides communities and employees with representation on the board or advisory committee of a mining-rights holder. Free carry is when companies give shares to shareholders without any financial obligation to pay for the shares.
The nontransferable free-carry interest, whereby mine owners buy 5% of shares for communities and 5% for workers so they can feel and see the benefit of mining, will address ownership and worker-community empowerment. We must be courageous enough to pay any price that needs to be paid so the promises of our constitution can be realised for the majority of South Africans.
An obvious temptation we must guard against is to take a dogmatic stance against this free-carry element and only see the cost factor, traditionally regarded as a risk. The all-or-nothing dogmatism about a deep and complex economic inequality that our society is trying to address is myopic. We dare not be ensnared by dogmatism when poverty and inequality grow astronomically.
The numbers, looked at dogmatically, do not reveal the full extent of the risks our country faces. Risk should be contrasted with long-term sustainable returns to investors. Hence the need for a more pragmatic stance on this free-carry interest, which reveals that buying 10% of the 16% BEE shareholding intended for communities and workers is indeed a powerful investment in employees and affected mining communities.
How the remaining 6% is to be financed will be determined by mining companies.
The draft charter stipulates that the community benefit, of which 5% is free carry, will be administered by properly constituted community trusts, the modalities of which are dealt with outside this transformation instrument. Yet it is common cause these trusts will be governed by the Trust Property Control Act of 1988.
The return on investment of the free carry is quantifiable. It purchases the long-term coexistence, survival and sustainability of the company. Business productivity benefits positively from loyal employees who are producers of wealth and creators of value. The social licence to operate, elusive for so many years, is engendered. And lastly, it gives mining companies greater public legitimacy among their communities and employees.
The nominal impact on investors' return on their investment, when weighed against the social impact, will be offset in the long run by the much-needed tangible social licence to operate, and the guaranteed long-term high returns which are shared.
The argument, often advanced, that affected mining communities and employees must equally share the risk is flawed. It overlooks the burden of risk they carry, which is a consequence of the negative impact of mining on the lives of workers and the livelihood of communities over the years.
Mining companies are admittedly becoming more socially responsive and make serious efforts to minimise these risks. However, the huge residual historical negative impact and its deficit will take a long time to eliminate through philanthropy alone.
A strong pact to share in the economic benefits of mining activity is critical. Risk must be countervailed by national interest. We should avoid the unimaginative reactions resonant with those echoed after the release of the draft charter. A new dawn for the mining industry includes a compact to transform while achieving competitiveness and inclusive growth.
• Helepi is special adviser to Gwede Mantashe
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