Calls for [South African] nationalisation need to be debated, not dismissed – by Mark Cutifani (Business Day – July 13, 2011)

Business Day is South Africa’s most influential and respected daily newspaper, offering incisive coverage of business, politics, labour and other current affairs, written by the country’s top journalists.

Mark Cutifani is CEO of AngloGold Ashanti and vice-president of the South African Chamber of Mines.

HAVING worked in SA for only four years, I am always reticent to comment on the country’s internal affairs, as I am aware that I do not have a full understanding of local history. However, I do have some sense of what has worked in the economic frameworks of the 30 or so countries in which I have worked and developed new businesses. Where SA is concerned, I remain a great optimist about its future due to the desire in its people to create a truly democratic and egalitarian society.

In this context, the nationalisation issue is troubling, given the polarising nature of the discourse, which is having a divisive effect on our society as we scream and talk past each other. The nature of the debate is frightening domestic and international investors, threatening an important resource of funds needed to deliver on our 5-million jobs target.

We will not deal with these issues through business simply by shouting louder than the African National Congress (ANC) Youth League. Young people are justified in calling for broad social change. The logic behind the call for nationalisation needs to be sensibly debated rather than angrily dismissed. However, only a balanced debate comparing the available options will help us find the right pathway to broad economic liberation.

We need to ensure the solution is not worse than the problem. Surely nationalisation cannot mean what it might be taken literally to mean: the acquisition by the state, with or without compensation, of all the country’s mining assets. The state already owns the rights to those minerals, and extracts royalties and taxes that far exceed the dividends paid to shareholders. If compensation is paid, it would destroy SA’s fiscal stability. If no compensation is paid this would destroy the finances of many average South Africans who have invested in companies, either directly or through their pension funds (of which 50% are estimated to be black South Africans). This step would also cause a global backlash that would further damage our ability to create a worthwhile future.

It is a fair assumption that for most protagonists, something else lies behind this advocacy of a course that, taken literally, would be irrational for our society.

There are two basic sets of motives that have been put forward. The first suggestion is that the nationalisation call is advocated by some participants in black economic empowerment (BEE) transactions whose investments in the sector have gone sour. This would have been due to inadequate structuring of those transactions and/or the failure, since the 2008 international financial crisis, of share prices to maintain growth rates necessary to ensure the success of those transactions. Ironically, the calls for nationalisation have worsened this phenomenon.

The second is that the nationalisation call has its roots in, and feeds off, a widespread view that mining is neither contributing adequately to the country’s economic development, nor its benefits being fairly shared among SA’s people. This view is strengthened by a sense of lost hope among young people in terms of future opportunities.

Both of these rationales have their roots in an uncomfortable fact of SA’s history: that the mining industry was structured during the early 20th century unfairly to benefit local (white) and foreign investors and white workers by disadvantaging and impoverishing black workers and their communities. Some would say the industry colluded, for a period, in the creation and development of segregation and then apartheid in SA.

This history does not, however, mean that the route to prosperity for all lies in state ownership of the commanding heights of the economy (which, incidentally, is not what the Freedom Charter calls for). As Joel Netshitenzhe observed of other countries in a recent ANC Today article: “Failure by society to engage the issue (of economic liberation) honestly and rationally (led to) poor policy choices on the part of leaders, and … disastrous results.”

In respect of poorly performing BEE transactions, there is a limit to what can be achieved short of handing over, free, to a BEE partner 26% of a company’s shares (which would be the equivalent of nationalisation without compensation, except the benefits would flow to a narrower group of people).

Yet there are solutions available. At AngloGold Ashanti earlier this year, following representations from employee representatives in respect of our employee share ownership plan and from our BEE partner, a very constructive engagement process led to a restructuring of the transactions which will ensure positive outcomes for employees and BEE partners at an affordable cost to the company, ensuring our shareholders were happy to approve the restructuring.

Dealing with the second set of concerns is more complex and solutions are less easy to come by. But it has to be done. Indeed, it has been done over a long period, beginning with talks between the ANC and the Chamber of Mines in 1993; and subsequent engagement with the ANC and the government on the organisation’s mineral and energy policy discussion documents and following government Green and White papers; and multi- stakeholder negotiations in 2002 and again last year, on the development of the original Mining Charter and its revised version. And there is the continuing work of the Mining Industry Growth, Development and Employment Task Team, established in December 2008 to position the industry for long term growth and transformation.

We cannot claim the outcomes have been optimal. We do not claim that the industry could not have done better in implementing its side of the Mining Charter bargain.

No one has suggested that transforming SA would be an easy task. Yet the discourse on transformation in the mining sector has focused on the failure to meet stretched targets (or a contested view on what these were) rather than on what has been achieved.

While we could have done better, it is nonetheless the case that, for example:

-The proportion of management positions occupied by historically disadvantaged South Africans has risen, in less than a generation, from close to zero to more than 40%. The revised charter will push us to ensure that a larger proportion of historically disadvantaged South Africans are in more senior management positions. We cannot be satisfied until the demographics of the workplace more closely reflect the demographics of the country. But let us acknowledge the progress there has been.

For the rest of this column, please go to the Business Day website: