The parastatal Industrial Development Corporation (IDC) has been in touch with the World Bank and International Monetary Fund (IMF) over the funding of black empowerment in South Africa’s mining industry.
The move is likely to prove controversial within the ruling alliance, many of whose members accuse the “neo-liberal” bank and IMF of undermining Third World development through condition-laden lending practices.
African National Congress spokesperson Smuts Ngonyama was very cautious in his response.
While it was “critical” to raise funds for black empowerment, Ngonyama said, “we need to be wary of conditions attached to availing the money”.
Ngonyama said it was imperative to ensure South Africa maintained its independence and that “the idea of empowering is not compromised in any way”. If the “strings attached” to any such loan were favourable, the IDC “should go for it”.
The Congress of South African Trade Unions declined to comment on Thursday.
IDC spokesperson Neo Sowazi insisted the contact was exploratory. “We have not yet received a mandate from the Department of Minerals and Energy, but we know the IDC will play a facilitating role. By the end of October we should have more clarity on how best we can be involved as facilitators at the programme.”
Sowazi said funding could come from a variety of agencies, including the World Bank and IMF. Other potential participants were the African Development Bank, local mining companies, probably under the umbrella of the Chamber of Mines, and local commercial lending institutions. The loan amount would run into “tens of billions of rand”.
“It is going to be a multilateral initiative. Private investors or anyone else could get involved in the financing, depending on what they have to invest and where they see themselves positioned,” said Sowazi.
The IDC’s overtures to the IMF and World Bank reflect the difficult bind in which the government finds itself over the funding of black empowerment in mining.
The mining charter, released last week after tough negotiations between the state, the industry and unions, envisages the transfer of 26% of the mining industry to black owners in 10 years, with 15% transferred in the first five.
Given estimates that the mines are worth R750-billion, black entrepreneurs will have to access almost R200-billion if the 10-year deadline is to be met. Even the 15% target would require more than R100-billion at current market values.
Investor fears that meeting black ownership quotas will mean the knockdown sale of assets were thrown into sharp relief when mining stocks crashed after an earlier draft charter was leaked. This proposed that all new ventures should be 51% black-owned, with 30% of the industry passing into black hands over a decade.
The government has suggested in the past that the IDC would play a spearhead role in funding mining empowerment. The corporation was said to have earmarked R28-billion for the purpose.
However, at the media conference last week to unveil the final charter, the Minister of Minerals and Energy, Phumzile Mlambo-Ngcuka, played down the IDC’s role, suggesting it would be minimal.
Opening the door to World Bank and IMF funding would represent a turnabout in South Africa’s stance on this type of finance. The government has historically steered clear of borrowing from the Bretton Woods institutions.
Structural adjustment programmes put in place by the World Bank to try to ensure repayment of the loans has led to the economic decline of several African countries, including Zimbabwe.
It is understood that the World Bank has been sniffing around South African empowerment initiatives since the early 1990s, including mining and land reform, encouraging the country to borrow for this purpose.
Since 1994 there has been resistance from the left-leaning sector in government to doing business with the World Bank and IMF, even to taking out medium-term “bridging” finance. This was due to the fact that the apartheid government worked closely with both institutions, and also because they are regarded as flagships of the capitalist West.
The result has been that South Africa has been paying off far more debt in the past decade than it has borrowed and is highly rated internationally on this count.
The climate has changed in the past few years. Minister of Finance Trevor Manuel serves on a number of important committees in these bodies and both institutions have been working hard to polish their tarnished image in the sub-continent.
World Bank Vice-President for Africa, Callisto Madavo said: “There has been an evolution in the way the bank deals with African countries. The Bretton Woods leaders are carrying out a pact made at the 2000 annual meetings in Prague to put Africa at the centre of their institutions’ activities.
“We are continuing an ongoing conversation between the Bretton Woods institutions and African leaders,” said Madavo.
Madavo also emphasised an evolution in the two institutions’ dealings with Africa.
“We are working with Africa very differently from the way in which we have worked with Africa in the past,” he said.
“We are listening more. We are leaving the space to Africans to lead their own efforts, and it has become truly a partnership that is beginning to develop in terms of the way in which we work with the Africans.”
If that is true it will be a significant change because, since the 1980s, when the World Bank and IMF stepped in to assist African countries mired in economic difficulties, they have dominated the relationship to such an extent that the IMF now micro-manages national budgets, fiscal and monetary policies in many African countries bound to it by structural adjustment programmes.
Manuel has, however, been arguing that for the institutions to be more accountable and effective, borrower countries, especially in Africa, need greater voting powers. Sub-Saharan Africa holds about 5% of the vote and its 43 members are represented by two executive directors on the IMF board.
The United States is the single largest shareholder in the World Bank and IMF. It holds 18% of the voting power on the IMF board.
Additional reporting by Jaspreet Kindra and Drew Forrest