/ 16 May 2012

Rich inherit Earth’s wealth

Brazilian businessman Eike Batista.
Brazilian businessman Eike Batista.

This years’ list of the who’s who of mining, metal and minerals billionaires recently published by the  miningnews.com website tells an important story.

First and most importantly, not one of the top 10 billionaires is an American or a European Union  national. Second, no surprise, almost all are men. Third and perhaps most instructive from a policy standpoint is that almost all were either born rich or are Russian oligarchs who made their money from the collapse of the Soviet Union and the ensuing Russian giveaway of the 1990s, which was humorously referred to as an “asset sale”.

Not one of the mining super-rich is an African. You have to go to number 20 and 21 in the big-money league to find someone with remote roots in Africa, namely Ivan Glasenberg of Glencore and Nicky Oppenheimer, who was in mining until November last year and sold his 40% in De Beers.

The old rich families are not at the top of the list. The money has been made recently by relatively new people with new mines, who are individuals with enough wealth from daddy to go from millions to billions. 

Unlike billionaire icons such as Steve Jobs or Bill Gates, none of the mining, metal and mineral billionaires in the top 10 or even top 20 are what could be called household names outside of their own countries.

Buying an aristocratic title
The hard-rock men of mining are not rags-to-riches fairy tales such as Jobs and Gates. They made their fortunes digging holes in the ground and refining and trading metal, not from inventing clever gadgets. The only known entities on the list outside their own countries are the Russian oligarchs who own football teams in the United Kingdom or sports franchises in the United States.

The much-hated owner of Arsenal,  Alisher Usmanov, an Uzbekistani, is number three on the mining billionaire list with assets worth $18.1-billion. Roman Ambramovich, number 14 at $12.1-billion (down from $23-billion in 2008), is the owner of Chelsea Football Club. High-flyer Russian oligarch Mikhail Prokhorov, number 12 on the list at $13.2-billion, owns the New Jersey Nets.

The purchase of these sporting franchises in the 21st century has become like buying an aristocratic title in the 19th century. It buys the mining super-rich some measure of desperately needed respectability.

But Russian oligarchs and Latin and Indian gazillionaires are not the ones who developed this model of accumulation. The American predecessors of the current crop of the mining super-rich were the Carnegies and the Rockefellers who, in the 19th century, had a less than salubrious climb to great wealth.

Only now their great-grandchildren are “old money” and the sins of the forefathers long forgotten, as will be the case in three generations with many of the Russian oligarchs who plundered Russia’s mining assets at the end of the communist era.

Born rich
It is estimated that the net worth of the 40 richest mining billionaires is in the vicinity of $300-billion in 2011, roughly equivalent to about of 40% of sub-Saharan Africa’s gross domestic product, excluding South Africa. The richest of all the mining plutocrats is Eike Batista, the son of the former chief executive of Vale, Brazil’s largest mining company.

The young Batista is now worth $33-billion and is the richest person in Brazil and the 10th richest in the world. He has said that he wants to be number one. As ever, being born rich really helps if your aim is to make the super-rich list. In mining, your alternatives to being born rich, as elsewhere, appear to be marriage or spending the rest of your life working hard.

This pattern of mining wealth that has resulted from the decade-long boom in commodity prices has a flip side. The accumulation of spectacular wealth by a few people has not gone unnoticed by those African, Asian and Latin American countries where most of these mines are found. Host countries have generally been unhappy with the deals that these companies signed in the 1990s when commodity prices were low and governments were desperate for investment.

As a result, almost every significant mining province in the world has started to change their mining laws over the past few years, giving these mining billionaires sleepless nights. The Rudd government in Australia fell over its attempts to introduce a mining super-tax two years ago. The government of Indonesia, just earlier this year, made it clear that all mining companies must sell off their assets to Indonesian nationals by 2014.

The new “resource nationalism”, as it has come to be called, has been spawned by this relentless accumulation of wealth, caused in turn by a surging mineral and energy demand in China and India. New nationalist mining policies include assured divestiture and local ownership in Zimbabwe and Indonesia, for example. There have been relatively mild rules applied to the compulsory beneficiation of diamonds, such as as in Botswana and Namibia, but Indonesia has gone so far as to ban all exports of any mineral that is not beneficiated.

Unequal distribution of income
Zambia is about to cut new deals with its copper-mining companies.  Additional profit taxes are proposed in South Africa and imposed in Australia. They are supposed to capture high profits when prices rise and are becoming de rigueur. The experience in countries such as Papua New Guinea, which have long had these taxes, is that mining companies and their accountants will find clever ways to avoid them.

An oil plutocrat from another generation, John Paul Getty, once quipped that the meek may inherit the Earth, but not the mining rights. In the few jurisdictions where the mineral rights accrue in part or as a whole to the landowners, they become wealthy and give up their meek ways. But in most jurisdictions, such as throughout Southern Africa,  the state is the owner of the mineral rights. The theory has been that the state gets the mineral wealth and then it shares it among the citizenry.

The reality is more dismal and the countries dominated by mining have the most unequal distribution of income in the world. The three most unequal countries in the world are Namibia, South Africa and Botswana, according to the CIA Factbook. In Asia, the most unequal country is Papua New Guinea.

Future lists
What they all have in common is a large number of expensive, non-indigenous people such as expatriates, a large mining sector and a poor and badly educated indigenous population. Governments are relatively good at creating large infrastructure projects, building schools and hospitals, but by and large they are challenged in terms of implementing difficult and inclusive policies that lift the bulk of the population out of poverty.

The world will continue to be divided into a few super-rich individuals dominating the mining and metals sector and host countries calling for greater equity in the distribution of benefits in increasingly shrill tones as they find it difficult to lift their own citizens out of poverty. Unlike previous cyclical commodity booms, this inequality has a structural element, based on the emergence of China and India as major markets.

Short of a collapse in the emerging economies, next year’s list of billionaires may not be longer, but the value of their assets will certainly be larger.

These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis, where he is employed

Mining billionaires
No 1: Eike Batista
(Brazil) with $33-billion.
No 2: Lakshmi Mittal
(India) with $20.7-billion.
No 3: Alisher Usmanov (Uzbekistan) with $18.1-billion.