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Franz Wild, Mike Cohen24 Jul 2013 09:54
Patrice Motsepe owns more than 40% of African Rainbow Minerals. He is one of the most visible beneficiaries of Black Economic Empowerment in the country, a policy which some feel has failed to benefit the poor majority. (M&G)
Prudence Moime looks up from stirring a pot of mealie meal in front of her two-room shack and gazes across the surrounding rocky hillside of the North West. Just beyond her view lie some of the world's best platinum deposits.
She says she waits in vain for some of the money promised to her village by African Rainbow Minerals, part-owned by billionaire Patrice Motsepe.
As former president Nelson Mandela enters his 96th year, recovering in a Pretoria hospital, his dream of widely distributing the country's riches has faded.
Discontent is mounting 19 years after his election over how a tiny elite with ties to the ruling ANC benefitted from more than R600-billion in black economic empowerment deals.
Villagers say that in 2000, African Rainbow Minerals offered them an 8.5% stake in the Modikwa platinum mine on credit, promising to develop schools, hospitals, homes and roads in the hills of Limpopo province.
"They promised to develop the village," Moime said in front of her crumbling home, where a row of bricks serves as a kitchen surface. "Houses were never built. Roads weren't built properly. We're not happy at all."
Moime (30) says she and her husband remain without jobs and feed their family on a R560 monthly state child welfare grant. She and fellow inhabitants of the corrugated-iron shacks dotted across the barren landscape have no running water.
Modikwa officials say the company has spent R110-million on community development projects, including a R65-million road, and recruits more than three-quarters of the mine's workforce from the surrounding area.
"Sometimes the mining industry doesn't get the recognition it deserves for a lot of the good, good work we do," Motsepe said at a Johannesburg press conference on September 3 2012. "We can always do more. Our commitment to communities, to labour and to shareholders is without question."
Companies made deals with African Rainbow for business reasons rather than to just include black business people, Andre Wilkens, African Rainbow's executive director and former chief executive officer, said in an interview on Wednesday.
Almost 14% of South Africa's 53-million people live on less than R12 a day, according to the World Bank. Black citizens on average earn a sixth of what their white counterparts do and 1.9-million households have no income, census data shows.
On January 30, Motsepe pledged to donate at least half his family's future income to charity "to uplift poor and other disadvantaged and marginalised South Africans", joining Berkshire Hathaway chairperson Warren Buffett's Giving Pledge initiative to boost philanthropy.
His family foundation, established in 1999, already funds educational, religious and community projects, according to its website.
Motsepe is worth R20-billion, according to the Bloomberg Billionaires Index. His 40.7% stake in African Rainbow is worth more than R13.6-billion and a share in financial services group Sanlam is worth R5.8-billion. He also has about R1.96-billion in cash and is the board chair of Harmony Gold Mining Company, in which African Rainbow has a 14.6% stake.
In addition to his stake in African Rainbow, Motsepe has had control of the Mamelodi Sundowns – one of the country's biggest soccer teams, since 2003.
"It is quite obvious that the economic power relations represented by the excessive concentration of power in a few white hands have to change," Mandela told business leaders in May 1990, four years before he became president.
But while black empowerment programmes have enriched a few black leaders, significant financial power remains in the hands of South Africa's white population. They occupy 73% of top business management posts, an April 20 Employment Equity Commission report says.
Of the 54 South Africans who own listed shares worth more than R500-million, a dozen were black or of mixed race, a study published by the Sunday Times last year shows. Four of them hold or have held senior posts in the government or ANC, including Cyril Ramaphosa, the party's deputy president, and Tokyo Sexwale, who was human settlements minister until July 9.
"No one in his or her right mind would disagree with the need for structural transformation of our economy," Mamphela Ramphele, the former chairperson of Gold Fields, said in a May 8 interview in Cape Town. "Yet for the last 10 or 15 years we have seen the same people benefitting from a multiplicity of deals. They are the people who are politically connected."
Earlier this year she quit business for politics. On June 22 she formed a new opposition party that will avowedly seek to fight corruption. That is "at the heart of the problems our country is facing", she said that day.
In December 2012, Gold Fields ordered an independent investigation into its black empowerment transactions, whose beneficiaries included Baleka Mbete, the ANC's chairperson. The inquiry was announced in a stock-exchange filing. Ramphele said she had persuaded other board members to agree to the probe, declining to comment on the details.
The investigation is still ongoing and there is no update or expected time for release, said Gold Fields spokesperson Sven Lunsche. Mbete didn't respond to calls to her mobile phone, which didn't go to voice mail, or to emailed questions. Her office said she wasn't immediately available.
Anglo American sold six gold mine shafts to African Rainbow for more than R73-million, allowing it to pay out of future profits. Motsepe turned loss-making shafts around by cutting costs and paid off the debt within three years.
African Rainbow listed on the stock exchange in 2002, just as it was becoming clear the government would legislate that mining companies needed to include black owners into their business models.
African Rainbow took control of Anglovaal Mining, giving it stakes in iron ore, manganese and chrome mines that saw profits soar along with demand from China for building materials. One of the main reasons Anglovaal folded into African Rainbow was to achieve "a significant black shareholding", Anglovaal said at the time.
In that transaction, black empowerment "was a huge factor", according to Gerard Kemp, who has worked in mining and mine finance for 40 years and advised Motsepe at the time. He now runs his own resources consulting business.
Big companies "probably wouldn't have come to him" without the black-empowerment push, said Kemp. "He was bankable because he had a track record. You must give him credit for his first few transactions," which he did on his own.
Anglovaal agreed to join African Rainbow because it was in financial difficulties, African Rainbow's Wilkens said in Wednesday's interview. African Rainbow paid a 15% premium for the assets and invested to recapitalise the operations, he said.
The takeover valued Anglovaal at R50 a share, 13% more than its R44.20 price the day before the transaction, Anglovaal said at the time.
Other deals were also based purely on business decisions, Wilkens said. "Shareholders don't want to know you've done an empowerment deal, they want to know you've done a business deal which creates value," he said. "Obviously there's a climate where there's more focus on empowerment transactions. As a black-controlled company we're looking at those opportunities to see if we can find anything."
Motsepe declined to be interviewed for this story.
The newly acquired mines contributed R3.5-billion to earnings before extraordinary income or expenses, called headline earnings, in the financial year ending in June 2012. That was more than African Rainbow's overall earnings since some divisions incurred losses.
African Rainbow was one of just six companies benefiting from almost three-quarters of the R28.4-billion worth of assets transferred into black hands in 2003, data released by the trade and industry ministry shows. The others included Ramaphosa's investment company, Shanduka Group, and Sexwale's then-company, Mvelaphanda Resources.
Sexwale's office didn't respond to requests for comment. Ramaphosa declined to comment.
In 2003, Parliament adopted the Broad-Based Black Economic Empowerment Act. Mining companies agreed at the time that they would sell 26% of their assets to black investors by 2014.
By 2007, a study published by economics professors Daron Acemoglu of the Massachusetts Institute of Technology, Stephen Gelb of the University of Johannesburg and James Robinson of Harvard University found 56 senior ANC officials had positions on listed companies' boards.
A fall in commodity prices prompted by the global financial crisis in 2008 meant a lot of black empowerment operations struggled, African Rainbow's Wilkens said.
"The downturn of the economy had the worst possible effect on what the government was trying to do in good faith," he said.
Anglo American Platinum holds a 50% stake in the Modikwa mine, which produced 304 044 ounces of platinum last year. Headline earnings from African Rainbow's platinum group metals production fell 46% to R190-million last year. That is 5.5% of the company's total. Modikwa provides 41% of African Rainbow's platinum production.
Like a number of platinum mines in South Africa, Modikwa last year stopped producing for about five weeks because of a wage-related strike.
When the mine was established, African Rainbow not only promised an ownership stake, it arranged an interest-free loan for the villagers to pay for it, the company, Modikwa and villagers say. Seven communities borrowed R306-million from African Rainbow. The communities elect their representatives to a committee set up to look after their interests and who are given regular updates on their finances.
While African Rainbow has paid off its own debt through income from Modikwa and other operations, only about half the villagers' debt has been repaid, Mokgosi Nkoana, the mine's general manager, said in an interview in Johannesburg. Built more than a decade ago at a total cost of R3.6-billion, the mine should operate for another 80 years, Nkoana said, adding that a downturn in platinum prices probably will delay repayments and dividend payments to the communities.
In addition to the Modikwa-funded community development projects, including the road, 78% of Modikwa's workforce comes from the surrounding area, according to Nkoana. They have earned R4.2-billion in wages to date, he said.
"You might not necessarily with the naked eye see the improvement in the community, but I'm certain that from where we were 10 years ago to where we are now there has been a lot of development," he said. "To really satisfy all of them isn't a 10-year process, it's a lifetime process."
At one village near Modikwa, young men operate a makeshift car wash as a way to make money. Chickens and goats scratch in the scrub nearby.
The mine has taken over some grazing space for cattle herds, said Kabelo Madilo, who set up a committee to pressure the mine into managing the community stake more transparently, said. Blasting has cracked some of the brick houses and collapsed some boreholes used to access ground water, he said.
Motsepe "became successful because of his influence on politics", said Madilo as he sat with four other activists on plastic crates outside a tavern. "Black economic empowerment is working for politicians and their friends only."
That view isn't shared by all in the village. Edwin Cheloani, the chairperson of a committee looking after the villagers' interests in Modikwa, said the mine helped the communities set up five companies that supply labour, waste removal, maintenance and gardening services to the mine. While African Rainbow helps manage the companies, they've run at a loss and haven't helped defray the debt.
"It's difficult to keep some individuals happy because they want to benefit personally" and the mine can't provide for all community members, Cheloani said in an interview outside a tavern.
Links to local leaders
Though representatives such as Cheloani are elected by the community, the representatives don't share the information with the villagers, Madilo said.
Development around Modikwa has been uneven. While some live in large, sturdy homes – Madilo says they are the ones who have links to local leaders or have personal contracts from companies including Modikwa – the majority live in cobbled-together shelters dotted across a moonscape of eroded land.
"I'm happy the mine is here, but they don't give us anything," said Doris Madingwane (35), who helps run a kindergarten for 35 preschoolers in the area and accuses the mine of reneging on a pledge to upgrade the two classrooms, which let in the rain. "We're suffering here."
On June 20, the National Assembly approved changes to the empowerment laws to enable the government to fine companies at least 10% of sales for deliberately misrepresenting the measures they have undertaken to promote black participation.
The amendments also provided for the establishment of a new commission to oversee compliance with empowerment laws and investigate complaints about violations. No new ownership diversity requirements were proposed.
The government says the initial difficulties that saw deals benefitting a select few have been largely fixed.
"It's become much, much more broad-based," said Lionel October, director general of the trade and industry department, which oversees the empowerment laws, in a July 22 interview in Cape Town. "Most of the deals now include staff, communities, women."
One example of a company to conclude such a transaction was Kumba Iron Ore, an Anglo American unit that owns Africa's biggest mine producing the steelmaking raw material. In 2011, the first phase of a five-year share participation plan matured and 6 209 of the company's permanent workers each received a pretax payment of R576 045. The workers had already earned R55 000 of dividends over the course of the plan, which is now in its second phase.
While President Jacob Zuma says black empowerment needs to be refined and that "the majority of the black people still suffer as they did many years ago", he denies the policy has failed or is politically tainted.
"I don't think it is true that black economic empowerment has benefitted ANC people only," he told lawmakers in Cape Town on March 20. "It has benefitted a particular percentage of the black people in this country, who are not ANC. If there are people who may be ANC, who are black, who qualify for black economic empowerment, why should they be punished? Why should they not participate?"
Black empowerment has on balance been a success, according to Renfrew Christie, dean of research at the University of the Western Cape in Cape Town.
"South Africa would have had another violent revolution if we had not fixed the lily-white nature of the top of the economy," he said in an email. "We now have a surprisingly large black middle class, given where we started."
African Rainbow itself is 10% owned by church groups, women's organisations and trade unions through the company's Broad-Based Economic Empowerment Trust, which has distributed R74-million to rural projects, the company says.
That means little to villagers around Modikwa. Moime says the mine's management didn't fulfil its promise to improve education or train and hire the villagers of Maandagshoek. Among them: her husband, who as she spoke was at the nearby mine in search of work.
"The children can't even go to school, because they have to pass through a big river on the way," she said, waving at a cratered dirt track that bypasses the village that, Moime says, floods in places during heavy rains. – Bloomberg
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