Editorial: We can do without this kind of BEE
The Mail & Guardian‘s revelation this week that Lonmin paid a king’s ransom to Cyril Ramaphosa’s company at a time when the mining house was in dire straits and pleading poverty to its workforce drives home an unpalatable truth about a particular type of black economic empowerment (BEE).
This kind of BEE is not essentially about reducing inequality in South Africa – it is about an elite pact between two sets of fat cats, those of the corporate world and those with political power. Too often, it is about giving to those who already have.
In a nutshell, Ramaphosa’s Shanduka Group was able to buy into Lonmin by means of an empowerment vehicle, Incwala Resources, using a R2.5-billion Lonmin loan to be redeemed by future dividends.
In 2012, the year of the wage battle at Lonmin’s platinum mine in North West and the Marikana massacre, Lonmin took heavy losses and told workers it could not meet their demands. It also failed to act on its pledge, made to the government in its application for mining rights, to build houses for workers. Workers’ living conditions were one of the underlying triggers of the strike.
Most Lonmin shareholders also ended up empty-handed. The notable exception was Incwala, which received a R116-million transfusion – an amount that, if distributed to workers, would have added an average of R333 to each of their salaries.
Lonmin’s argument is that, if it had not paid its empowerment partner about $46-million over three years, Incwala would have folded, potentially costing the mining house its licence and putting everyone’s jobs at risk.
Really? The “agreed facts”, as presented to the Farlam commission of inquiry into the Marikana massacre and what led to it, show that Lonmin had no contractual duty to pay dividends in hard years. But, in any event, what about rescheduling Incwala’s debt, or telling it to raise a bank loan or other investor support? If Incwala was too feeble to stand on its own two feet, why could Lonmin not find another, more sustainable partner?
The prospect of Incwala having to fund itself might have forced Ramaphosa, who is not poor, to dip into his own pocket or to approach his own bank manager. But, in keeping with many such transactions, the BEE partner wanted something for nothing – even though Shanduka was well placed to provide support, and its reluctance to do so put other legitimate interests at a disadvantage.
No one is claiming Lonmin broke any formal rules or acted unlawfully.
The issue is a moral one. The obvious inference to be drawn from the revelations is that Lonmin’s overriding priority was to look after its politically powerful partner – and that the partner was only too happy for that to happen.
Major questions have also been raised about Lonmin’s tax morality, with evidence pointing to the massive transfer of revenue to an offshore tax haven. The company’s explanations on this issue have been as clear as mud.
The Lonmin case again turns the spotlight on the distortion of the empowerment process to favour an enchanted circle of beneficiaries. There have been some praiseworthy corporate attempts to spread the love, but too many companies still take the soft option of sweetening the hierarchs.