/ 13 August 2015

Job-cuts backlash pits mining CEOs against Zuma

The effect of the platinum mining strike last year was not as severe as expected.
The effect of the platinum mining strike last year was not as severe as expected.

Relations between South Africa’s government and the mining industry are unravelling as a commodity-price rout derails plans by President Jacob Zuma’s administration to create millions of jobs and pare a 25% jobless rate.

Mining companies in South Africa, the world’s largest platinum and manganese producer, plan to fire as many as 10 000 workers at a time when the economy is struggling to rebound from the slowest expansion since a 2009 recession.

A public slanging match has ensued between senior politicians opposed to the layoffs and executives who say their stance, together with prolonged uncertainty over mining laws and an unreliable power supply, threatens their companies’ survival. ANC secretary general Gwede Mantashe last month branded companies as “lazy” for firing staff rather than considering alternatives.

“I don’t think the government understands the gravity of the challenges in the industry,” Mzukisi Qobo, a politics lecturer at the University of Pretoria, said by phone on Wednesday. “What happens in this industry sends signals to foreign investors across a range of other sectors on how government treats big business.”

The chief executive officers of Anglo American and Sibanye Gold, the largest miner of gold in South Africa, have pushed back against the government in a rare display of public criticism by businesses.

Prices plunge
Sibanye chief executive Neal Froneman said on August 6 that mining companies are “tired of political comment instead of concrete actions”, and that the government did not understand the economic realities of running a business.

Zuma, who has pledged to create six million jobs by 2019, said in a speech on August 9 that companies must avoid retrenching “at the first possible opportunity”.

Commodity prices have plunged an almost 13-year low because of global oversupply and a slowdown in China, placing further pressure on an industry already grappling with rising labor and power costs. This year’s 17% plunge in the Bloomberg World Mining Index has wiped about $185-billion off the market value of the biggest producers. South Africa’s broadest gauge for commodity stocks has fallen 14%.

South Africa’s mining industry employs about 440 000 people and accounts for more than half of the nation’s exports. Built on the back of cheap black labour under apartheid, the industry has faced repeated criticism from unions and some politicians for seeking to entrench economic privileges whites enjoyed under minority rule.

ANC support
The ANC is under pressure to placate its labour-union allies and stem a loss of support to opposition groups such as the Economic Freedom Fighters, which has campaigned on promises to nationalise mines. Less than a year after it was created, the EFF won 6.4% support in the 2014 election to become the country’s second-largest opposition party.

“The EFF has publicly accused the government of abandoning the working class,” Dirk Kotze, a politics professor at the University of South Africa, said by phone from Pretoria. “The ANC is trying to win back lost ground.”

The government denies that its relationship with the industry is overly antagonistic.

“At times people agree with one another and at some other times they don’t really drink from the same well,” Mahlodi Muofhe, adviser to mineral resources minister Ngoako Ramatlhodi, said by phone on Wednesday. “We don’t think that translates into serious tensions.”

‘Quiet diplomacy’
Anglo American chief executive Mark Cutifani urged the government to focus on turning around ineffective state companies, such as power utility Eskom, which is disrupting operations as it curbs electricity supplies to mines.

“A government that supports uncompetitive state enterprises cannot criticize private enterprise for taking the necessary action to survive in these tough times,” Cutifani said at a presentation in Johannesburg on July 30.

Anglo American derives about 35% of its revenue from South Africa, where it controls the world’s largest platinum producer and owns Africa’s biggest iron ore asset. Both Anglo’s platinum and iron ore units are cutting jobs.

Speaking out against the government may be necessary to ensure mining companies have a future in South Africa, according to Ian Cruickshanks, chief economist of the South African Institute of Race Relations, a policy research group.

“Quiet diplomacy is not working,” he said by phone on Wednesday. “Government has simply taken it as a sign of weakness.” – Bloomberg