Black economic empowerment policy and the transfer of equity and mine assets to Black people in the South Africa’s mining industry

Abstract

Background: The Minerals and Petroleum Resources Development Act (MPRDA) and the Mining Charter, which both came into force in 2004, required white-owned and foreign-owned companies operating in the country to transfer 26% of the value of equity ownership and ensure that historically disadvantaged persons (HDSAs) attain 40% control of mine assets. The regulations are part of the broad-based black economic empowerment (B-BBEE) policy that seeks to transform the whole economy and enable black people to participate fully in all sectors of the economy after years of exclusion under apartheid laws. The inclusion of black people in the industry started with conglomerates unbundling mining houses in the early 1990s. Elsewhere such programmes succeed through selective government intervention. The South African government instead is pursuing a hands-off approach leaving HDSAs to survive under market mechanisms, which limits HDSAs’ chances of exploitation of opportunities.

Aim: To explain challenges of attaining and sustaining equity target levels and highlight the extent to which black people own equity and mine assets, explore strategies used and reveal other realities in the implementation of the policy. These aims are met by exploring the ownership structures of white-owned, foreign-owned and black-owned companies and BEE deals concluded by them between the 1990s and 2015. It was also important to learn from the experiences of countries that pursued similar policies as a means of providing knowledge and information to policymakers and the general public.

Setting: The study used a sample of 72 mining companies in South Africa operating in various mineral categories.

Methodology: This article used a qualitative approach involving both secondary and primary data. Purposeful selective sampling was used to draw from all listed mining companies with a cut-off of July 2011. The market capitalisation of these were used to estimate equity targets owned by black people. Another 16 mining companies not listed were used to explore the strategies, challenges and other realities. This required exploring changes in shareholding structures and BEE deals concluded. Face-to-face structured interviews were conducted with a total of 35 executives, top management or their representatives from 27 companies, a few members of academia and government officials between 2012 and 2014.

Results: Targets set by the MPRDA and the Mining Charter have not been met. Thus, little equity ownership has been transferred to black people. A broad category of black people have, however, benefited from BEE deals. These include individual companies, consortiums, communities and employee ownership schemes. To avoid risks, the sellers of mine assets host black people in separate companies, special purpose vehicles and holding companies. In general, lack of capital, dilution of black shareholding, indebtedness and limited expertise to run extractive ventures successfully challenge the survival of black-owned companies. Despite these problems, a few such companies are worth billions of rand.

Conclusion: The success of empowerment policies that seek to offer selective preferences to enterprises elsewhere has depended on the government’s concerted efforts. These include establishing institutions to oversee policy execution and having financial and other supports. Challenges that black-owned mining companies face indicate a call for help. Unless the government intervenes and supports them there is a danger that white-owned and foreign-owned companies will completely buy back the assets once sold to black people resulting in a failure of the empowerment policy.