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The idea of a national champion conjures up an image of a powerful international company which both succeeds in the international business sphere and delivers benefits back home.
A potential candidate for such status, which has been in the news recently, is Seriti Resources, the black-owned company which purchased Anglo America's local thermal coal assets. Seriti deserves all the goodwill in the world. It paid a fair price for the assets, is led by people with long mining experience, notably Chamber of Mines President Mike Teke, and is a significant new domestic business venture which may grow into something special. But it may well be the kiss of death to brand it as an embryonic ‘National Mining Champion’. Indeed there are good reasons to be very wary of such a concept.
The idea of a local champion has had considerable momentum in recent years. Strongly advocated by Ngoako Ramatlhodi in 2014, during his time as Mineral Resources Minister, it has been picked up by the government pension manager, the Public Investment Corporation and, most recently been affirmed by the current minister, Mosebenzi Zwane. In February Zwane stated that government was keen to support 'new black economic empowerment champions' in the industry. The racial formatting of Zwane's enthusiasm is the first clue as to why a 'local champion' could be a misstep.
Despite the claims of the ‘redress’ lobby, the racial formatting of opportunity is, above all, a mechanism for limiting access. This is the core policy of the current regime and it works to ensure that those who hold state power control ‘who gets what’. But this puts any business beneficiary at the mercy of the whims of politicians. Patronage and growth are inimical.
A company cannot be a ‘champion’ if it is forced to bow to politicians’ preferences in hiring and firing, where it is required to meet onerous beneficiation and social delivery requirements, and where miners are in constant danger of losing their rights to better-connected parties. There are simply too many tensions between the requirements of political delivery on the one hand, and business success on the other.
The idea of a 'national champion company' has a certain respectability, thanks to the experience of developmental states such as Japan (especially pre-World War Two) and, more recently, South Korea and China. In South Korea the 'chaebol' or business conglomerates – including Hyundai, Samsung and, before its spectacular collapse in 1999, Daewoo – drove economic growth, which, in turn, fuelled (successful) demands for democratisation.
This experience offers a second clue as to why the concept is so dubious. For the ‘keiretsu’ or Japanese conglomerates in pre-war Japan, the chaebol in South Korea, and indeed the state-owned enterprises of contemporary China, were and are at their strongest under authoritarian governments. Such governments characteristically control political and labour demands, while supporting a strategy of exporting cheap manufactured goods. The sequencing of democratisation and economic growth in South Africa renders this strategy a non-starter. In any case, these societies boasted high-capacity states, whereas South Africa has a Department of Mineral Resources which has failed to table an adequate basic mining law in six years.
The idea of a national mining champion immediately raises the prospects of replaying the 1963 deal where Harry Oppenheimer was instrumental in amalgamating Federale Mynbou and General Mining to form Gencor, with the backing of Afrikaner savings giant Sanlam. Gencor, of course, later became Billiton and subsequently the (Australia-based) global major BHP Billiton. At the time of its establishment, the enterprise was a successful attempt to bring 'Afrikaner capital' into the industry and hence to create a 'Trojan horse' which would represent the interests of the industry inside the Afrikaner nationalist camp.
In a situation which has startling parallels with the present, the Afrikaner nationalist government was at loggerheads with 'English capital' which dominated the industry at the time. Nationalisation was on the agenda in the early 1960s too, at least at the level of rhetorical threat. With capital fleeing South Africa after the Sharpeville massacre, opportunities opened to restructure ownership in the industry, in much the same way that Anglo America’s global restructuring has done in the present era.
But that case throws up a third clue. This is not 1963. At that time South Africa was in the midst of the most intensive burst of economic growth the country has ever seen. Between 1948 and 1964, the economy grew at an average rate of 8.3% per year. Although this tapered off after 1964, it still averaged 5.9% for the decade of the 1960s. Just how distant such an ebullient period is from present conditions is shown by the fact that the average growth for the entire 1960s – 5.9% – is higher than the best growth spurt achieved in the last 20 years (5.2% from 2004 to 2007).
The point is that Afrikaner mining capital was launched in an era where it was difficult to fail. Not only was domestic manufacturing growth soaking up as much coal and iron ore as miners could produce, but the gold price leapt from a long-term US$35/oz to almost six times that price (US$197.50) by December 1974.
Electricity was available then at a price that made South Africa among the cheapest countries in the world. This was the era in which the self-same Gencor established the first energy-hungry aluminium smelter in South Africa (Alusaf's Bayside in Richards Bay).
The differences are so obvious as to require no further comment.
Of course none of this should be interpreted to suggest that black-owned mining enterprises merit anything other than support. But, so too do those who lack ethnic branding. However there cannot be such a thing as a ‘national mining champion’. Not only are current circumstances not supportive but, above all, a state which seeks control through limiting access cannot possibly create such an entity.
Seriti Resources has emerged as a straightforward business deal. Like Gencor, fifty years ago, it sinks or swims in accordance with business principles. It is not a recipient of state patronage, but that is what those in government who advocate a 'national mining champion' want.
They can't have it because it’s not possible.
David Christianson is a policy fellow at the IRR, a think tank that promotes economic and political liberty. Follow the IRR on Twitter @IRR_SouthAfrica