This explainer was written by a group of UBC graduate students as part of our Lind Initiative series on inequality. It was an assignment from a course on public policy.
“The life of a person who is working in the mines is cheaper than
even chewing gum.”
— Andile Yawa, father of one of the Marikana massacre victims
In August 2012, 3,000 workers from Lonmin’s Marikana Mines in the platinum deposit-rich area of north eastern South Africa walked off their jobs to strike against low wages and poor working conditions. The miners, who earn between R4,000 and R5,000 monthly (CAD$371 - CAD$464), were asking for a raise to R12,500 (CAD$1,161).
Workers were being “exposed to a variety of safety hazards: falling rocks, exposure to dust, intensive noise, fumes and high temperatures,” as an International Labour Organization mining specialist described. They had had enough.
On the seventh day of the protest, national police opened fire. Forty-four people were killed.
The Marikana massacre reveals the extreme consequences of consistently paying low wages, suppressing worker organizations and providing little benefit to surrounding communities, all while extracting vast mineral riches from the earth. On the edges of some of the most valuable platinum deposits on the planet, there is poverty, high rates of unemployment and rising anger. Tension is growing between people and profit, as vast amounts of mineral wealth are being extracted and exported, leaving little to those who actually work in the mines. In an era of growing global inequality, the question of how to extract, manage, and share resources determines if inequality is inevitable, if mineral rights triumph over human rights, and whether resource-rich nations can distribute wealth equitably amongst their people.
Where do the riches go?
South Africa is the world’s leading producer of platinum, supplying roughly 78 percent of global demand. Domestically, the platinum mining sector contributes nearly USD$4 billion to annual South African GDP, and is the largest employer in the local mining industry, employing about 38 percent of all South African miners. Platinum from South African mines finds its way into cars, jewellery, fuel cells and numerous consumer electronics, including tablets and mobile phones.
Unfortunately, the lucrative profits of the mining industry have not trickled down to the average South African miner. A large portion of the commodity profits end up in the hands of a small group of industry players – namely, executives and shareholders – and a nominal amount is paid to the government. Government corruption means that even this meagre revenue is often not invested in local communities. The current African National Congress majority government has also been largely ineffective in holding firms to higher social and environmental standards, resulting in a lack of pressure to improve labour conditions.
The current situation is not, however, an inevitable outcome. As the leading global producer of platinum, South Africa maintains a powerful position among multinational mining corporations. The South African government has the opportunity to capitalize on this position to address inequality in the platinum mining industry and, more broadly, to set an example for how resource-rich countries can address systemic inequality and poverty.
Is South Africa headed for a “jobs bloodbath?”
South Africa’s platinum industry is rapidly approaching a crisis: prices have fallen from a record high in 2011 to a six-year low in mid-2015. Weak platinum demand alongside rising operating costs means that mine restructuring and closures are on the horizon – indeed, many are already underway.
This stark reality means job losses. Mining companies have announced plans to cut almost 12,000 jobs in the platinum sector, although union representatives argue that actual cuts could reach 19,000. These numbers are particularly distressing given South Africa’s current 25 percent unemployment rate and high degree of income inequality. In the platinum industry, even one layoff can be devastating to the local community, as mine workers (often poor rural migrants living in makeshift homes surrounding the mines) each support an average of 10 extended family members.
Feeling the pressure, the South African government, mining companies and unions signed a plan to mitigate the inevitable job cuts stemming from falling profitability in August 2015, but this initiative was more show than substance. Platinum producers can do little to change the market price of platinum, so layoffs are one of the only ways they can address tumbling returns.
With market turmoil comes social unrest and the threat of violence. Major job losses and mine closures threaten to offset some of the progress achieved following the Marikana massacre and a subsequent five-month strike in 2014. While workers saw some wage increases post-Marikana, higher salaries mean nothing to a miner or his family if they are out of work.
In addition to market forces eliminating jobs and driving mine closure, the looming shadow of mine mechanization hangs heavy over the heads of many workers. A fully mechanized platinum mining industry will likely require only 100,000 of its almost 200,000 current employees. It is not difficult to imagine the discontent and anger from unions and workers in the face of what Mike Schussler, chief economist at Johannesburg-based research group Economists.co.za, calls an inevitable “jobs bloodbath.”
The transition to mechanization does have its benefits, however: mechanized mines reduce workers’ exposure to unsafe drilling in hot and harsh working conditions deep underground, and higher-skilled machine operators will receive better pay. But unless mining equipment is produced locally, uneducated miners doing today’s dangerous drilling are unlikely to find a place even in the few remaining positions without major retraining and upskilling.
Low-skilled jobs are likely to continue to disappear as shallow, mechanized mines with a vastly different cost structure than that of Lonmin’s Marikana Mines are increasingly seen by companies as a way to avoid labour turmoil and unrest. Canadian companies are at the forefront of mechanization in the South African mining sector. Ivanhoe Mines SA (Pty) Ltd. plans to begin production in 2019 and Vancouver-based Platinum Group Metals is set to start output in the near future. Both are using mechanized techniques in their projects.
South Africa currently holds 10 percent of the global market for underground mining machinery (larger than Europe or North America). Real potential exists to develop mining technology locally – such a move would go a long way to mitigate job losses by creating manufacturing jobs to replace those lost by mine mechanization.
Other major mining regions have gone through this difficult process of mechanization before and come out ahead. Northern Ontario’s Greater Sudbury area in Canada has become a powerhouse for underground mining technology, boasting a cluster of nine research institutes and a multitude of mining-focused higher education programs. This region has been dubbed the Silicon Valley of mining technology innovations.
South Africa would do well to follow this example. Avoiding another Marikana and addressing inequality, poverty and social tension are not only achievable goals for South Africa, but also highly necessary and feasible ones.
The limits of policy
When a foreign mining company invests in developing South Africa’s mineral resources, it expects a significant return on its investment, particularly for taking on the risks of ownership and management in such a difficult operating environment. This is perhaps not an unreasonable expectation, but when much of the profit from platinum mining goes to mining company executives and shareholders, as well as South African oligarchs, little finds its way into the hands of regular citizens and workers. Bitterness and anger begin to take root, threatening to explode into violence and to strangle the economically vital platinum industry.
Recognizing the high price of inequality, the South African government has tried to bridge the gap between people and profits with numerous policies and actions. A key objective of the National Development Plan 2030 is to “broaden ownership of assets to historically disadvantaged groups.” Currently, mining companies are rated on a scorecard system, known as the Broad-Based Black Economic Empowerment scorecards, which evaluate a firm’s commitment to, and progress on, socioeconomic transformation. Expanding community ownership is the fastest way for a company to improve their score. While the South African government threatens to revoke the licenses of those who fail to achieve sufficiently high scores, revoking the license of a major operator would come with a hefty economic and social cost. In the current environment of low platinum prices and mine closure, it is not certain if the government can even afford to enforce its own regulations.
The push for equality and equity policies goes beyond empowerment scorecards. The South African Freedom Charter, adopted into the nation’s post-apartheid constitution, aims to address the tumultuous history of segregation and suppression. Broad Based Socio-Economic Empowerment Charter for the South African Mining Industry lays out the plan for how this will be achieved in the mining industry: mostly through skills development programs, sustainable development practices, and local sourcing of machinery and materials where possible.
It has been over 20 years since the end of apartheid and the adoption of the South African Constitution, and yet the nation’s vast mineral wealth has not been equitably distributed. While policy has made some progress, the nation, both a player and rule maker in the platinum mining game, is fundamentally limited in its approach. There is perhaps a cruel irony that the ANC party, once the party of Nelson Mandela and a force for disenfranchised black South Africans, now presides over a mining massacre and growing levels of inequality.
High expectations, failed outcomes
The Marikana massacre sent ripples through the mining industry in South Africa, shocking many and stoking fears of further civil violence. With fear of further unrest in mind, and a commitment to sustainable resource development, the global mining sector is rapidly adopting the Social License to Operate approach; essentially, an informal permission to operate is granted by local communities to mining companies. This permission is given on the promise of transparency, open dialogue and shared benefits. Failure to achieve and maintain this social permission can lead to social conflict, reputational damage, financial loss, labour disputes and even shutdowns. This approach flips the typical dialogue between communities and corporations on its head, empowering communities to decide how and under what circumstances their resources are to be developed.
The social licensing approach has given rise to Corporate Social Responsibility (CSR) initiatives, community investments aimed at creating lasting and beneficial relationships between communities and mining corporations. While no international law governing mining projectscurrently exists, there are numerous globally accepted CSR guidelines and standards for mining companies operating abroad.
Given that more than 50 percent of the world’s publicly-listed exploration and mining companies are headquartered in Canada, it is important for Canadian mining corporations to have access to and comply with the most advanced CSR performance guidelines and standards. In November 2014 the Government of Canada announced a new CSR Strategy: "Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad." The initiative endorses international best practices which Canadian companies are expected to target as a minimum requirement, even if the host country’s legal requirements fall short of these standards. Without any judicial enforcement, however, it remains uncertain whether self-regulation of voluntary practices will be effective in ensuring South African communities benefit equitably from foreign mining activity within their platinum-rich regions.
The way forward for the South African government
The role of government in the extractive industry is a difficult balancing act – too much regulation may push industry to leave; too little, and human rights often come secondary to mineral and extraction rights. The South African government is in a difficult position, presiding over a nation with vast inequality, an enduring legacy of apartheid and oppression, civil violence and endemic corruption. It is currently ill prepared to weather the storm of low commodity prices, high unemployment and a sluggish growth outlook.
Yet the future is not, and should not be, viewed as grim; the South African ruling African National Congress (ANC) government has overcome numerous civil and political challenges in the past and has demonstrated a desire to both engage with the mining industry and listen to the needs of its people.
Given the difficulties of generating long-term results with corporate social investment, and the limitations of transparency, the government should act as a coordinator between industry and the public, providing guidance and overarching structure for social investment alongside consequences for failure, such as revoking the mining license of companies who fail to comply with transparency requirements, like engaging in financial audits.
In order to address job cuts in the platinum mining sector and minimize labour unrest, successfully executed skill development programs are key to increasing employment and creating sustainable, alternative jobs. Enhanced investment in non-mining industries would also go a long way to cushion the volatility of commodity markets, and soften the blows of fluctuating prices in platinum.
This will not be an easy endeavour, but the post-Marikana environment of distrust, job losses and rising tensions has made it a necessary one.
Don’t confuse transparency with action
Even if the South African government does decide to tackle issues of inequality in the platinum mining industry, it is hard to know who, exactly, to target. Is every company at fault? Is it just a select few multinational mining corporations with excessive power? How are governments supposed to sort the good from the bad? With billions of dollars invested by foreign mining companies into South Africa, answering these questions requires knowing where those billions are going, who gets the money and who is spending it.
To this end, the Extractive Industries Transparency Initiative (EITI) aims to “promote open and accountable management of natural resources” by instituting a standard set of transparency requirements for all member countries. Although membership is not mandatory, currently 49 countries have implemented EITI standards with 31 being listed as “compliant” by the EITI.
South Africa is, unsurprisingly, not a member.
In general, transparency initiatives have generated positive results. Membership in the EITI is growing, and provisions similar to Dodd-Frank Section 1504 are being adopted in the European Union. In theory, transparency initiatives provide citizens and governments alike with information about mining companies operating in their very backyards – but there is a key difference between informing citizens and empowering them. Currently, the EITI only has the ability to highlight discrepancies in a mining company’s financial records; they do not have the authority to fully audit and investigate these discrepancies. Without enforced transparency regulations, and punishments for non-compliance, citizens remain, at best, informed and angry, and at worst, in the dark with no recourse.
Is nationalization the answer?
The debate surrounding mine nationalization is a complex and often highly controversial one. In 2012, the South African government vetoed overall nationalizationof the mining industry. While this was seen as a defeat by those advocating for nationalization as a broad solution to inequality and injustice, placing profit in the hands of the people, others viewed the veto with a sigh of relief, fearing that nationalization would grind foreign direct investment to a halt and stall the South African economy.
While broad-based nationalization of the industry as a whole remains a non-starter, the possibility remains that certain mineral assets will be at least partially nationalized, while the mining sector remains privatized as a whole. As the leading world exporter of platinum, the South African government is in a very powerful position to dictate the terms under which platinum is mined.
Even if the government were to undertake a process of partial nationalization, the roadmap to success is still not so clear. It remains uncertain whether the vast wealth from platinum mining would make its way into the hands of citizens. Norway provides the best example of nationalization, with Statoil being majority-owned by the Norwegian government and providing much of the funding for the Government Pension Fund of Norway, which produces great benefits for the average person. However, Norway began the nationalization of its oil assets from a position of relatively good governance, while South Africa is not so fortunate. Navigating the murky waters of nationalization is a difficult business, and investors (alongside foreign governments) are almost certain to push back against any efforts to nationalize the platinum industry.
Nationalization of platinum mines in South Africa, if done correctly, would place ownership of the nation’s platinum resources into the hands of the people, but it could also come at the cost of South Africa’s economic success. This cost may be far too high for an economy that already hovers around 50 percent youth unemployment and has few other opportunities immediately in sight.
For the victims of, and those impacted by, the Marikana massacre, change perhaps comes too little too late, but these initial first steps are very promising. Despite difficulties involving platinum prices, mechanization and labour tensions, the South African government has established a strong vision of equality and equity and has committed to challenging the conventional way in which resources are mined and extracted. Policy, corporate social responsibility, transparency and activism alone are limited, yet if executed with the government as a coordinator, can lead to significant results. If the South African government pressures industry to align with national values, platinum mining can be used as a means to generate not just economic success and growth, but equity, equality and opportunity for the people of South Africa.
This explainer was written by a group of UBC graduate students as part of our Lind Initiative series on inequality.