Big questions in South Africa

By Palle Ellemann, Senior Consultant at GES

Responsible investors from most of the world gathered in Cape Town, South Africa for the annual PRI in Person conference. About 400 delegates joined the sessions and listened to the Finance Minister of South Africa’s call for more investments in African infrastructure. In general, the conference was highly focused on Africa and how issues like corruption, inequality and local communities impact investments.

Local African investors tried to downplay the role of corruption in contemporary business life in Africa, while inequality was highlighted as a major factor for social unrest, in particular in South Africa. South Africa has the dubious honour to be the most unequal country in the world and the past 18 months of unrest in the mining sector seem to have been fueled by growing inequality and dissatisfaction with a small elite reaping the fruits of the past years’ resource driven growth in South Africa.

In continuation of the PRI conference, GES had the opportunity to dig further into these issues in engagement meetings with six South African mining companies and one telecom. The mining companies are all impacted by the social challenges that South Africa is facing and trying to deal with these issues in the local communities around the mines. The strike activities in the past 18 months have added to the social problems in these communities, because many of the striking employees have had to take on loans from so-called micro-lenders (read: loan sharks) during the strikes, where the workers didn’t receive any pay. Many workers ended up in accumulating debt problems due to sky-high interest rates. Some of the mining companies have programs to facilitate mortgage loans and get workers out of the debt trap with the loan sharks, but the problem is vast and not easy to solve.

The current focus in the mining sector is to settle new wage agreements with the unions. The previous agreements expired in June and the emergence of a new and aggressively recruiting union, AMCU, has stirred up the labour relations and provoked conflicts and strikes. The gold mining sector managed to keep the negotiations within a centralised bargaining unit in the Chamber of Mines and a two-year agreement was settled with the majority of the unions. Only AMCU has yet to sign the agreement, but South African labour law stipulates that the agreement will nonetheless cover AMCU members, because AMCU only represents a minority of the workers in the gold industry. The coal mining industry settled a similar agreement with minority AMCU representation.

In the large platinum industry, AMCU has achieved the majority representation of the workers and is therefore the lead union at the negotiation table. Platinum has not the same tradition as gold and coal for collective agreements across the industry, so in principle the negotiations take place with each company and each mine shaft. The platinum companies are trying to coordinate the negotiation, so that the result will be similar to that in the other two sectors. But this is obviously a more difficult task and AMCU has been campaigning for better agreements, which it now has to deliver. The labour relations in the platinum industry are more shaky than gold and coal, but it was clear that those companies taking an inclusive and collaborative approach to the negotiations had developed stronger and more productive relations.

First priority is to settle new wage agreements and avoid violent conflicts. With the longer term in mind, GES will continue engaging with the mining companies to leave the winners-take-it-all approach to labour relations and move towards more inclusive, ongoing and collaborative labour relations, where the confrontations leaving everyone as losers can be avoided. In particular in platinum, but also to some extent gold and coal, much work remains to stabilise the communities around the mines with decent housing, infrastructure and jobs other than mining.

Here, global investors play a crucial role in the engagement with companies to find solutions. The Chairman of the Mineworkers Provident Fund, Martin Kuscus, characterised at the PRI conference shareholder activism in South Africa as pathetic and encouraged global investors to engage and ask the difficult questions. Another call was made by US-based Jay Youngdahl, trustee of the Middletown pension fund, who challenged the audience with an observation that divestment is on the ride in the US, which had led him to question, if we (PRI signatories) really take our responsibility as investors seriously. Does the engagement by many PRI signatories really match the scale of the problems?

Serious questions and as one of the founding board members of PRI, Paul Clements-Hunt, put it: questions that PRI would need to address in order to avoid turning into a country club.

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