Paper short abstract:

The paper analyses the impact of the end of the commodity super-cycle on black economic empowerment (BEE) in South Africa’s mining sector. It argues most BEE deals were predicated on high commodity prices, and that the crash has generated new tensions between state and private sector.

Paper long abstract:

This paper analyses the implications of the end of the commodity super-cycle for South Africa's black economic empowerment (BEE) policies in the mining sector, with a particular focus on platinum - the country's most important mineral by employment. Racial transformation of ownership has been the most significant policy issue in South Africa's post-apartheid mining sector. The key legislation designed to foster this transformation was the 2002 Minerals and Petroleum Resources Development Act (MPRDA), and the 2004 Mining Charter derived from it. This requires companies to meet targets for ownership by Historically Disadvantaged South Africans, a process more commonly known as BEE.

The paper argues that the legislation and the methods used to transfer ownership were born of the super-cycle, and that its end has exposed their fragilities. Ordinarily, stakes in mining operations were sold to BEE partners using a mixture of vendor and commercial debt financing. The debt was secured against the value of the stake acquired, with repayment contingent on dividends. However, the end of the super-cycle has caused dividends to dry up, company valuations to plummet, and credit conditions to tighten. This perfect storm has jeopardised transformation efforts, and exposed the inattention to counter-cyclical stabilisation measures. Key institutions are struggling to adapt, with new tensions emerging between state and private sector over the definition of BEE. Ironically, while the MPRDA eschewed state-ownership as a method for deracialising mine ownership, the crisis has seen state financial institutions quietly becoming key stakeholders in, and financiers of, the struggling industry.