Amplats' restructuring reflects broader trends

By Niall Reddy

Anglo’s platinum operations are not “unprofitable”, rather they are not “profitable enough”.

Plans to restructure will jeopardise the income of 14 000 workers and more than 100 000 dependants. The Association of Mineworkers and Construction Union’s (AMCU) call to nationalise in response reflects the growing consensus on the need for drastic redirection in the sector and the economy on which it has so much influence.

The tragedy engulfing the mining sector over the last six months is best understood as a symptom of the minerals-energy complex. Ben Fine and Zavareh Rustomjee coined the term to refer to the nexus of monopolistic firms, rooted in mining but spreading over finance and other sectors that stood historically at the centre of the South African economy. It imparted a particular dynamic to the industrialisation path of the country through its economic clout, linkages with other sectors and close relationship with the state. The concept is gaining increasing currency given its success in predicting recent patterns in the South African political economy.

The post-apartheid economic dispensation, which reflected the evolving interests of the minerals-energy complex, made it possible for major South African companies to become global and to ”financialise”. The latter refers to a set of global trends encompassing the growing size and influence of financial markets and institutions that have manifested in South Africa in especially acute form over the last decades.

A few statistics illustrate this. Finance has been the fastest growing sector post-apartheid, burgeoning to more than 20% of GDP in recent years despite the fact that more than 40% of the population does not benefit from any financial services. By 2007, holdings of financial assets by commercial banks and monetary institutions had doubled from a few years earlier to R470-billion and similar trends were seen among households and the financial portfolios of non-financial corporations.

Another feature has been the entrenchment of shareholder value maximisation as the guiding principle of corporate governance. Key researchers characterise the outcome of this as a shift from “retain and reinvest” to “downsize and distribute” as corporate managers, increasingly paid through share options, prioritise short-term profitability over growth and market capture, and reallocate value to bolstering share prices. In 2007 and 2008 Amplats paid out more than R29-billion in dividends — more than the wage bill of the entire sector.

The net effect of financialisation has been a slowdown in accumulation as firms shift to speculative returns over real investment, and the growing control of financial interests over economic and social policy. The minerals-energy complex is also key to understanding the exodus of capital that has been leaving SA’s shores illegally — averaging 12% of GDP over the 2000s, much of it through transfer pricing by globalised mining companies.

It is unlikely that Amplats is mothballing its Rustenburg shafts because they aren’t capable of generating any profit (they made between R62 and R92 million in the first half of 2012 before the strikes). Rather, higher short-term profitability, that underpins the value of share prices, is available elsewhere and must trump all other considerations. In fact, Business Day reports that shareholders are urging managers to quit SA entirely, in deference to the share price of overseas listings of the firm.

The choice of shafts reveals another motive. Khuseleka and Khomanani have the highest concentration of AMCU members and were at the centre of recent strike action. Amplats’ plans may be as much about disciplining labour as obeying any economic imperative.

The restructuring thus appears as a microcosm of the principal afflictions of the South African macroeconomy — financialised disinvestment and capital flight.

But this is not the first time we’ve seen this. Over the course of 2009 Amplats shed more than 15 000 jobs with the closure of three shafts and cuts at head office. Those moves scarcely elicited a squeak from government, much less the National Union of Mineworkers. In light of this, one wonders if the vociferous criticism from a slate of high-profile ANC members is more about clawing back political capital in the wake of Marikana, than any genuine outrage.

It also makes the widely criticised shock-tactic approach to publicising the restructuring all the more surprising. There is a certain logic at work here, however. In the first place, by potentially overstating their plans and the severity of their problems, Amplats has gained room to negotiate to a position that seems more reasonable and ”socially responsible”. This is also another area in which shareholder influence looms large. In the era of cannibalistic capitalism, ruthless chief executives that are prepared to pursue shareholder value at all costs are the beloved of the market — leading to a strong positive relation between job destruction and chief executive remuneration.

To be certain, Amplats’ restructuring is driven by a long foretold crisis in the platinum industry related to rising costs and demand constriction following the European downturn and increasing market share of recycled platinum. The problems have been exacerbated by oversupply and chronic capital mismanagement by the sector’s private managers.

But the way in which firms respond to the crisis is not determined by abstract economic laws but reflects institutional and political economic arrangements. Amplats intends to do everything possible to safeguard shareholders and impose the maximum penalty on workers.

As always there are alternatives. Platinum may be in the doldrums now but key analysts agree on a positive future for the sector in the longer run. A firm not beholden to short-term value may opt to retain shafts at lower profit rates with a long-term view to growth and market share — at the same time retaining skills, avoiding labour conflict and dispersing the costs across various stakeholders. (Or they could be made to do this by well-organised workers or an interventionist government.) Other policy options, such as the creation of a commodity-exchange market, could assist the ailing sector.

But these issues cannot be reduced to the governance structure of any one company. Financialisation is now a structural feature of the South African economy that enforces adherence to a particular short-termist logic, not least through the threat of corporate takeover. Amplats’ managers are merely conforming to this.

This makes the governments rhetorical broadside against Amplats look all the more risible. The more so since, as Fine notes in a recent article, major macroeconomic policy programmes — the new growth path and national development plan — fail outright to acknowledge, much less formulate a response to, financialisation and capital flight.

The debate over nationalisation needs to be viewed in this context. Alongside ramped up financial regulation, nationalisation could form an important part of a strategy to curtail the influence of sections of capital that underpin financialisation, minerals-energy complex domination and create the space for policy alternatives and a shift to wage-led growth. Realistically it represents the only real chance of protecting workers and communities in the management of a declining mining sector that will see many more retrenchments and capital flight in years to come and implement a strategic minerals-industrial policy that preserves resources for higher value-added activities. The platinum sector, containing more than 80% of the worlds’ reserves, represents a particularly auspicious starting point for such a policy.

Unfortunately that seems an increasingly remote prospect in the wake of Mangaung, which saw the emergence of an ANC even more accommodative of big business and not even willing to abide the term in policy debates. The election of Cyril Ramaphosa to the deputy presidency, and now the most vigorous and visible figure in the party, was roundly applauded by business but came as a kick in the back for workers whose colleagues suffered the brutal outcome of a police clampdown he advocated.

For now it is those workers and their historic strike committees that are leading the fight for an alternative to Amplats’ restructuring and the immense human cost it entails.

Niall Reddy is a researcher at the Alternative Information Development Centre.