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Southern Africa: Responsible Mining Companies?

AfricaFocus Bulletin
May 12, 2010 (100512)
(Reposted from sources cited below)

Editor's Note

"It is clear that South African companies are not behaving any differently than western and Asian companies ...South African mining companies are taking advantage of regional governments' weak legislation framework and lack of capacity to monitor the development agreements to disregard some of the most basic human rights." - Southern Africa Resources Watch

Corporate responsibility, as this new study from Southern Africa Research Watch (http://www.sarwatch.org) notes, is much more widely honored in word than in practice. Nevertheless, the authors argue that standards in place, along with greater efforts for governments and civil society to monitor compliance, can potentially have significant impact. Their studies, including South African mining companies operating in Mozambique, Namibia, Zimbabwe, and the Democratic Republic of the Congo, as well as the role of South African Banks, show that this promise is still far from realization.

This AfricaFocus Bulletin contains excerpts from the introduction and the concluding essay, by Claude Kabemba and Roger Southall respectively. The full text of the book is available on the SARW website (http://www.sarwatch.org).

For previous AfricaFocus Bulletins on economic issues, see http://www.africafocus.org/econexp.php


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++++++++++++++++++++++end editor's note+++++++++++++++++++++++

South African Mining Companies in Southern Africa

Southern Africa Resources Watch

http://www.sarwatch.org

Introductory Overview

Claude Kabemba

[Excerpts. Full text available on http://www.sarwatch.org]

...

The world appears on the edge of an economic recovery following the 2009 financial crisis. The demand for African mineral resources is expected to rise again to support the current wave of industrialisation in emerging countries, especially in Asia. In turn, the scramble for resources in Africa has seen the arrival of emerging powers such as Brazil, India and China as buyers and investors. ... The subject of this research project, the corporate governance and social responsibility of South African mining companies and their financiers, is likely to become a major issue of public debate as the former increase their presence in the SADC region and elsewhere in search of new resource opportunities.

The South African mining sector has been in decline over the past two decades. Consequently South African companies are increasingly looking for investment opportunities in the wider SADC region in a bid to benefit from favourable international markets for minerals, in competition with western and Asian companies. These investments have social and environmental impacts on people working in, and living around, mines. In recent times, attention and pressure has been mostly put on Chinese companies to adhere to best standard business investment in the extractive industries; very little pressure has been put on other players (including South Africa). ...

Considering South Africa's ambition to play a leading role on the continent, there should be consistency between the country's high morals when it comes to respect for human rights and democracy as indicated by its constitution and proclaimed policies, and the practices of its businesses outside its borders (not least because today many South African businessmen were themselves members of the liberation movement). Thus it is that people in Southern Africa expect South African companies to contribute to governments' tax revenues without compromising on safety, health, the environment and work conditions

The research included four countries: The Democratic Republic of Congo (DRC), where the focus was on Metorex (Rushi mining); Namibia, where the study looked at NAMDEB and NAVACHA; Zambia, where the focus was on Metorex (the Chibuluma mine); and Zimbabwe, where the interest was on Zimplat and Mimosa. These countries were selected because of the firm presence of South African mining and gas companies. They also represent a mixed set of internal state structural and organisational capacity that gives different environments within which South African companies operate in the region. For comparative purposes a case study on South Africa is also included. Given the role that South African commercial banks play in providing funds to mining companies, the research also covers their adherence to international best practices when lending money to mining companies - banks around the world are under fierce criticism for providing funding to many environmentally damaging projects. The role of the South African government is also discussed. The study assesses whether the South African government has policies of compliance for companies working outside South Africa.

The different chapters in this book attempt to answer questions such as: to what extent South African mining companies respect host countries' legislation and regulations as they relate to corporate governance? To what extent are South African companies contributing to economic development and the improvement of social conditions in countries where they invest in SADC. Are South African companies falling short of good governance when doing business in SADC? Do South African companies use the same standards of corporate social responsibility to protect African communities and their environment where they invest in the region? Do South African companies respect and apply the host country's legislation?

A qualitative research methodology was adopted for all the chapters. However, we need to recognise two major problems which confronted the research. First, the research capacity and skills in this sector are still weak in the region; second, mining companies and governments were reluctant to engage with the researchers and answer questions; they also refused to make available documents such as development agreements. They argued that these documents contained commercial secrets, and that disclosure would not only impair economic credibility, but would also amount to a breach by states of their sovereign commitments under the said agreements.

The behaviour of South African companies in the extractive industries in the five countries shows the same characteristics. In all five case studies, companies have not respected their development agreements fully. Although the evidence indicates that the companies are profitable in their operations and that they have made an economic impact in terms of job creation, payment of taxes and royalties, there is a debate about whether these companies are meeting their tax obligations in full. A major finding of the study was the contested status of the official figures presented in companies' annual reports. Many of the claims made regarding the companies' contribution to community development were refuted by community representatives. Allegations made by the latter appeared to be confirmed by evidence presented to the research team when they made visits to the mines. These include indications of poor management of the environment, which has negatively impacted on the livelihoods of villagers, as well as the opening up of marked differentiation in income between mine employees (notably those permanently employed) and ordinary members of impoverished communities, and between South African employees and national employees. It is clear that South African companies are not behaving any differently than western and Asian companies, making a mockery of the African Renaissance. South African mining companies are taking advantage of regional governments' weak legislation framework and lack of capacity to monitor the development agreements to disregard some of the most basic human rights. Equally, South African banks (which contribute to the investment capital of these companies, and which have incorporated some the best international principles and standards into their risk assessment procedures used in loan approval) have not been concerned with how South African companies behave outside.

... the South African government, as with other mining countries which have strict environmental and human rights guidelines for their companies investing abroad, has the responsibility to guide and regulate the behavior of its mining companies outside its borders. After 1994, South Africa's capital and expertise were expected to bring economic revival to the continent in general, and to Southern Africa in particular. Indeed South Africa has increased its trade and investment on the continent since 1994, and South African companies (especially in the extractive industries) are competing fiercely with western multinationals. Our research reveals, however that the perception on the continent is that South African companies' actions in the economic rim are not that different from those of western powers. ...

The exclusion of local communities from the benefits of the extraction of vital mineral resources appears to make a case for increased monitoring and regulation by governments and civil society organisations. However, governments themselves form part of a wider problem, as they lack the necessary capacities to undertake such a role. Civil society in general also lacks the necessary skill, both material and technical, to monitor the behavior of these companies. Without pressure, it is unlikely that South African investment will benefit poor communities situated close to the mines.

Some of key recommendations emerging from this study include:

  • South African banks must make public their lending practices, partners, and the agreed process of monitoring mining projects they fund in the SADC region.
  • The South African government must design guidelines for its companies investing outside its borders, especially in the area of environmental protection and human rights. Alternatively, it could simply embrace the OECD guidelines.
  • South African mining companies must respect and implement in full their development agreements when operating in the SADC region.
  • To ensure transparency and accountability in revenue collection and sharing, regional governments and South African mining companies must sign-up and implement the Extractive Industries Transparency Initiative (EITI).
  • The procurement policies of South African mining companies in the region must privilege local businesses where they operate instead of South African businesses. Where capacity does not exist, they must create it through education and training.
  • Host SADC governments must review their mining laws and contracts to raise revenues. This should not only target South African companies, but all companies, including their own national companies.
  • Corporate social responsibility must cease to be a Public Relation exercise (as it is for most South African companies) and become an integrated policy for social and economic and sustainable development of communities in the SADC region.
  • South African companies must engage and provide the necessary information to civil society organisations in these countries to allow them to do their job of monitoring extractive activities. For this to be effective, governments in SADC must have in place access to information acts which compel every institution to provide information to citizens when they need it.


Conclusion Corporate Governance and Social Responsibility in the African Context: Contemporary Reflections

Roger Southall

[Excerpts: full text available on http://www.sarwatch.org

...

CSR and responsible capitalism in Southern Africa

The term corporate social responsibility may have commonly employed only over the last two to three decades, but of course the general ideas lying behind it are nothing new. ...it is worth recalling that Adam Smith (from whom many drew inspiration) was acutely aware that economics operated in a societal context, and warned of the dangers of capitalists ignoring morality and social justice. Furthermore, although during the long history of industrial capitalist expansion, capitalists were guided by the twin goals of cost minimisation and profit maximisation at the expense, in particular, of the conditions and demands of labour, there was always what we might term an "in-house capitalist critique" arguing the wisdom as well as the rightness of companies' wider obligations to society.

... there was always a stratum of capitalists, many of them adherents of sects which had their roots in radical protest, who took their responsibility to society seriously. Amongst the most famous were the founders of the family firms of Cadbury, Fry and Rowntree, all of whom were Quakers, and who took to the industrial production of cocoa in part because they wished to encourage its consumption amongst the British working class as an alternative to cheap alchohol (then a massive problem amongst the poor). All three families went on to engage in 'socially responsible capitalism' in terms of establishment of, inter alia, trusts (Rowntree and Fry) which involved themselves in 'good works', and in the case of Cadbury, of the building of a model estate (Bournville) for its workers linked to its factory in Birmingham. ... they can correctly be linked to a wider recognition amongst certain capitalist strata that 'fair' treatment of workers and their families was not only just, but that it was wise, and that the survival of industrial capitalism required a social accommodation with the working class if radical and socialist challenges were to be diverted. ... the term 'CSR' might be relatively new, but the impetus behind it - a recognition of the wisdom as well as the inherent virtue of a devotion to social justice - is nothing new. Even so, times have changed radically.

In the first place, the state under modern capitalism was itself to assume much more social responsibility. ,,, Overall, whatever the particular national outcomes under industrial capitalism, capitalist firms were to find themselves subject to a much expanded set of obligations in terms of tax demands (to fund social programmes), pensions and of regulation of industrial relations. ,,,

Many social impositions upon capital in advanced industrial states remain (and their extent would horrify the capitalists of an earlier age). Nonetheless, it is notorious that, equally, many of the social gains struggled for and conceded to labour by capital have been ruthlessly eroded under late capitalism. From the oil shock of the early 1970s onward, multinational capital has sought to restore profitability and pursue profit maximisation by variously, demanding that governments cut back social services (and hence reduce taxes) and by cutting back on labour costs ,,, In sub-Saharan Africa, this was to take the form of structural adjustment plans imposed upon African governments ... structural adjustment demanded a slashing of social expenditure and a privatization of key sectors of industry, this often involving an invitation to multinational capital to return. As globalisation proceeded into the 1990s, African governments were to become involved in what has been turned a "race to the bottom" as they sought to outcompete each other to attract foreign investment by offering favourable conditions to investors.

,,,

Bezuidenhout et al. (2007) detail how the notion of CSR was first formally employed in South Africa in 1972, a Professor Meyer Feldburg arguing in his inaugural lecture at the University of Cape Town that while business was not responsible for the apartheid system, it was important for its own enlightened self interest that business take CSR seriously. Thereafter, large scale capital was to respond to the campaigns for disinvestment and economic sanctions against South Africa by setting up various voluntary initiatives. The most prominent of these were the various codes of corporate conduct: Sullivan (for US firms) and the European Community Code for European firms and so on. Signatory firms committed themselves to desegregation of facilities, development of black staff, equal and fair employment practices, and improvement of housing, health, transport and industrial conditions for employees.

Even though only a minority of corporations (reluctantly) embraced these principles, they were significant in the sense that they alerted capital generally to the need for social reform if a political and social revolution were to be averted. ...

Detailed exploration of the relations between capital and the democratic state are beyond the scope of this short reflection. Nonetheless, a few basic points are in order. First, while the political transition embedded the rights of industrial labour in a comprehensive code (the Labour Relations Act of 1995 and its subsequent amendments), large scale capital diverted the ANC away from its socially redistributionist commitments in the Redistribution and Development Programme (RDP) to the more market-oriented Growth, Employment and Redistribution (GEAR) programme. Broadly, via the latter, the government imposed its own structural adjustment plan upon South African society. ...

Although, in time, the government was have to more somewhat in reverse (by notably, expanding social security protection), this was in considerable extent because the proposed outcomes of GEAR, notably increased employment, failed rather dismally. In turn, government was to look increasingly to business to assist with support in filling in the gaps, by helping to bank roll various forms of social investment ... This was to result in increasing demands made upon large scale capital to display its social responsibility.

Today, no large scale corporation in South Africa can afford to ignore the wisdom and necessity of CSR, whether this be in the form of responding to government's demands for realization of Black economic empowerment or demands of social movements for implementation of environmental standards. ...

Global work restructuring and CSR

The rapid pace of the internationalisation of capital and capitalist production since 1945 has seen the massive growth of the number and reach of multinational corporations and the creation of a new international division of labour. Broadly, huge advances in communications and production technology have enabled Northern based multinational corporations to shift many production operations to countries of the global South where the cost of labour is cheaper, this accompanying the general change within capitalist production towards greater capital intensity. Generally, this has been associated with a decline in manufacturing employment in the North, and the drawing into the employment market of hitherto untapped sources of labour in the South, (inclusive of the entry of more women on to the labour market). ... The "full employment" era of northern capitalism has long since disappeared, alongside the general assault led by governments upon social programmes; 'structural unemployment' has become a permanent feature of northern economies; while the social cost and conditions of labour in the south are generally far lower than in the North.

...

... the post-apartheid era has seen a concerted move of South African capital into neighbouring countries. Yet this shift has been taking place in conditions whereby, first, structural adjustment has seen a general erosion of labour conditions and substantial increases in levels of unemployment; and second, individual governments have gone to enormous lengths to put in place attractive conditions for investment. In essence, this suggests that, to some extent, South African (and other international) capital is entering into something of a social vacuum, where governments are prepared to sacrifice the rights of labour to attract multinational corporations. Where, as in the Zambian mining sector, there was once a powerful trade union movement, union presence and influence has been significantly eroded; where, as in the DRC, the social fabric has been torn apart by decades of war, trade unions have never have had much salience. Given massively high levels of unemployment, trade unions have limited bargaining power, and in general, multinational corporations opt for none-core (casualised and externalised) terms of employment for the majority of employees.

In these conditions, the notion of CSR can play different roles.

First, it can serve as a substitute for (the more expensive) extension of core conditions of employment to the majority of employees.

Second, within this context, it can fill in some of the holes left by a withdrawal (or failure of) government social services ...

Third, CSR can fulfill a vital public relations role, persuading company executives themselves, shareholders and stakeholders that a firm is operating responsibly.

Fourth, the notion of CSR can provide for an arena of contestation, whereby local employees and communities, sometimes in alliance with global supporters, can make demands and exert pressure upon multinational and other companies. But to what extent are such demands and pressures likely to be effective?

Policy and implementation

The broad thrust of the case studies in this collection is that South African companies are falling short in both their commitment to CSR and to its implementation. Two conclusions would seem to follow.

The first is that companies can never hope to reap the rewards of CSR unless they are trusted - and gaining trust is likely to demand time, effort and expense. The overwhelming sense drawn from the studies here is that the implementation of CSR is top down, dreamed up by head offices and rarely involving extensive and adequate consultation with employees and local communities. ... CSR cannot be expected to work if it is regarded by local management as a costly nuisance. Its successful implementation really does require major commitment and sensitivity to local conditions. Only this will provide for a basis of trust: an understanding, perhaps, of why companies cannot provide more employment to local people, of why cost wise it is necessary to place some employees on part-time or to employ casually, or why companies cannot meet all the demands for expansion of local facilities they encounter.

The second consideration is that as CSR is premised upon the notion of firms' social accountability there is a need for proper monitoring and evaluation. Each and every company in this study was able to provide broad outlines of their programmes of CSR, details being given on websites, in company material or in annual reports. None was prepared to give serious, if any, time to the researchers involved in trying to assess their programmes. ... this has led to the views of local unions being heard without there having been much of a response by the companies themselves. It could be argued that if there is an anti-company bias in the reports offered here, that that is largely the fault of the companies. Additionally, it raises the issue of whether companies have something to hide, and whether they prioritise the Public Relations value of CSR over the reality of implementation.

The response must be that South African companies need to be prepared to open themselves up to rigorous monitoring and evaluation. It can be understood, perhaps, that companies will not have the inclination to respond positively to every request made upon them by the non-governmental sector for information and access, for yes, time is money in capitalist production.

However, refusal of access to research upon CSR can only be justified if the firms themselves are prepared to undergo some form of independent evaluation. This might, for instance, be undertaken by organizations of repute with social research expertise and a methodology and goals agreed by all stakeholders: shareholders, labour, communities and governments. It would also need to be undertaken at agreed regular intervals. And above all, reports would have to be open to public scrutiny. But until some such agreement is reached, companies must be prepared to field accusations that their programmes of CSR are, in essence, counterfeit.

...

two points can be made in conclusion.

The first is that the 'new scramble' is very likely, in the short term at least, to place African labour conditions under further pressure, as governments compete wildly for new investment. The implication is that, feeling under threat, western - and South African - multinationals may well feel impelled to increase their competitiveness by lowering costs, and hence in turn, to lower the costs of their programmes of corporate social responsibility.

The second is that it has to be the task of trade unions, non-governmental organisations and social movements to struggle to ensure that instead of companies 'averaging down' they 'average up': in short, that high standards of CSR be required of companies across the board, regardless of national origin.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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