How far must companies play a government role?

Despite an attempt by mining companies to fulfil social responsibilities to their workforce, confrontation is on the rise, writes Juliet Samuel


Resource companies have a chequered past. Historically, the role of some as agents of colonial government, plunderers and supporters of corrupt regimes has bred a healthy suspicion about their activities.

It is an image they are trying to shake off. According to the industry, all of that has now changed. Obtaining a foothold on a foreign shore now entails complex negotiations with the host government to get a licence, promises to build schools and long lists of environmental regulations. In the jargon, companies seek a “social licence” to operate.

But, despite more sharing of the wealth, unrest and nationalist disruption have been on the rise. In July last year, asset managers Schroders warned that companies were seeing a “significant increase in the number of production stoppages and confrontations at mines” due to disputes over wages, land and pollution.

Nowhere has this been starker than in South Africa, one of the world’s mining powerhouses. In August 2012, a month after Schroders’ warning, 34 striking miners were shot dead by South African police at a platinum mine in Marikana, sparking comparisons to the worst massacres of the apartheid government. The violence at the mine, owned by Lonmin, unleashed a wave of strikes that shut down most of South Africa’s vast mining industry last autumn, escalating from the initial 3,000 strikers to 75,000 at its peak.

While wages rose, working conditions and productivity stagnated

Since the end of apartheid in 1994, mining companies and their supply chains have been a mainstay of South Africa’s economy, accounting for 18 per cent of South Africa’s gross domestic product (GDP) in 2011. They are required to spend 1 per cent of their profits on social programmes, such as Aids clinics and micro-lending. And mineworkers’ wages have risen steadily throughout the period. Yet the industry has just experienced one of the worst outbreaks of violence in its history. How did it fail to realise that its social licence was so fragile?

Far from seeing their contribution as inadequate, mining companies believe they are asked to do too much. One senior platinum mining executive claims: “Our financials don’t look as healthy as they did 30 years ago, but we are expected to do much more.” A common refrain among executives is they are tired of demands for their companies to “play the role of government”.

It is true that wages and mining investment have increased since 1994. But very little has gone into advancing mining technology. According to Professor Paul Stewart at Wits University, the handheld drill used in South Africa’s mines has barely changed its form since 1907. “The consequence is the continued presence and need of large numbers of workers underground,” he says. So while wages rose, working conditions and productivity stagnated.

Some improvements have also brought new problems. Companies replaced the workers’ hostels, where intrusions like strip searches were common, with a cash housing allowance. But instead of using the cash to build homes, workers moved into shacks without water or electricity and sent the extra money home to distant families. Some used it to pay down debts from pay-day loans companies, 13 of which compete for business in Marikana.

The decision to offer cash for housing is one that would come back to haunt mining executives. One former top manager says he feels “disappointment and regret at the naivety of the decision. The argument around the executive table was that it was paternalist to tell them what they should do with their money.”

The people who suffered most from both factors were the rock drill operators (RDOs) who were the main recipients of this pay-out. Their basic wage is around 6,300 rand (£448) a month with up to another 4,800 rand in various allowances, benefits and a variable bonus. They are also the workers with the most dangerous and vital jobs at the mines, often working three kilometres underground in temperatures of up to 50C.

And there was another major institutional failure in the run-up to Marikana. The RDOs’ main avenue of complaint, the National Union of Mineworkers (NUM), had no interest in arguing their corner. According to Gavin Hartford, a mining consultant, the NUM was out of touch with its members. “A union aristocracy [promoted] a leadership interest above that of their rank-and-file members,” he says.

NUM, which is affiliated with South Africa’s ruling ANC political party, told the RDOs to abandon their wage demands. When the RDOs defied their union, some reports allege that it was NUM officials who first opened fire on the strikers several days before the police murdered dozens of them – an allegation the NUM strongly denies.

As the deadly strike at Lonmin spread to stoppages at its rivals, some companies were shocked to find that labour relations they had thought to be robust simply crumbled. Their healthy relationship with NUM officials did not extend to their relationship with their RDOs, who felt that an alliance of politicians, union elites and business interests had united against them, using the police as a tool of terror.

According to Khanyisile Kweyama, executive director of Anglo American in South Africa, who felt “a sense of desperation”, this should not have happened. “We had very well-structured programmes of talking to each other… Anybody can mobilise people – that is their right – but [some] took what was a wage dispute and hijacked it to launch a political campaign.” Similarly, the NUM says: “Behind Marikana were political additions of certain people. It should not have been politicised in the first place.”

But not everyone in the industry agrees that politics and labour disputes can be ring-fenced from one another. One former South African mining executive says that, when a government fails, mining companies have no choice but to fill the void. The social licence cannot be a static concept: “In extremis, mining companies should not have armies. But when it comes to the everyday welfare of their workers, one has got to intervene… I don’t think they can escape playing the role of government.”