Trade Unions and the Anglo American Downgrade

Anglo American securities have been downgraded to junk status, a foretaste of what is about to happen to South Africa.  Why did this happen?

The obvious reason is that the world demand for the commodities that the company produces has fallen, making its production uneconomic.  But there is much more to this scenario.

The prime reason is that ANC-promoted demands for increased wages and benefits for the workers pushed up the costs of mining, ably assisted by the plethora of regulations, fees and costs loaded onto the mining industry by the Government in its striving to fund the tens of thousands of non-productive civil service employees who have been added to Governments payroll to replace the load on the unemployment roll in an effort to buy the votes of those people.  This situation has been developing for years, making it impossible for the mines to enjoy the minerals boom while it was running, and rendering the mines, on which the country depends for a large part of its foreign exchange earnings and tax revenue, unable to build the reserves and to fund the developments that would have carried it over the present recession. 

The lack of economic understanding of the ANC has resulted in it implementing the belief that the trade unions and the bulk of ANC voters have, that government revenue is a bottomless pit to provide money ad infinitum, with no need to care for the sources of that munificence.  This belief matches the view that companies have an equally unlimited source of funds to distribute to the workers, to fund the insane BBEEE policies, to provide the infrastructure that the Government is unwilling to offer in support of the employing and revenue-producing activities of the country.  The trade unions have been adamant in their demands for higher wages, better benefits, regardless of the warnings that have been given that higher wage costs must inevitably lead to reduced employment, and not caring about the huge effects of the violent confrontations they produce. 

The chickens have now come home to roost, with Anglo American reducing employment by 85 000 in an attempt to stay in business.  The disaster that the Government, working diligently with COSATU, has been working to create, is happening, and that disaster is building.  On average, each employee who will lose his job supports at least ten others directly, in his extended family, and in at least another ten to fifteen jobs, a total of at least one million jobs, via the Multiplier Effect.  This effect states that each job created results in between ten and fifteen other jobs being created, in upstream and downstream industries, in the businesses in which the new employee spends his wages, in the farms that grow the food they need to survive.  The Multiplier Effect works at least as effectively in reverse, and usually much more quickly, as huge numbers of jobs are lost and the economy spirals down into recession or stagflation.  It has a domino effect par excellence.  It is hard to overstate the effect on South Africa and its economy that the situation in Anglo American will have, and the worst of it is that the recovery, if, indeed, it happens, will take much longer to bring about.

The downgrading is not solely an Anglo American problem.  The effect of it will remove Anglo American securities from the possible investment lists of international investors and lenders, ensuring that a large proportion of the pool of funds on which the company could draw is effectively blanked off for it, and for the country.  It is not only a question of a higher rate of interest.  It implies that the funds pool is not accessible.  The company has been on that list for many decades, and it has been regarded as an icon of the mining world, and of the South African economy.  Its fall from that status will be viewed by many investors as a warning sign of what is happening in South Africa, and will result in a warning note being posted against the names of other, similar, South African icons.

The ANC and its communist partners, the SACP and COSATU, have achieved something that not even the Apartheid government was able to do.  One wonders whether they are proud of it.  The able assistance of the ANC in the partial withdrawal from South Africa of another large mining company, Glencore, and the Government-promoted inducement to it to hand over a viable coal mine to the ANC associates, the Guptas, certainly indicates that at least some in power are rubbing their hands in glee, while the voters who blindly support them are turning to God for help in their poverty-stricken future, knowing that they cannot expect any from the ANC.  The historians of the future will probably mark this event as the beginning of the final collapse of an economy that was, before the ANC took over, an example to the rest of the world.

Anglo American – Big Business sees the Light

It has been reported that Anglo American is refusing to hand over 60% of the shares in its New Largo coal mine, the anchor supplier of coal to Kusile power station.  Anglo is willing to sell such shares on commercial terms, but not simply to hand them over to a Black Empowerment partner.  Anglo American is to be congratulated on this stance.  The company has long been an admired corporate citizen, and this refusal to knuckle under to ANC pressure restates the reasons why it has gained its reputation for corporate integrity.

It seems that Big Business is finally growing a backbone, and refusing to roll over under the ANC’s Black-mail.  If we examine the practice of Black Empowerment, it shows up as what it really is – no less than blackmail and theft on a grand scale.  In the vast majority of cases, the Black partners add nothing to the business.  They are parasites, sucking the lifeblood of South African and foreign entrepreneurs and industry, adding significantly to the cost of doing business, and contributing nothing.  It is the civic responsibility of every South African to reject such Black-mail.

In one case, the details of which are known to the writer, the Department of Mines demanded that a substantial shareholding in an operating mine be handed over to one of a shortlist of three Black (ANC) nominees.  When the Managing Director asked what would happen if he chose not to do that, he was told that ‘We will tax you out of existence”.  The mine had been abandoned years before a group of foreign investors purchased it and resuscitated it, investing large amounts of money.  The mine could have been purchased at any time by a Black entrepreneur, who, if he had the entrepreneurial spirit that the foreigners possessed, could have brought it into operation and enjoyed the benefits and the fruits of his efforts.  None did.  The Managing Director told the Department of Mines officials that a sale of a shareholding on normal terms would be welcomed or, if the intending purchaser had any skills, experience or qualities other than an ANC connection to offer, the company would entertain some method of funding the purchase.  He refused to hand over the shares on the normal basis, which amounts essentially to a gift to a favoured person.  Not surprisingly, a couple of weeks later, a notice was received cancelling the mining licence, citing spurious grounds.  That was defeated in a High Court case.  Not too long after, a VAT inspection by SARS took place, followed by an assessment imposing a penalty of R21 000 000 for failure to pay VAT on exports.  That was a clear violation by SARS of the VAT Act, and an objection was lodged against the assessment.  During the waiting period, the bank accounts of the company and all other companies which had a common Director were frozen by order of the Reserve Bank.  An application to the High Court succeeded in having the accounts unfrozen, as the action had been illegal.  Shortly after that success, the Attorney conducting the cases was appointed as Collection Agent by SARS, which required him to hand over to SARS all funds received from or on behalf of the company.  This action effectively deprived the company of the ability to defend itself in law!  A method was found to pay the legal fees, and the Attorney then received a demand from SARS to hand over to SARS all documentation relating to the company.  His reply, that the documentation was protected by legal privilege and so would not be handed over, elicited the response from SARS that they would conduct a VAT inspection of his practice and ‘make his life a living hell’.  He continued the action, which the company won, achieving a retraction of the assessment, followed a day later by an identical assessment for R18 000 000!  The performance continued over the next three years, with the assessment being fought and lifted, and new assessments being imposed every six months for the next three years.  At the end of the process, the investors closed the mine, removed the equipment they had installed, much of it new technology invented by them, and withdrew their investments from South Africa.  They have since made sure that every possible investor they knew might be considering investing in South Africa came to know the full extent of the criminality conducted by the South African Government and its arms.  The loss to South Africa since then has certainly been in excess of several billion dollars of new investment.

The demands made by Eskom for a 60% shareholding by Blacks in New Largo before it will sign a contract for the purchase of coal for Kusile is nothing less than simple criminal blackmail.  It detracts from the public benefit of the public investment in Kusile, adding to the risks of continuing inability of Eskom to meet the power needs of the country, and adds to the cost of that power.  It is the sort of conduct that the public has come to expect from President Zuma and his cronies in the ruling Party.  It is an example of the Nkandla syndrome.  This cabal is prepared to put the economic wellbeing of the citizens of the country on the line for its own benefit.  The policy has had the effect of driving inflation, reducing GDP, adding to the massively high unemployment in the country. 

It is common knowledge that Anglo American is actively withdrawing from South Africa, joining the ranks of dozens of other leading-edge companies which are no longer willing to accept the costs and indignity of submitting to the illegal acts of the ruling Party, so attractively wrapped in the appearance of the ‘good of the previously disadvantaged’.  Paying a bribe to someone for the purpose of gaining a Government contract is criminal and reprehensible, no matter the form it takes.  The sale of 20% of Shell SA to the ANC investment arm, probably to ensure the granting of the Karoo fracking licence is certainly a transaction that screams to any fair-minded person, demanding to be investigated, in South Africa and in its home country.  The appointment of ANC-connected persons to the Boards of listed companies must equally be suspect.

If you need a reason for the thrashing about of the ANC in order to retain political power, the probable (legitimate) of these items of graft, corruption and influence-peddling is it.  If the DA wins the next election, all of these deals must be investigated as a high priority, in order to put the country firmly in the ranks of those countries that abhor Government-sponsored criminality.  The top ranks of the ANC should be very concerned.