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Why Amplats is doing the unavoidable

By Aidan Prinsloo

The upcoming retrenchments are neither malicious nor a justified retribution. Instead, they are signs of transition that South African business must make.

The Association of Mineworkers and Construction Union (Amcu) and Cosatu have expressed outrage at Amplats’ proposed cut of 14 000 jobs. Other mining companies are proposing similar cuts. Some think these mining giants are fully justified in what they’re doing — getting rid of the troublesome workers who were responsible for the wildcat strikes that marred the end of 2012. Many think they aren’t justified: the mining sector is the biggest in South Africa and these cuts represent a massive shock to our already struggling workforce. Amcu has even proposed that the government take over the mines in order to prevent the job cuts.

But these responses all display the wrong way to think about the issue entirely. Don’t get me wrong — we should really be worried about the soon-to-be-jobless families. This country is going to have trouble recovering from this addition to the pool of unemployed and people are going to suffer. But this is unavoidable. Let me explain.

Basic logic dictates that whatever happens, the mines have to continue to offer competitive prices on the global market. If they don’t, they don’t make a profit, cannot sustain operations and they will eventually have to shut down — an even worse shock to our workforce! So, the mines’ ability to keep the economy floating relies directly on their ability to sell their produce on the global market at low prices. (Keep in mind that South Africans do not generally buy our mines’ produce — we trade it on the global market to economies that are richer than ours.)

Now, with or without government involvement, all mining companies have to make a decision between two models. Mamphela Ramphele points out that most South African mines run on the same model they did in the 19th century — that is, they hire a large amount of unskilled labour and pay them very little. This model does not make use of high-tech machinery; instead, it relies on the same principles that made slave labour viable. Let’s call this the “many people, low-tech” (MPLT) model. This model made sense in a world where most mining technology was expensive. As a mine owner, you paid less overall to get the same amount of produce.

But, let’s make one thing clear, the MPLT model generally requires that you don’t pay people a fair wage. Also, because humans are doing most of the work in this model, workers are put in very risky situations where injury and long-term health effects are constantly a part of their lives.

The other model Ramphele mentions is one that many of the world’s leading mines have already switched over to. It is by now far more viable than the MPLT model because the cost of technology has decreased significantly since the 19th century. This model requires fewer people who are more skilled. Furthermore, the mine uses a higher level of technology. Let’s call it the “high-tech, few people’’ (HTFP) model. Workers get paid more (because they are skilled) and risk their lives less (because machinery takes over the more dangerous bits).

Overall, as Ramphele points out, we’ve needed to shift from the 19th century MPLT model to the worker-friendly HTFP model for a long time now. The older model is now less, and we are failing to be as competitive in the global market. Marikana was the wake-up call that shook them into action. Such protests are inevitable for the MPLT model where people are poorly paid and work in dangerous conditions.

The downside of this transition is that many people have to lose their jobs. This is why Ramphele calls for mines to consider placing ex-mineworkers in other sectors. Contrary to what most people think, the mines cannot go on employing the same number of people — they simply won’t be able to compete internationally.

Now, what about Amcu’s suggestion that the government nationalise the mines? I imagine that Amcu thinks the government will then employ the same number of mineworkers, doing the same work and pay them the new increased wage. I’ve already said that this model is not going to make much money on the international market. So if the government actually chooses to do this, it has to make up the difference from elsewhere in its budget. This means that it will have to pull many from other sectors and spend it on maintaining a business that is no longer making money. You don’t need an economics degree to see that this is not sustainable. This option will not only negatively impact the mining industry but the country as a whole when the government runs out of money coming from smaller sectors.

Ultimately if the government were to nationalise the mines and run them effectively and sustainably, they would have to do exactly what Amplats is doing right now. Calls to nationalise mines solve nothing.

Aidan Prinsloo is a master’s student in philosophy at Rhodes University. He is actively interested in the country in which he lives. He believes the only way we can overcome our current predicaments is through careful planning and rigorous, informed debate.

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  • 22 Responses to “Why Amplats is doing the unavoidable”

    1. mike venter #

      We lost the textile industry for around the same reasons. The government is incapable of handling such complex issues. Unions contributed to the demise of the textile industry with their wages and that had a influence on the entire SA pricing model and inflation.

      The same with this in South Africa our pricing got out of range with what people earn, middle class as well as high earners. Accountants and their exorbitant amounts and the red tape and admin businesses must submit are but small example of the entire scene that had an influence on all of this.

      Our government do not understand the challenges of a new world and rally on about commie ideologies and socialism. They keep the unions happy and this hurt us.

      Mongolia, South Korea, Singapore, South America as examples have all turned themselves around in shorter periods than SA in the last 19 years. SA business can go and do only so much. They need scholars with a proper education to employ, but with our system it will take another 20 years before the next lot graduate.

      We need action against corruption and dedicated people with the will to better SA for all in government. Sadly this will not happen with the current lot.

      This is only the start, more tears are too come. And the 14000-22000 jobless people most have credit with companies, that will now be paid, they had bonds, and they supported other businesses. One miners wage would easy go through 14 other businesses in the line. All of them would take a…

      January 18, 2013 at 4:35 pm
    2. The Naked Worker #

      1) South Africa needs to spend mega-bucks on education to create a broad base people who can earn high incomes and look after themselves. We need massive practical education in skills that make people self sustainable.

      2) At the same time I call for nationalization of the mines, because the mineral wealth is that of the people, not a few foreign and local capitalists.

      3) The nationalized mines must be run on a for profit basis like the capitalists would, and the profit pumped into building infrastructure, providing education, and social services for the people of South Africa.

      4) This calls for a very industrious, honest, ethical, and motivated South African from the most humble worker to the highest political appointment. Are we up to it or are we going to sit around and blame others for our failures?

      January 18, 2013 at 4:35 pm
    3. A very wise point of view. I look forward to this way of analyzing situations and developing solutions is taught in schools and general university courses. These thinking skills are sorely lacking in our society.

      January 18, 2013 at 4:40 pm
    4. ChrisMuis #

      Please name one incident where the ANC was convinced by logic since 1994 ?

      This is the real issue.

      January 18, 2013 at 4:43 pm
    5. Owen #

      Hmmm … perhaps the shafts are only being closed now that Mangaung closed the door on nationalisation and compensating mining companies.

      January 18, 2013 at 9:20 pm
    6. Graham #

      For sure Aidan.

      The ANC have thankfully realised (and credit is due) that nationalisation would significantly reduce FDI, and place unsustainable pressure on the tax base.

      January 19, 2013 at 12:31 am
    7. Facts People #

      Nicely put, ceribus paribus and very naive… unfortunately the labour – capital debate is full of agendas and mistruths so the viability or lack thereof is difficult to determine.

      If the mines had to pay a resource tax for the right to mine, not only on what they mine, the owners would lose some of their bargaining power. Provided that the penalties for sitting idle on a national interest asset were enough they wouldn’t be able to threat stoppage in the power game.

      January 19, 2013 at 5:29 am
    8. Buffalo Soldier #

      Nationalize the mines, go high tech (mechanization) and away from labor intensive, use the profits to provide new skills and jobs for the job losses.Use the profits on infrastructure projects. Get rid of the tendpreneurs and other corrupt practices in government.

      Labor intensive mining is a vicious circle, it keeps people poor and with limited skills.

      Whats the good of having low paying unskilled jobs then being retrenched.

      Time to think very differently. Its the 21st century, not the 19th century. We live in a high tech competitive world.

      January 19, 2013 at 12:34 pm
    9. Aidan Prinsloo #

      #The Naked Worker. I think whether the nationalisation of mines will be good thing for the country as a whole is a slightly different debate. What I mean to point out here is that nationalisation won’t solve the problem of retrenchments. One way or another, we have to downscale the number of people employed in the mines. In my next article, I propose something the government can do to save these workers’ from unemployment.

      I think we need a proper investigation into whether or not nationalising mine will be good for the country. We need to investigate whether:
      1) mines will be as competitive when they are nationalised, and
      2) government will be a more effective distributor of the wealth of the mines.
      Also, I think we should really only consider nationalising mines after many other basic amenities are nationalised again (e.g. roadworks, electricity).
      As it stands, our government does not have a very good track record with corruption and fund management, and so it’s not clear that calls from the top to nationalise mine really have the worker’s interests in mind. We currently have a massive problem with unemployment (one of the worst for our level of GDP). Government should first show effective management by reducing unemployment before attempting to nationalise resources. Also, governments in a democracy should change hands often – do you think this would really provide the stability we need in resource management in the long run?

      January 19, 2013 at 12:36 pm
    10. Over the years the Unions have pushed and pushed and demanded ever higher wages until the Textile Industry died, sadly no lessons were learnt, it now looks that the mining industry is going the same way

      January 19, 2013 at 5:02 pm
    11. Momma Cyndi #

      Thank you, Adrian.

      It isn’t quantum physics, it is pure commons sense (which isn’t that common these days).
      What is the solution though?

      January 19, 2013 at 10:01 pm
    12. The Naked Worker #

      @Aidan

      I agree our government does not have a good track record of running parastatals and fund management.

      There needs to be more transparency, more professional management, more accountability, fewer crony capitalists.

      There are countries that successfully run nationalised mines etc, China 100%, Venzuela 87%, Sweden 78% plus several others, see “Overview of State Ownership in the Global Minerals Industry”

      http://siteresources.worldbank.org/INTOGMC/Resources/GlobalMiningIndustry-Overview.pdf

      Maybe it would be good to employ some Swedish and Chinese directors and shift bosses, we could learn from them.

      We must also remember that the minerals of this country belong to the people, not just those with money to buy shares in international corporations.

      the debate is much bigger than just saving workers jobs, its how we create a country without such a huge wealth disparity.

      I look forward to your next article.

      January 20, 2013 at 10:36 am
    13. Brian B #

      As the cost of labour becomes more expensive the cost of living rises commensurately. It also becomes more attractive to automate and outsource and this causes job losses.
      Labour is still reasonable in South Africa by world standards so if primary and secondary industry can be revitalised , then there would be more jobs , more people earning money which would stimulate retail business and increase the tax base..
      Nationalisation would destroy the mining sector.

      January 20, 2013 at 1:29 pm
    14. Benzo #

      A comment up front: nationailisation in current SA does not have a good and strong business image (SAA, Rail, Telkom…). The practice of cadre deployment does not guarantee succesful management based on proper insight into the market mechanisms a mine works in. Moving away from cadre deployment, SA needs to educate, grow and KEEP those potential managers. BEE would have to fall first on the altar of sacrifices for the current leaders. There are certainly mine managers around the world who would qualify and have a SA passport.

      Two other items in this mining context: income inequality and dropping demand for platinum.

      Adjusting for a droppingt demand is prudent management. Reducing staff is one of the ways of doing so. Unskilled labor can easily be re-contracted if demand rises.
      Closing a shaft for upgrading during times of low demand is prudent management to be ready for the new/higher demand levels. During the 70′s. the oil sheiks dropped output, oil price went up from $25 and is still above $100. Bad move?? Maybe the Platinum guys are encouraging a similar move by adjusting the output to the reduced demand?? Platinum price did go up.

      January 20, 2013 at 8:31 pm
    15. Benzo #

      continued:

      Income unequality: I would encourage a serious debate on establishing a link between the highest income and lowest income in a given economic cluster. Be it mining, transport, manufacturing and Government.
      If the top man can go home with a few million and the doorman with R2000/month there is room to play.
      Unions, instead of asking for higher wages, should begin to concentrate on reducing the income gap. Economically prudent and achievable in the current financial climate.
      Government could begin in its own backyard. Instead of rising pay above inflation, reducing the gap between pay for top staff and the tea lady.
      Yes, there are many loops to avoid implementation. Multinationals have all the tools and opportunities to dodge such a drive and skim of the top before it hits the payroll.

      The current negotiating climate between Government, Labor and Business is one of “no trust”, aggression and conflict based on an unwillingness to try to create an understanding for each other’s position. It leads to violence and aggression.

      The mining minister threating to take away a mining licence …and than what?? Handing it over to the Chinese who have the money and are looking for expansion in Africa. From one colonial power to the next.
      Labour threatening with another strike…….and then..more chaos and destruction and stil no food on the table. Unless looting the shops on the way.

      I do hope that in the end a collection of sane minds can deliver a…

      January 20, 2013 at 8:50 pm
    16. The Creator #

      The price of platinum is sky-high at the moment. Wages are low and have been little more than the rate of inflation for the last three years. Nevertheless, the mining industry has been planning to shut down the less productive shafts for several years. The reason is simply that they want more profits and they don’t want to invest.

      Meanwhile, investment in South Africa has fallen dramatically over the past few years (and is now negligible).

      We would have nothing to lose by nationalisation. Many countries, including Chile, depend heavily for their national income on the products of nationalised mines. However, once a toady of the mining industry and a crony from the mining industry were safely installed in the Presidency, it became obvious that the mining industry was in no danger of increased taxation, let alone nationalisation. Mangaung was a green light for corporate predation.

      January 21, 2013 at 9:35 am
    17. Comrade Koos #

      We have to think outside the box. The old solutions are not working, South Africa is burning; riots in Sasolburg, unrest in the Cape Winelands, mining industry is dissaray. The capitalist model is failing the world over; riots and protests in Europe, the Occupy Wall St in America…..We need new solutions to old problems before we have a South African Spring.

      January 21, 2013 at 11:14 am
    18. Just a Thought #

      @The Naked Worker, I really woudlnt use China as a good foundation to build your argument on (consistency of sand in my mind). China bases their business ethic on the lines that the worker gets paid very little and work almost 7 days per week. Now, if you propose this as a solution i think you should be the one to take the idea to the workforce and see if you end up wearing a rubber tyre that seems to smell of petrol and fire. many of the textile industries in China have a very astute model for business. Three floor buildings. The first floor contains the workers making clothes, the second floor contains workers on their break and the third floor contains beds that the off duty workers sleep in. This is a revolving system that continues indefinitely. These people that make our cheap clothes dont get to take holidays because they dont earn enough to take a break. I dont think our workforce woudl buy into that at all.

      Nationalisation will never work, especially when you have an inept government like ours. Government must just be the watchdog for the people and tax the earnings to keep our country running.

      Aurora mine springs to mind and that is the best argument against natioanlisation. Jobs for pals who steal and ruin our economy….

      January 22, 2013 at 8:23 am
    19. The Naked Worker #

      @Just a Thought

      There are other examples of nationalized mine industries around the world, China being only one of them. You should read the World Bank report I recommended, here it is again:
      http://siteresources.worldbank.org/INTOGMC/Resources/GlobalMiningIndustry-Overview.pdf

      January 22, 2013 at 1:49 pm
    20. Tofolux #

      Yoh, this basic thinking is dangerous. To rely on someone who has never set foot in a mine shaft, let alone understand competencies required for certain skills in the mine shaft, makes not only a fallacious conclusion but exposes the lack of conceptual thinking and belief in not only the argument but also in economic conditions. It is quite obvious that you choose to ignore that most of those who work in a mine shaft are the highly and multi skilled workforce in any mine. But let us look at your premise: you say that the intentions by Amplats is justified. Now Aidan, if you moot that there is justification for shedding 14000 jobs, one would expect you to make the compelling argument. The argument would start 2 yrs ago, when Amplats got the licence for this shaft. The argument would clearly state what Amplats proposals were to get this licence and your argument would state, the conditions of their short, mid, and long terms goals. It boggles the mind that any person in SA would make a finding that to lose a job, without consultation in contravention of the many statutory processes, that this is justified. It is most hypocritical to tell workers to go and justify that executives who earn diabolical amounts of money should stay. In fact, it is quite ”surprising” that no one has picked up on the actions of these executives a year prior to thr announcement. Aidan, it would be prudent for you to acknowledge facts. Reaching a conclusion based on propaganda, is hardly credible.

      January 22, 2013 at 1:49 pm
    21. Would we really benefit from nationalising the mines? Considering that all the state-run businesses, including the state-run mine Aurora, are all in shambles, I think it’s naive to think government will suddenly pull a rabbit out of a hat and learn how to run even a spaza shop successfully.

      If the mines are run like the SABC, Eskom, Telkom and SAA, we can expect the kind of symbolic wealth we saw at the ANC’s centenary celebrations. That is the kind where the ministers smack their lips and drink the champagne while we sit and drool.

      January 22, 2013 at 6:07 pm
    22. Her Masters Voice #

      Good response Tofolux.

      January 23, 2013 at 9:49 pm

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