Resource rents, the strikes and the people

Introduction by Umsebenzi Online Editor

Emerging from its first Central Committee (Friday 30 May - Sunday 1 June 2014) following the fifth democratic general election (Wednesday 7 May 2014), the SACP issued a statement reflecting on what should constitute the basic content of the second, more radical phase of our national democratic revolution. Socio-economic transformation features prominently at the heart of this phase of the transformation of our society.

Mining, which in many ways is the foundation of modern South African economy, linked with energy and finance, is one of the areas identified as top priorities for this radical transformation. This includes but is not limited to the transformation of ownership and control function, alignment of the mining sector with our national development objectives, beneficiation and industrialisation, reduction and progressive elimination of inequality and the advancement of decent work with better conditions for workers, community development and social investment. The direction being taken, must, according to the new turn, address and resolve the dominance of our economy by the mining-energy-finance-complex, do away with the colonial features of economy, both internal (Colonialism of a Special Type) and external (British colonialism, and imperialism in general). This includes the elimination of the systemic features that reproduce inequality, unemployment and poverty.

Below, Paul Jourdan, a researcher, takes us through some of the key consideration concerning the mining sector.

By Paul Jourdan

Resource rent is the extra value received by the resource owner above costs including a normal return and as such they are also sometimes called "unearned" rents. A "normal" return is one which will attract investment in the first place and is often equated to the average returns on investment (ROI) for an economy. For Marx unearned income (surplus value) also includes labour or the value received above that required for subsistence which is clearly inherent to capitalist production.

However, in his "Critique of the Gotha Program", Karl Marx notes that "Labour is not the source of all wealth. Nature is just as much the source of use values (and it is surely of such that material wealth consists!) as labour, which itself is only the manifestation of a force of nature, human labour power."1

Resource rents (excluding surplus labour) comprise of two elements:

1. scarcity rents - due to a limited global occurrences of the resource resulting in constrained supply and elevated prices (sometimes called "windfall rents") and
2. differential rents - due to the richness of the resource, such as grade, ease of extraction/processing, yield and location for mineral resources (also called "quality" rents).

Globally, in 2012, mineral resource rents (mining and oil & gas) were estimated at about $4 trillion annually, or 7 percent of global GDP [Barma et al 20122], and for South Africa the ANC SIMS study [ANC 20123] estimated that mineral resource rents (after normal taxes) amounted to about R80 billion annually. This was indirectly confirmed by a Wood-Mackenzie study that estimated after tax resource rents for South African iron ore and coal miners at about R40 billion annually [Hodge 2012 4]. But who rightfully owns these resource rents?

During colonialism-apartheid mineral resources were private property attached to property rights expropriated by the settlers and these rights were often subsequently severed whereby the mining company would buy the mineral rights from the farmer, leaving him/her with the surface (farming) rights. Consequently the mining companies held the mineral rights, including all rights to resource rents, in perpetuity. In 2002 the MPRDA gave partial effect to the Freedom Charter ("The mineral wealth beneath the soil …shall be transferred to the ownership of the people as a whole") by obliging all holders of private "old order" mineral rights to exchange them for state "new order" mineral rights (mining leases/licences), but the state failed to take ownership of the resource rents, instead allowing the super-profits of the resources boom to be taken by the mining companies!

During the boom mine workers became aware of the obscene company profits and executive pay packages, and in 2012 resorted to strike action under a new union to try and get their perceived share of the resource rents that were being appropriated by the companies and executive management. 

Bowman and Isaacs (2014) contend that boom surpluses (resource rents) "shed light on the underlying economic causes of worker discontent and the rise of AMCU. The discontent that has sustained the four-month strike stems not from conditions over only the past two years, but from a much deeper frustration among the workforce concerning failure to receive what is perceived as a fair share of the value of the goods produced. Startlingly, in the case of Implats and Amplats, more was distributed to shareholders in dividends and share buybacks than was given to the entire workforce during the 2000-2008 period (R45,818 million to shareholders and R42,425million to labour in the former, and R90,312million compared with R89,460million in the latter, with Lonmin’s at R17,117million to shareholders and R33,048million to labour)"5

In this regard the following table clearly displays the degree of resource rent capture by the platinum mining companies:

Source: Bowman & Isaacs 2014 Table 1 (forthcoming)

Consequently, part of the motivation for the dramatic wage increase demands by miners are the above average returns on investment made by the mining companies (resource rents) that are not currently captured by the state (through a resource rent tax). The bulk of these resource rents belong to the "people as a whole", as the ultimate owners of the mineral rights (through the state) rather than to the mining companies or for that matter, the mine workers. In this sense, one of the causes of the strike is the failure of the state to capture the people’s resource rents resulting in distorted corporate investment and remuneration decisions and union wage demands.

The state needs to urgently assess and impose a resource rent tax (RRT) of at least 50% on returns on investment (ROI) above a normal ROI (SIMS proposes above 15% ROI). Under current costs/prices, the PGM companies may not qualify (