August, in South Africa, will long be remembered as that fateful month when platinum stocks tumbled, dragging the Johannesburg Stock Exchange down. This was the month the police shot 34 miners near Lonmin’s Marikana mine, in Rustenburg. It will also be remembered as the first time Credit Rating Agencies downgraded South Africa since democracy in 1994.
When a country loses its rating or is downgraded, it can hurt the country’s ability to borrow money on the markets.
Credit rating agencies (CRAs) are benchmarks for the regulation of financial markets and provide investors and debtors with information about the creditworthiness of an individual, corporation, or sovereign government. CRAs were established to help measure the quantitative and qualitative risks. They also allow investors to make wiser decisions by taking into account professional risk assessment.
But over the years, CRAs have lost their credibility and have been widely criticized for having too much clout in jittery markets. They’ve even been accused of contributing to the 2008/2009 global financial crisis on the grounds that they did not do a thorough job of rating some financial instruments. They are often attacked for failing to warn of the risks posed by certain securities.
Following the events at Marikana on August 16, 2012, the top three agencies—Standard &amp; Poor’s (S&amp;P), Fitch and Moody’s Investor Services—cut South Africa’s ratings and changed the outlook to negative or stable, citing instability in the mining sector and blaming government. They were concerned by a slowing economy and rising spending pressures.
A year on, the country had a glimpse of confidence from Moody’s. It affirmed South Africa’s investment grade credit rating of Baa1 and maintained the negative credit outlook. However, it says the government’s commitment to fiscal discipline, by ensuring that debt-to-gross domestic product stabilized below 45%, moves to reduce labor unrest and plans to boost growth.
The Baa1 rating is the third lowest investment grade level and places South Africa at the same level as Mexico, Brazil, Spain and Russia. S&amp;P last upgraded South Africa in August 2005 and changed the credit outlook to negative in November 2008 following the global financial crisis.
The national treasury said that Moody’s decision is a sign of confidence in the country’s macroeconomic policy strategies, particularly given the current global economic climate. Treasury said government took proactive measures to address all the key concerns raised by Moody’s and remained committed to implementing such measures.
“Government is confident that the various measures that are being implemented will in time contribute to improved ratings for South Africa. These measures include the comprehensive reviews of both government expenditure and tax policy announced in February this year,” says treasury.
Andrew Canter, chief investment officer at Futuregrowth Asset Management, believes that credit rating agencies seem to wield a lot of power over investment decisions and that the industry’s regulator, the Financial Services Board, should have a firmer hand. He says it is important to regulate credit rating agencies to protect users and the integrity of capital markets. Canter hopes the Credit Rating Services Act, implemented in January, will enable CRAs to recapture their position of trust and credibility.
“By removing the requirement for instruments invested in to be rated, it puts accountability for investment decisions squarely on investors, instead of the false comfort of CRAs. If CRAs don’t do their jobs with diligence, care and independence they can now be held accountable for financial damages,” says Canter.
“The role of CRAs is inherently conflicted, and the new regulations reduce the role of the CRAs in markets and impose high standards on CRAs.”
However, South Africa’s political and socio-economic conditions have deteriorated in the past couple of years and risk is still on the downside. We can’t only place the blame on the global financial market crisis, but also on uncertainty surrounding critical policy decisions.
With all that said, until 1995, South Africa was the only country in Sub-Saharan Africa with a credit rating. By 2012, 17 years later, 20 countries had ratings from the three major CRAs. Foreign direct investment into Africa has increased over the last two decades. How much of this is down to their credit ratings?

The Rating Game

The wise, white-haired lawyer who has seen a thousand trials, nodded sagely as he spoke about the shooting that shocked the world. He believes the South African Police Services and government will pay for the deaths of 34 miners at Lonmin’s Marikana mine in Rustenburg, north-west of Johannesburg.
London-based criminal defense lawyer James Nichol traveled 5,600 miles to Johannesburg for a couple of weeks, to give his services for free. Those weeks turned into months of shocking evidence.
<div id="attachment_1590" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-1590" class="size-medium wp-image-1590" src="/wp-content/uploads/2017/04/DSC_1167-300x235.jpg" alt="" width="300" height="235" />James Nichol</div>
“There is no question of self-defense here, these are police officers who had gone completely berserk and had fired into these people. And in some cases there’s evidence of a number of strikers who had been shot in the back,” says Nichol.
The hearings are revealing evidence on how the miners died and 78 others were injured. The week before, 10 people—six miners, two police officers and two Lonmin security guards—were killed as thousands went on a wildcat strike, over pay.
When Nichol saw the images of the Marikana massacre in his living room in England, it reminded the 67-year-old of the shock he felt about the Sharpeville massacre in 1960. On that fateful day in the township south of Johannesburg, the police shot into a crowd of around 5,000 unarmed anti-pass protestors, killing 69 people—many shot in the back—and wounding more than 200.
At 15 years of age, he took to the streets, in his hometown of Newcastle, calling to boycott the apartheid regime.
Nichol knows how hard mining is. He started work as a miner at 15, while his father worked at a coal mine from age 14 near Newcastle. Nichol senior died from dust related heart disease when he was just 40. It left Nichol bringing up his siblings—their mother had died earlier from tuberculosis.
Nichol worked his way up to specialize in miscarriages of justice and is a lawyer for the Socialist Workers Party, of which he is a member. He defended miners during the famous miners’ strike in Britain between 1984-1985.
With the help of a legal team from the Socio-Economic Rights Institute of South Africa (SERI), Nichol represents the families at the commission, which is chaired by retired judge Ian Farlam. It is examining whether the police were justified in using lethal force, whether union rivalry triggered the violent strike and whether Lonmin played a role.
Nichol says the National Union of Mineworkers (NUM) had abandoned its members. He says the union did not write to the bereaved families or represent them at the commission.
“I can think of no graver betrayal than to do nothing for the family of a dead member of your union.”
The families were wholly ignored by the state until Nichol and Joseph Mathunjwa, the president of rival union the Association of Mineworkers and Construction Union (AMCU),  found them.
“It seemed to me that it was wrong. I knew then that I was here to stay,” says the lawyer.
However, NUM’s general secretary, Frans Baleni, says that it is the responsibility of the company or the owner of the infrastructure where the incident happened, to call or write to the bereaved families. He added that the families would have had to give consent to be represented by the union and its lawyers.
Nichol believes that the killings could have been avoided because stopping the strike was not about public order but more about strike breaking.
The evidence suggests the police set up an operation of 800 officers the night before the massacre, including several machine guns, rifles with stun grenades, gas grenades and water cannons, plus helicopters and razor wire. The operation also organized ambulances and fire brigades.
“The decisive point for me that this was not about public order and more about strike breaking came on the morning of August 16, when two statements were made: one by the police commissioners when she said: ‘This strike stops today’ and one by the head of press for SAPS when he said: ‘Today is D-day.’ Why? Why did it have to be today?”
Many witnesses will appear over the next few months. A ruling by Farlam is expected in May. Nichol will be listening.

“It Seemed To Me That It Was Wrong”

South African mining is in tatters after weeks of spreading violence and chaos that has cost R4.5 billion ($544 million) in lost production and threatened many of the country’s erstwhile prosperous mines.
More than 1,000 soldiers have been posted to Marikana and a tight police cordon thrown around the operation.The Lonmin strike has seen one shaft mothballed and 1,200 contract workers sacked.
This is the bitter aftermath of the shootings at the Marikana operations of Lonmin, near Rustenburg north west of Johannesburg, in which 45 people were killed. In the weeks that followed, the wildcat strikes and wage demands spread. It is a sign of dangerous times that Anglo American Platinum (Angloplats) decided to suspend its Rustenburg operations, on September 12, to protect its workers from intimidation—a blow to the international image of South African mining.
“Well, it has been hurt, it has been damaged. You can’t have such a serious incident during a democracy. We have to work towards making sure that we bring back the image and the sanity of the industry,” says Susan Shabangu, South Africa’s minister of mineral resources.
Then there were more wage demands at nearby Implats, strikers stopped workers going underground at Royal Bafokeng Platinum, there was a wildcat strike by 15,000 workers at Gold Fields in Carletonville, 79 kilometers west of Johannesburg; at Marikana 28,000 thousand workers refused to go back and marched with weapons as peace talks failed and wage offers were rejected. The workers want a minimum of R12,500-a-month—triple the current wage.
The unions couldn’t call the workers back and the management appeared powerless to dismiss—often a swift way of squashing an illegal strike—for fear of even more unrest.
The biggest upshot of all this is the highly regulated labor relations procedures—which has helped keep the number of mine strikes down over the years—has been bypassed, at best, mocked at worst. In the past, under the eye of independent mediators, the Commission for Conciliation, Mediation and Arbitration, wage demands went through extensive talks and delicate mediation. Only an irrevocable breakdown would lead to a strike certificate and a legal walk out. Even then, at best there would be at most a day or two of posturing on the picket line, or even a last minute deal before a drill was downed.
“They are opening up the entire mining industry to pay demands and illegal strike action, you are not going to be able to control illegal strike action&#8230; My biggest fear is that we are not working towards a long term solution,” says the national spokesman of the National Union of Mineworkers (NUM), Lesiba Seshoka.
The first bitter legacy of Marikana is growing distrust and animosity between workers and management in an industry where the deeper underground you work, the less you get paid.
“Let’s be fair, when CEOs get millions we say nothing, when miners ask for twelve thousand Rand everybody make a noise. The manner the economy is structured doesn’t benefit everyone,” says the president of the Association of Mineworkers and Construction Union (AMCU), Joseph Mathunjwa, on August 31.
During question time in Parliament in Cape Town, on September 13, President Jacob Zuma blamed Lonmin for the unrest at Marikana saying the living conditions in the hostels left a lot to be desired and the company should have built family homes instead.
“Lonmin acknowledges that living conditions are not ideal but it is working towards better living conditions. We accept the criticism, but improving living conditions is a long process,” says Lonmin spokeswoman Sue Vey.
The second legacy of Marikana will be higher costs for mining companies, at a time when they can ill afford it, as workers appear to have proved they can ask for more wages when they want. In mining, most pay negotiations are run, in an orderly fashion, through the Chamber of Mines every two years. Gold and coal miners do this; there are proposals to bring platinum into these pay talks, but it may be too late.
Peter Major, a mining analyst with Cadiz Corporate Solutions, who has studied South African mining for more than 30 years, believes costs in platinum mining are likely to soar.
“Profit margins have fallen from 50%, a few years ago, to 10% now, quite simply the industry is running out of rope… We are getting to a point where people won’t be able to make money even at these platinum prices&#8230; It is terrifying, costs have been going up around 20% a year and these wage demands are likely to send these costs soaring even higher,” says Major.
In the angry chaos of South Africa’s mine, costs may prove the least of its problems.

Tag: Rustenburg

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