THE RECENT RELEASE OF AIDC’S report into Lonmin’s financial affairs has caused a minor storm of controversy – when it should have caused a major one. Despite a Cape Town Press Club briefing, mainstream coverage of the contents of the report and events surrounding its release has been disappointing, with the notable exception of Craig McKune’s excellent piece for the Mail & Guardian’s AmaBhungane centre for investigative journalism: ‘Questions Lonmin Must Answer’ (http://mg.co.za/ article/2014-10-16-questions-lonminmust- answer). While there are surely multiple reasons for the poor coverage – not least the timidity of much of South Africa’s business press – a key difficulty is that the facts involved are complex. 5e reason for this is obvious enough: the mechanisms companies use to shift or hide profits must be complicated, for patently obvious reasons. In sum, the report paints a disturbing picture of financial transactions that seem difficult to explain without supposing that Lonmin took substantial profits off the bargaining table, at a time when tensions were high between the company and its workers, and between workers and some of the union leadership. Instead of using these profits to meet the demands of workers for a living wage, Lonmin used them to facilitate the purchase by Cyril Ramaphosa’s Shanduka of a stake in Lonmin’s BEE partner, Incwala. It is not surprising in the circumstances that Mr Ramaphosa should have described the Marikana miners’ labour dispute as ‘dastardly criminal’, and urged the deployment of state resources in taking ‘concomitant action’ to end the strike at any cost. ‘‘The Unacceptable Face of Capitalism’’
THE CORPORATION AT THE CENTRE OF the Marikana massacre has its roots in the infamous Lonrho company led by Roland ‘Tiny’ Rowland from 1962 to 1994. Originally incorporated in the UK as the London and Rhodesian Mining and Land Company Limited, Lonrho’s crass plundering of Africa and other appalling behaviour led even conservative Prime Minister Edward Heath to label the company the ‘unacceptable face of capitalism’. In South Africa, Lonmin operates mainly through two locally registered corporations, namely Western Platinum and Eastern Platinum. 5e company now stands accused of shifting profits out of the country – at the expense of workers’ wages, revenues for the state and even dividends for local shareholders. The Report Lonmin Doesn’t Want You to Read The full report – The Bermuda Connection: Profit Shifting and Unaffordability at Lonmin, 1999-2012 – is available on AIDC’s website.
As explained in AIDC’s report, for years Lonmin seems to have been engaged in at least two ‘profit shifting’ arrangements, transferring significant profits from these companies to another Lonmin subsidiary registered in Bermuda, a known tax haven. (Tax havens are jurisdictions where companies are offered extremely favourable tax concessions, and often not required to pay any tax whatsoever.) 5e first of these is a large ‘sales commission’ paid from its South African subsidiary Western Platinum Ltd (WPL) to a subsidiary in Bermuda. 5e other involves WPL paying almost equally large management fees to Lonmin Plc (UK) Head Office, registered in SA. 5e total costs for these two arrangements are well over R400 million per year. Just the ‘sales commission’ could have provided an additional R3 500- R4 000 to the monthly wage of every rock drill operator. Eliminating one of them and cutting down the other would have allowed the company to meet the striking miners’ demands in 2012. 5e bloody result of their refusal to do so is by now sickeningly familiar. Mining in the Spotlight
WHILE LONMIN CERTAINLY seems to deserve closer scrutiny from the South African Revenue Service and investigative journalists, the report raises issues whose importance extends far beyond that of any individual company. By dragging some of Lonmin’s dirty laundry into the open, the commission has brought urgently needed exposure of the widespread practices of transfer pricing and profit shifting – two common ‘tax minimisation’ practices that are rife throughout the mining industry. According to academic research, the equivalent of up to 20@ of the country’s wealth is channelled into the coffers of these global monopoly corporations and their executives and shareholders. As Bridgette Radebe, President of the South African Mining Development Association, noted in her own presentation at the Cape Town Press Club briefing, this drain on the South African fiscus is at the heart of the country’s rampant and increasing social unrest. In her words: ‘Community uprisings will continue for as long as transfer pricing continues.’ 5e scale of this activity has become so great that now even the very cautious and pro-foreign investment Treasury is finding it impossible to continue to turn a blind eye to this corrosive phenomenon. Similarly, the Tax Review Committee led by Judge Dennis Davis is reported to have such practices firmly in its sights. 5e committee’s terms of reference call specifically for ‘a review of the corporate tax system, with special reference to… tax avoidance (e.g., base erosion, income splitting and profit shifting, including the tax bias in favour of debt financing)’. At the level of South African labour and the process of wage negotiations, this report should make clear once and for all that the question of ‘affordability’ is inherently political, and must be recognised as such: it is a matter of choosing what to ‘afford’. For several years, including the fateful year of 2012, Lonmin chose to ‘afford’ payments or transfers that shifted well over R400 million from South African mine workers, mining communities and the public treasury. In making that choice, Lonmin chose not to ‘afford’ the demands of mine workers. Worker representatives and others should enter into bargaining processes with a robust understanding of these choices, and the stakes involved. Political Implications GIVEN THE UTTER FAILURE BY government since 1994 to resist the neoliberal onslaught against the country’s capital and exchange controls, which has been crucial to enabling the massive capital flight that has taken place, one must wonder how seriously government will act against the companies implicated in such activities. 5ere seems to be all the more reason for scepticism since a major beneficiary of Lonmin’s credit-extending largesse, Cyril Ramaphosa, currently serves as the country’s deputy president, and is widely seen as South Africa’s likely next president. Perhaps unintentionally, Ramaphosa’s own remarks in August of this year to the National Council of Provinces cut through the legal mumbo-jumbo about what is ‘technically legal’ and what is not, and his remarks could hardly be more damning of the shenanigans by Lonmin in which he now finds himself implicated: ‘Tax evasion is not only a crime against the state; it’s also a crime against the people of our country, ordinary people.’ While the seeming outrage reflected in Ramaphosa’s remarks is certainly appropriate, one can only wonder whether this is just another occasion of government ‘talking left’ to distract from its continuing to ‘walk right’. To be more precise: Is Ramaphosa simply attempting to strengthen a rising black capitalist faction, whose accumulation objectives are impeded by foreigndominated practices of transfer pricing and profit shifting? At a broader level, the report and surrounding publicity have brought additional critical attention to the nature and costs of the ongoing, widespread looting of Africa’s natural resources. While the governments of the world’s most plundered countries may increasingly find it impossible to ignore these practices, and feel compelled at least to appear to be taking steps to stop the haemorrhaging, the phenomenon also reveals the real logic of global capitalism and – dare we say it – of the clashing imperialist powers to which it has given rise. Recent years have demonstrated the impotence of governments in the global South to resist the plunder of their natural resources and wealth. 5is is no longer so obviously driven through the barrel of a gun; Increasingly, it is being driven by manipulation of markets and financial flows, and the undermining of corporate governance and regulatory mechanisms. Clearly, such practices have never had the interests of African people at heart. Clearly, they have never been sustainable. What AIDC’s investigation into Lonmin’s financial affairs makes us finally face is that, for Africa, corporations like Lonmin have never been ‘affordable’.
