Business Maverick


Sad end to talc mine illustrates SA’s small business crisis

File photo of AMCU's Joseph Mathunjwa by Greg Nicolson. Photo of Joseph Mathunjwa by Greg Nicolson.

In his hour-long State of the Nation Address on Thursday, President Cyril Ramaphosa referred to small businesses only twice. In supporting small businesses, he said the government wants to create an enabling operating environment by reducing the cost of doing business and regulatory compliance. However, his promises fell on sceptical ears.

Business owners are despondent as some have embarked on mass retrenchments or the worst-case scenario of liquidation. At the small town of Sheba Siding, located about 20km north-east of Barberton in Mpumalanga, a 111-year old talc mine that employs about 50 people has shut its operations since April 2019, following an illegal strike.

Chamotte Holdings, the owner of the Scotia Talc Mine, and its workers were in wage talks that have since broken down, resulting in the abandonment once-busy mine, which produced between 200 and 400 tons of talc a month.

Scotia Talc Mine extracted soft and talc-containing rocks, which are first crushed and then milled into a fine powder which is used in products such as baby powder and automotive paint.

Mineworkers at Scotia Talc Mine, who are aligned to the Association of Mineworkers and Construction Union, tabled a big wage demand; an increase in their minimum wage from R20 an hour to R60 an hour across all skill levels.

Other demands (there are 15 in total) include, among others, a night-shift allowance of R10 an hour, a housing allowance of R500 a month, safety bonus of R200 a month, underground allowance of R500 a month, production bonus of R500 a month and a long service award of up to R20,000.

Robert Greaves, a director of Chamotte, said the wage demands would amount to an increase of between 300% and 400% in the company’s monthly employment costs, or R400,000 a month.

It is not remotely possible to pay that increase. The mine hasn’t had good years for three to four years now. In good years, we used to make R400,000 profit in a year. But we’ve had years where we have lost money,” Greaves told Business Maverick.

According to Greaves, the latest demands come after workers were paid wage increases in two tranches in 2018 amounting to 27% as the company had to bring wages in line with the national minimum wage of R20 an hour, which came into effect in January 2019.

Before the minimum wage legislation, Scotia Talc Mine paid its workers a farming/forestry sector minimum wage of less than R17 an hour, a R300 to R500 production bonus, a monthly travel allowance of R210 (even though 70% of the workforce lived within walking distance the mine), and a 13th cheque.

Admittedly, we were not paying well historically. There were guys earning a minimum of R4,000 to R5,000 a month and others were earning R10,000. The mine is not profitable enough to carry new wage demands and it’s not a gold or platinum mine. What we were mining doesn’t have much value to it.”

All Scotia Talc mineworkers have either been dismissed or retrenched after the latest wage talks stalled. Once talc production stopped, community members descended on the mine, looted and stripped off building materials, roofing, geysers, air conditioners, windows and equipment.

Greaves said he had been threatened with violence by the Sheba Siding community whenever he returned to the mine to recover any remaining assets or talc stock.

Beyond labour instability, Scotia Talc Mine profitability has been hit by cheaper and higher-quality talc imports from China, India, and Zimbabwe and a sluggish South African economy that has resulted in low demand for products containing talc — such as paint.

Greaves would like to restart operations at Scotia Talc Mine because the mine has 20 years left in its government-awarded mining licence, or possibly explore winding down the mine through liquidation. If he goes through liquidation, Greaves will join a growing list of business owners who have gone down that route.

According to Statistics South Africa, the total number of liquidations increased by 53.1% in April 2019 compared with April 2018. Meanwhile, the estimated number of insolvencies increased by 30.1% in March 2019 compared with March 2018.

A government bereft of policy ideas

Greaves’ conundrum and liquidation or insolvencies figures underscore how hostile South Africa’s operating environment is for business owners. For many years, the government — long before Cyril Ramaphosa ascended to presidency status in 2018 — has waxed lyrical about how small businesses are job-creation drivers in a country that faces a 27% unemployment rate or 38% when including discouraged workers and economically inactive citizens.

The government has proposed tax breaks for small business owners and simplifying complicated regulatory processes such as the time it takes to register a business (it can take six months in South Africa, compared with one day in some countries).

But it has little to show for its progress. The World Bank’s 2018 Doing Business Report placed South Africa 82nd out of 190 economies (compared with a ranking of 32nd in 2010).

So how does Ramaphosa, who is now armed with a decisive electoral mandate, plan to practically create a friendly environment for business owners?

We will continue to reduce the cost of doing business by reducing port export tariffs, pursuing lowest cost electricity generation options, and making rail transport more competitive and efficient,” he said in his State of the Nation speech, without giving the specifics away.

For small businesses, his Cabinet will roll out incubation centres to provide youth-driven start-ups with financial and technical advice.

Chamotte’s Greaves is not convinced.

It’s all smoke and mirrors. They talk about helping small businesses, but they don’t do it.

There is no encouragement to employ people. It is becoming more and more onerous to comply with all the red tape. It is becoming prohibitive whether you are a R5-billion or R5-million annual turnover business. There are very little allowances for smaller mines to have less complicated regulations.”

There are easy wins that the government can explore such as reforming inflexible and complex labour regulations, especially the power of trade unions, said Azar Jammine, the chief economist of Econometrix.

The labour market environment is so unfriendly towards businesses wanting to employ people. Trade unions continue to push above-inflation wage increases. The government must create a flexible labour environment, then the business will do the rest in terms of investing in jobs,” said Jammine. BM