COSATU/NUM SUBMISSION ON THE ALEXKOR LIMITED AMENDMENT BILL [B29 – 2001]
5 September 2001
1. INTRODUCTION
2. SUMMARY
3. BACKGROUND AND CURRENT PROBLEMS AT ALEXKOR
3.1 PROFILE OF ALEXKOR
3.2 PROBLEMS AT ALEXKOR
3.2.1 Lack of clarity and certainty on Alexkor’s future
3.2.2 Untransformed and incompetent management
3.2.3 Poor mining strategy
3.2.4 Poor human resource development and low productivity 8
3.2.5 Very bad industrial relations 8
3.2.6 Operational inefficiencies 8
3.2.7 Theft, wastage and corruption 9
3.3 EVALUATION OF PROBLEMS 9
4. COSATU/NUM’S OBJECTION TO THE BILL
4.1 REJECTION OF PRIVATISATION; THE NEED FOR CONTINUED PUBLIC OWNERSHIP
4.2 PRIVATE SECTOR CONFIDENCE IN ALEXKOR
4.3 ALEXKOR’S FINANCIAL SITUATION AND POTENTIAL PROFITABILITY
4.4 DEVELOPMENTAL ROLE OF ALEXKOR
5. PROPOSED TURNAROUND STRATEGY FOR ALEXKOR
5.1 IMPROVING MINING METHODS
5.2 TRANSFORMING AND UPGRADING MANAGEMENT
5.3 HUMAN RESOURCE DEVELOPMENT
5.4 CRACKDOWN ON THEFT, WASTAGE AND CORRUPTION 17
5.5 CAPITAL INJECTION
5.6 IMPROVING OF NON-MINING ACTIVITIES
5.7 INTEGRATION IN A REGIONAL INDUSTRIAL STRATEGY
COSATU and NUM welcome the opportunity to make a submission to the Public Enterprises Portfolio Committee on the Alexkor Limited Amendment Bill [B29 – 2001] (hereafter "the Bill"). Alexkor is central to the economy and the general development of the Namaqualand region of the Northern Cape. The proposed privatisation of Alexkor would have a devastating effect not only on employees of Alexkor but also on the surrounding communities.
Debate around the Bill should be located within the context of government’s overall programme of restructuring state assets. COSATU, backed by a range of organisations including civics, other unions, and student organisations, has just carried out a highly successful national general strike against privatisation. Workers around the country stayed away in opposition to government’s privatisation programme and in defence of the public sector.
The Bill essentially has one purpose: to make it easier for government to privatise Alexkor. For reasons that will be elaborated below, COSATU and NUM are opposed to the privatisation of Alexkor and we are thus opposed to the Bill itself. In fact, we believe that Alexkor has the potential be a viable enterprise which not only enhances its economic and developmental role in the region but also generates revenue for the fiscus. COSATU/NUM believe that Alexkor should remain in state hands, with some restructuring at the operational level to make it more successful.
In this submission we firstly outline the background of Alexkor in order to contextualise the Bill. Current problems with Alexkor are also identified. We then outline the reasons for COSATU and NUM’s opposition to the proposed privatisation of Alexkor. Finally, proposals are put forward for the turnaround of Alexkor while remaining in state hands.
See minutes
Alexkor was started in 1928 as State Alluvial Diggings. For most of its life it has been run as a state department and served as a "public works programme" for the poor whites of Namaqualand. In 1989 it was commercialised and state subsidies withdrawn, and was renamed Alexander Bay Development Corporation. In 1992 it was subsequently converted into a public company by an Act of Parliament, and henceforth was known as Alexkor Limited.
The state is the sole shareholder, and government appoints a Board of Directors which in turn appoints management.
Alexkor produces alluvial diamonds, 98% of which are of gem quality i.e. destined for the jewellery market. The quality of the stones is remarkably good, as is the consistency of the shape of the stones. Alexkor is thus referred to within the trade as being "A B C goods" – easy to manufacture with high yields. Alexkor still has approximately 65 million carats, mainly in offshore reserves, giving it a remaining lifespan of several decades. Remaining deposits are projected to have a lifespan extending close to the middle of this century.
The prospecting for and mining of diamonds consists of land mining, beach mining, marine mining and exploration. The ancillary activities include various agricultural activities such as dairy farming, citrus farming, and ostriches, as well as oyster mariculture.
Alexkor now directly employs about 666 people, following the retrenchments of the last few years, as well as a large number of temporary and contract workers. It is estimated that each employee on average supports about six to eight dependents.
The Namaqualand region is semi-desert with limited agricultural potential and a negligible manufacturing base. The economic activity of the region is centred around mining, with the majority of the population of the Namaqualand directly or indirectly dependent on the mining industry. The economy of Namaqualand has contracted from the 1980’s onwards, with falling Gross Geographical product and employment. Namaqualand is a particularly geographically isolated and (especially in the context of its mineral wealth) economically underdeveloped region, which in turn has led to a myriad of social problems.
Alexkor’s financial situation (discussed further in section 4.3 below) remains perilous, and it is clear that the mine’s performance is sub-optimal. From government’s point of view, this must be one of the primary motivations for the proposed privatisation. In COSATU/NUM’s understanding the key problems at Alexkor can be characterised as follows:
The general lack of certainty around Alexkor’s future ownership structure and even its future existence obviously has a negative impact on its current operations. It inhibits forward planning and the undertaking of new exploration or mining programmes. The lack of certainty also contributed to staff demoralisation and low productivity.
The lack of clarity and coherence around Alexkor’s strategic direction (for example seemingly contradictory moves towards "diversification" and a focus on "core business") has similar negative effects.
A serious problem which compromises the efficiency and productivity of Alexkor as well as contributing to poor industrial relations, is the lack of transformation particularly from middle management upwards. Even Alexkor’s own most recent Annual Report concedes that progress in the area of employment equity has been "retarded" and that it will require closer attention in future especially at senior and executive levels. Attempts at affirmative action have been characterised as the "adding on" of affirmative action candidates in a way that simply overloads the management structure with unnecessary weight without providing black personnel with genuine career path opportunities or fundamentally transforming the staff profile or organisational character.
This lack of transformation in turn contributes to other problems, such as the abysmal relations between management and workers. Management is dominated by white Afrikaner men, many of whom have benefited from a sheltered employment environment at Alexkor for many years. This means that not only do management lack an appreciation of the developmental role of Alexkor in the new South Africa and an inability to deal constructively and professionally with industrial relations, but they also lack the modern professional expertise of efficiently running a mine.
In an evaluation of Alexkor, De Beers has also characterised the management team as having "regressed into a state of managerial depression" with an absolution of responsibility for the problems of Alexkor. It has observed that the organisation is top-heavy with an excessive number of reporting levels where managers have very narrow spans of control. Furthermore, management are said to have little idea as to how to relate constructively with employees or the community at large.
Apart from the elements of management who have benefited from sheltered employment at Alexkor for many years, there is particularly high turnover with people coming in, staying for a only a short period, and moving on again. This leads to people in decision-making positions having limited understanding of the workings of the mine and the specificities of Alexkor’s mining, as well as not being able to build up stable working relationships. There is also a culture of continuously "reinventing the wheel" – for example every time new managers come in exploration work which has already been performed more than once is repeated again. This not only wastes resources but also delays the actual implementing of plans and the expanding of production. Related to this, there has been an overreliance on consultants, which is not only costly but which has also generated contradictory and often inaccurate findings.
Alexkor’s mining strategy has concentrated on mining the rich areas rather than taking a more balanced, sustainable approach. Mining has generally been limited to areas with exceptionally high grades in excess of 6 carats per 100 tons. This is in stark contrast with an industry norm in the order of 1 carat per 100 tons.
Another problem with the mining strategy is that the mining operation is highly inflexible, which reduces the mining choices available and limits the possibilities of selecting and blending high grade areas with low grade areas in order to meet its carat call. This is as a result of there being no stripped ore reserves. There should be a minimum of three months and optimally of six months of stripped reserves. This problem has resulted in mining "following its nose" from one ore reserve block to the next, rather than the areas being scientifically targeted through a Life of Mine Plan. It can also lead to high-grading, which reduces the potential to mine the adjacent areas, which can then become uneconomic for future exploitation.
The problems of such a strategy have been compounded by Nabera’s approach which has been informed by the extraction of as much short-term profit as possible. For example, they have extracted as much and as fast as possible from the extremely rich white dunes, while neglecting other areas which would still be viable.
There appears to currently be no apparent, systematic reconciliation and analysis of sampled grades. Evidence suggests that mining has historically been fairly arbitrary in responding to "carat calls" rather than being based on a Life of Mine Plan based on exploration results and scientifically targeted areas. It would seem that unqualified decisions were made to terminate mining in some areas as a result of reduction in carats being recovered from mining, without necessarily properly investigating the reasons for the changes in grade. This suggests that there may well be potential in areas that have been previously abandoned for apparent lack of carats.
The dominant attitude at Alexkor, particularly from middle management upward, has been characterised as "This is the worst place I ever worked for and I am only here until I get a better job."
The problem of low productivity is caused by inter alia inadequate human resource development, poor industrial relations, and lack of certainty about the future of the mine.
Low skills levels and a lack of investment in training and skills development also have a negative impact on Alexkor’s operations. Although Alexkor benefits from a relatively highly educated general workforce by industry standards, limited investment has been made in ongoing skills training and career pathing.
There seems to be a general consensus that labour relations at Alexkor are abysmal and a major contributor to its sub-optimal performance. To a large extent this derives from the untransformed and incompetent management discussed above. In turn, the poor industrial relations strongly contribute to low productivity amongst workers.
The marginalisation of workers from decision-making contributes directly to operational inefficiencies. Our local structures at Alexkor are a rich source of analysis about sub-optimal operational systems and constructive and concrete proposals as to how Alexkor could be better run. However, adequate channels do not exist for putting forward such ideas and there is a lack of enthusiasm for doing so, because of the general climate at the mine.
At an operational level, Alexkor is currently functioning well below optimum level, which leads to higher costs and lower output. Operational inefficiencies include the following:
- Wastage through planned down time as opposed to running maintenance;
- A lack of co-ordination and co-operation between different divisions at Alexkor. For example, about three weeks ago, the Mining Division gave orders for overburden to be stripped off mine block RSM03 to the cost of R500,000. When the block did not perform, it was abandoned. The result was that Rietfontein plant had no material to feed for days;
- Limited daylight operations;
- Complete lack of mine planning initiatives;
- Using same processing plant for both exploration samples processing and production grounds;
- Lack of technical audits on plants including final recovery, resulting in loss of diamonds as waste.
While the problem of theft appears to have been addressed to a certain extent, it continues to undermine the profitability of Alexkor. Indications of this problem include the "run of mine" (the spectrum of diamond sizes produced) not being a continuous spectrum as would be expected, but having gaps of certain size diamonds. Another symptom of theft is the number of "dropped packages" in inspection areas, especially when senior personnel are present.
Theft is not only of diamonds, but also of company property such as vehicles and mining equipment. Syndicates appear to continue to operate at Alexkor, and there are strong suspicions that they operate in collaboration with elements of the Alexkor security system.
The continued high level of theft has a direct and significant negative effect on Alexkor’s profitability, and contributes to an underestimation of its future potential.
There also appears to be excessive expenditure and wastage at senior levels of Alexkor, as well as skewed and costly benefit expenditure in general for employees. This seems to partly emanate from Alexkor’s history as a haven for poor whites. Apparent nepotism, such as among family members, also contributes to inefficiency and an unnecessary drain on Alexkor’s resources.
While the above problems are serious and are largely responsible for Alexkor’s losses insofar as they have occurred, in the main they are not intrinsic to Alexkor itself. If Alexkor was already being optimally run and was still consistently making significant losses, this would cast doubt on its potential future profitability. However, the problems described above clearly indicate that Alexkor has the potential to be doing a lot better with its given mineral resources. The extent of the above problems, and the fact that they are not inherent limitations of Alexkor but can be remedied, reinforces the case for a turnaround. Our proposals in this regard are set out in section 4 below.
It is also necessary to point out that these problems are not an outcome of state ownership per se. To a extent they are an outcome of a particular model of Apartheid state ownership in which race, language and political loyalty came before competency; and state owned assets are managed not for the broad national interest but in the in narrow interests of one racial group. An enterprise such as Eskom comes from a similar history, however, it has to a large extent been transformed and is now not only efficiently run but is serving the interests of South Africans as a whole.
Transforming Alexkor and dealing with the serious problems described above does not require a jettisoning of state ownership and a takeover by the private sector. It requires a turnaround and thoroughgoing transformation, which is not only possible under continued public ownership, but can best be achieved under government control.
There appears to be one purpose of the Bill: to make privatisation of Alexkor easier than is currently the case. The Memorandum on the Objects of the Bill clearly motivates the introduction of "provisions enabling the Minister of Public Enterprises to sell shares of Alexkor Ltd held by the State to any person. This would enable the Minster to restructure the shareholding of Alexkor." The Bill thus gives the Minister of Public Enterprises carte blanche to privatise Alexkor when, how, and to whom (s)he deems fit. This removes any limitations on or oversight over the process, whether through legislation, Parliament, or otherwise.
As we have stated, COSATU and NUM reject the privatisation of Alexkor. We believe that Alexkor has a significant contribution to make to both the regional and broader economies, and that continued state ownership will best position it to play such a role.
It should also be noted that the Bill was introduced in the context of a national debate within the Alliance and the public at large around state asset restructuring, and in the run-up to a general strike against privatisation. Our response should be seen in the context of COSATU’s overall approach to state asset restructuring; our support for a developmental state and an active industrial policy in which the public sector plays a key role; and our rejection of privatisation. We believe that the state has a strong leading role to play in South Africa’s economic and industrial development, including in the productive sector, and find no convincing reason as to why the state should withdraw in the case of Alexkor. In fact, given the dependence of the local/regional economy of Alexkor and its importance for the socio-economic development of Namaqualand, the role of the state becomes all the more important. The broader developmental spin-offs of Alexkor will not be factored in to a private-sector cost-benefit analysis, whereas the state can and must factor in these positive externalities in decisions around Alexkor’s future.
We are also concerned that the Bill has not gone through either the process specified in the National Framework Agreement on the Restructuring of State Assets (NFA) or through Nedlac. While it may be argued that the Bill does not actually privatise Alexkor, its sole purpose is to open the way for its unfettered and completely discretionary privatisation. COSATU objects to the fact that the Bill has not gone through the structures and processes of the NFA as it should have.
4.2 Private sector confidence in Alexkor
We understand that there is substantial private sector interest in buying into Alexkor. This in itself is indicative of Alexkor’s future profit-generating potential. Particularly significant is the interest in buying into Alexkor from Nabera, which has had a two-year contract to manage Alexkor and conduct mining and exploration activities. The fact that Nabera, which must have accurate and intimate knowledge of Alexkor, has such an interest is confirmation of the enterprise’s commercial potential.
A private company prepared to invest large resources in purchasing an asset such as Alexkor or portion thereof, would have to be convinced that Alexkor’s medium- to long-term profit-generating potential would both recuperate its initial investment and generate sustainable net profit flows. Were Alexkor to be retained in the public sector and turned around, such resources could be channelled both to local development and to the general fiscus to fund South Africa’s socio-economic development. Such an ongoing long-term revenue stream would exceed any short-term cash that the state could get from privatising Alexkor.
A related issue is that Nabera, which until very recently has run Alexkor and is now interested in bidding for it, clearly has a conflict of interest. Specifically, Nabera would have had a vested interest in downplaying Alexkor’s profitability and future potential, in order to encourage its sale by government and to secure as low a price as possible. It appears that neither government nor other stakeholders have a clear and accurate picture of the real state of affairs at Alexkor especially in terms of its financial situation.
It is thus our strong suspicion that Nabera has deliberately downplayed the financial viability of Alexkor in order to convince government of the urgent need to proceed with privatisation, to be prepared to sell Alexkor at a discounted price, and even to discourage other prospective private buyers. Nabera’s tenure of managing Alexkor would thus serve the pave the way for buying into a lucrative business opportunity at a bargain price.
4.3 Alexkor’s financial situation and potential profitability
The most recent Alexkor Annual Report (to 30 June 2000) points to the possibilities of an Alexkor turnaround, including the following:
If anything, these figures are likely to be a pessimistic take on the situation and to underestimate the potential profitability of Alexkor, in the light of the vested interests in privatisation discussed above.
There appears to be a lack of clarity in government itself about the true financial state of affairs and actual value of Alexkor. Government’s written briefing to the Portfolio Committee indicated that Alexkor’s profitability had improved since Nabera took over; however in their verbal briefing it was indicated that this was in fact not the case and that Alexkor’s profitability had not shown any significant improvement since Nabera took over. In the same briefing the Department of Minerals and Energy indicated that an independent company was still to be appointed to determine whether or not Nabera had performed, suggesting a lack of certainty inter alia about the actual financial situation. The Committee was informed that the matter was still sub judice.
What was clearly stated to the Committee, however, was that Alexkor has indeed been making a profit on a month to month basis as from September 1999. Recent media reports have put this in the region of a R2million profit per month.
Furthermore, a recent report projected that "in its revitalised form Alexkor should be able to make US$10million [+R82million] a year on revenue of US$45million [+R370], so there will be a queue to buy the 50 per cent stake expected to be offered for sale by the South African government before the end of this year." These industry projections of high future profitability of Alexkor do not square with the gloomy picture often presented, especially by those with a vested interest in quick and cheap privatisation.
The citation of the above figures and statements is not intended to present an overly optimistic picture of Alexkor or to underestimate the massive challenges which would face a turnaround. However, COSATU and NUM believe that a turnaround is both possible and necessary.
It does not make sense for government to invest large amounts of resources or forego huge tax revenues in order to attract or kickstart new investment projects (for example through strategic industrial incentives offered by the Department of Trade and Industry), but fail to show similar commitment to salvaging productive public enterprises which have already been established.
4.4 Developmental role of Alexkor
Alexkor currently donates 30% of its post tax profits (where these do materialise) to the Alexkor Development Foundation, which invests in various aspects of local development such as the subsidising of non-racial pre-primary and secondary schools, financing students studying at tertiary institutions, and the transporting of pensioners; as well as ploughing additional resources into education over and above this. The 30% essentially amounts to a community royalty on Alexkor. It is highly unlikely that any private owner of Alexkor would accept such a commitment, which is six to twelve times higher than industry norms for the channelling of profits into development. The turnaround of Alexkor, while remaining within the public sector, would enhance Alexkor’s contribution to local and regional development.
Any job losses due to downscaling or (particular forms of) restructuring of Alexkor would clearly have wide-ranging negative effects on the region. Over six hundred workers have lost their jobs at Alexkor since 1997, and with minimal prospects of alternative sustainable employment their future looks bleak. The job losses universally associated with privatisation would increase the already high levels of unemployment in the region (currently over 30%) and hence compound existing social and economic problems.
The mine is particularly closely linked with the services, transport and construction sectors, and any reduction in mining production would have multiplier effects in contracting the regional economy. Many local and regional businesses, which depend on Alexkor contracts or linkages, would probably close. Furthermore, the slashing of local buying power which would inevitably result from job losses would dramatically reduce demand in the area which would have devastating ripple effects on economic activity in the region.
A detailed study commissioned by the Northern Cape government from UNESCO uses simulations to project the socio-economic consequences of Alexkor restructuring options. It compares the effects of a baseline scenario (continuing production), downscaling and closure. Both the downscaling and closure options lead to massive job losses, both in the mining and other sectors. They also lead to significant reductions in the Namaqualand Gross Geographical product and in the population of Namaqualand.
The developmental role of Alexkor in Namaqualand confirms its position as a strategic State asset. Private business, driven by profit-maximising motives, would certainly not prioritise the developmental role. From a commercial point of view, money spent on development is a "cost" which reduces profit margins. Even if compelled to invest in development (for example through community equity ownership or through government regulation), private owners would generally attempt to get away with spending as little as possible.
The dependence of Namaqualand on Alexkor and the disastrous effects which downscaling (either of the mine itself or of its developmental role) would have on the region will hopefully be further elucidated through the hearings that the Committee will be holding in Alexander Bay itself.
Rather than simply opposing the privatisation of Alexkor, COSATU and NUM are putting forward a feasible alternative proposal. This derives from our belief that Alexkor is indeed a viable prospect for continued public ownership, playing a strategic economic and developmental role without acting as an unnecessary long-term "drain" on the fiscus.
We thus outline below the basic framework of a "Seven-point Plan" for the turnaround of Alexkor as a state asset. Should there be a genuine commitment within government to exploring viable alternatives to privatisation, we would be willing to further develop these proposals as part of a joint process.
COSATU/NUM specifically proposes that the Portfolio Committee initiate such a process, in which a Joint Operational Team comprising labour, Alexkor management, the Departments of Public Enterprises and Minerals and Energy, and local and provincial government be set up. Such a team could constructively pool ideas and generate a short-, medium- and long-term plan for Alexkor which meets the various stakeholder needs.
At this point, we will thus just sketch out the essential components of such a turnaround strategy.
Alexkor’s mining philosophy and mining strategy requires a radical overhaul. This would entail both the upgrading of existing mining methods and the introduction of new methods. Without going into too much technical geological detail at this point, this would include:
While some of these methods are already used up to a point, indications are that this is either insufficient or not done with regard to the specific needs of Alexkor. Where possible existing technologies and production capacity should be optimised to minimise the capital outlay required.
At the level of marketing, consideration should be given to the possibility of selling Alexkor’s output, or at least a portion thereof, on the open market as opposed to through the Diamdel as is currently the case. The advantage of the former option is that commission paid is considerably lower, hence net profits would be higher.
There is also a need to drastically improve general operational inefficiency, the problems of which were discussed in section 3.2.6 above.
5.2 Transforming and upgrading management
The problems with the current Alexkor management have been discussed in section 2.2.2 above. These include a lack of demographic transformation; inadequate and inappropriate skills; failure to relate constructively with employees; rapid turnover of senior staff from outside the region; and an overreliance on consultants.
All of these problems can and must be resolved. There is a need for government, in collaboration with the Board, to take a more "hands-on" approach in the short- to medium-term to ensure that a management team with the necessary skills, vision, and representivity can lead the mine in future.
5.3 Human resource development
Crucial elements of this prong of the strategy include:
It is imperative to move beyond the "us and them" adversarial relationship which exists at present. The transformation of management discussed above would go some way towards achieving this, as would an overall shift in the operational style and ethos of the mine.
It needs to be recognised that workers have considerable technical expertise and have valuable insights into how to make Alexkor more efficient. Creating conducive channels to draw on this, and promoting an environment in which workers feel committed to the mine and motivated to contribute constructively to its profitability, would make a tangible difference to Alexkor’s balance sheet.
Certainty around the long-term future of Alexkor would also contribute to enhancing staff morale at all levels of Alexkor and boosting productivity. The comprehensive transformation of Alexkor and particularly the fostering of a more participatory environment would enhance the sense of "ownership" of and commitment to Alexkor.
As mentioned elsewhere in this submission, Alexkor is fortunate to have a general workforce with a relatively high level of education by industry standards. What is however badly needed is ongoing skills training geared towards the raising of productivity, career pathing, and changing the staff demographics from the middle level upwards. Human resource development is required at all levels of the organisation, from labourers to senior management level. This would be an investment in the medium- to long-term success of Alexkor. At the moment one of the problems is that only a few key people have the necessary skills to use certain equipment or methodologies, and given the high staff turnover this is disruptive to operations. Broadening the skills base would enhance operational continuity.
Racial discrimination, perceived both in the practices of Alexkor and in attitudes, should be identified and decisively dealt with.
5.4 Crackdown on theft, wastage and corruption
As discussed above, theft of diamonds and company property has a direct negative effect on its profitability. Best-practice models of theft-prevention from the industry should be drawn on, and a tighter system of eliminating theft should be developed and implemented with the participation of workers. National crime and security apparatus should also be more extensively drawn in, especially in rooting out of the syndicates believed to be operating at Alexkor. The improving of industrial relations and the fostering of a sense of "buy-in" and commitment to the future of the mine would also be part of a long-term strategy towards eliminating theft.
Similarly, corruption, wastage and nepotism, which are seen to be particularly prevalent from middle-level upward, should be decisively dealt with.
Loss control measures should also include incident reports and costing of reported accidents and wastage.
Many of the proposals in our "Six-point Plan" would not necessarily require significant additional resources: it would be a question of doing things better within existing resource constraints. For a full turnaround of Alexkor, however, some financial injection would be required. In particular, the exploration and mining of new areas would need some capital. There are various ways in which this could be obtained, including a grant or loan from the state, and Alexkor-issued bond. The issuing of bonds is common practice amongst parastatals.
Under a successful turnaround strategy, such an initial capital investment would be more than recovered in the long-term. Were Alexkor to be privatised, a private sector investor would probably also have to borrow money to pump into the mine in the short-term, with the confidence that this would generate net profits over time. Rather than private sector players undertaking such an exercise and reaping the rewards, government should do so.
5.6 Improving of non-mining activities
Many of Alexkor’s non-mining activities are currently loss-making, and are a drain on the profitability of the mining operations. However, they play an important role in terms of employment and general economic activity within the region.
Many of the problems discussed elsewhere in this submission – such as poor management, bad industrial relations, operational inefficiency and so on – also pervade the non-mining activities. As such, many of the turnaround strategies proposed apply equally to Alexkor’s mining and non-mining activities. It is important that the agricultural activities move away from a loss-making situation so as not to undermine the profitability of the mining side. In the short-term, however, continued cross-subsidisation of the non-mining operations may be necessary to keep them afloat. The splitting off of "Alexander Bay Trading" and "Alexander Bay Mining" into separate business units, as was proposed in the previous version of the Bill which the Committee was briefed on, would not be appropriate (at least at this stage) as it would probably lead to the closure of some economic activities and job losses.
5.7 Integration in a regional industrial strategy
Alexkor does not appear to be integrated within a coherent industrial strategy for either the region or the sector. This means that the full value of the diamonds extracted is not realised for the benefit of the region, and that potential up- and down-stream linkages are not taken advantage of. For example, there are industrial opportunities in the cutting and polishing of diamonds which would add value and generate additional economic and employment opportunities. Where expertise is lacking, it is preferable to bring this in in a way that ultimately builds local skills, rather than exporting the activity itself.
A local and regional industrial strategy is thus required which: