JOHANNESBURG - A unprecedented police raid this week on South Africa's mines department and a firm linked to President Jacob Zuma's son has highlighted the use of political connections to amass wealth and may ease investors'concerns about shady mining deals.
The police's special investigations unit, known as the Hawks, raided the mineral resources department, and offices of Imperial Crown Trading (ICT) - owned by a business partner of Zuma's son Duduzane - on Wednesday over allegations of fraud related to the issue of prospecting rights.
The raid is the latest development in a long-running squabble between Anglo American Plc's iron ore arm Kumba Iron Ore and the South African unit of the world's biggest steelmaker ArcelorMittal over access to the ore at Sishen Iron Ore Company - one of the largest open-pit iron ore mines in the world.
The raid threw the spotlight on a related contentious black economic empowerment deal involving ArcelorMittal, Zuma's son and businessmen close to the president.
Foreign investors and many South Africans have grown increasingly worried about the black economic empowerment policy introduced in Africa's biggest economy by the African National Congress after the party came to power in 1994.
BEE is aimed at righting the economic wrongs of apartheid but critics have said it only enriched some businessmen in a country where millions of black South Africans still live in poverty and over a quarter of the work force is jobless.
Analysts said the Hawks' probe - the first ever into the country's department of mineral resources - pointed at serious flaws within a key government department.
"It appears to me to be hugely significant that the Hawks have gone into a government department, the government department that we all had identified as the source of quite significant political risk," said independent political analyst Nic Borain.
Kumba laid a criminal complaint over the awarding of prospecting rights over the Sishen property to ICT, a black economic empowerment (BEE) group with almost zero mining experience.
The granting of mineral rights to politically connected businessmen with little or no mining experience is a major cause of concern for many investors looking for opportunities in South Africa.
"There is certainly a lot of disquiet in the last year about what is going on here in terms of granting (mining) rights to politically connected people. The (mines) minister has gone on a lot of international roadshows to correct that but the perception is quite negative," said Peter Leon, a mining law expert at law firm Webber Wentzel.
The issue of mining rights worried investors more than calls by Julius Malema, the vocal leader of the ruling African National Congress' youth wing, for the government to nationalise the country's mines, Borain said.
"As someone who talks to investors, particularly mining investors, if you are looking for the thing that was most disturbing to them over the last several years it was clearly mineral rights. Even more disturbing than the campaign by Julius Malema to promote the idea of the nationalisation," Borain said.
Some analysts said calls for nationalisation are disguised attempts to bail out empowerment deals on the verge of failure due to the global financial crisis and sharp falls in mining shares.
"There was quite a significant expectation that a lot of these BEE deals, because they were connected with the ruling party, would get some kind of bail out. And that hasn't happened," said Zwelethu Jolobe, political science lecturer at the University of Cape Town.
Since the BEE policy was introduced scores of South African and foreign companies have sold equity stakes to black investors.
Last August, ArcelorMittal South African reached a deal to buy ICT for 800 million rand ($$144 million) and said it would also sell a stake in itself to black investors - including ICT shareholders, Zuma's son and the influential Gupta family - seen as close to Zuma.
The ArcelorMittal SA empowerment deal was severely criticised by opposition parties and analysts who said the Zuma family's involvement raised questions about how he ran the country.
Political analyst Borain said the deal portrayed black empowerment as a "bribe of the political class".
"It seemed to me that this was the ugliest face of black economic empowerment where it really looked like nothing more than a bribe. It was just outrageous".