December 9, 2013
On December 9, 2013, the DI convened a one-day workshop examining the mining industry’s contribution to local economic development through its supply chain and procurement initiatives. This workshop brought together more than 50 representatives from industry, civil society, government, and academia, and featured a blend of presentations, panel discussions, and breakout group sessions. The objectives of the workshop were:
- To explore the intersection between the business processes of procurement and the developmental aspirations of building pro-poor local economic markets;
- To profile existing models, both those that are standalone and those that are collaborative in nature, of companies and NGOs working on local economic development; and,
- To contribute to the emergent global conversation around best practice in local economic development arrived at through the procurement strategies of global mining companies.
It is increasingly recognized that mining companies have much to contribute to social and economic development, at both local and national levels, beyond standalone community investment initiatives that traditionally fall under the auspices of CSR. To this end, a widely cited statistic was that a 1% increase in the ‘local’ content of a mining company’s procurement activities would have the same financial effect as doubling its CSR spend. Building from anecdotal observations such as this, the DI workshop was a unique contribution to the wider discussion on local economic development, with participants recognizing the need to balance the focus on procurement with a perspective that places the intended beneficiary communities at the centre. Indeed, a key feature was the frequent emphasis on the need to ensure the conversation on local procurement be framed in terms of, and recognizing the unique aspects to, poverty reduction. The important consideration arising from this was the need to view local development as part of a broader, and long-term, contribution to the alleviation of poverty and promotion of socially and economically resilient local communities.
Perhaps one of the strongest points of convergence amongst all participants at the workshop was the acceptance that economically ‘resilient’ communities with strong local markets required more than one major economic opportunity – that is, the need to avoid creating dependence on a single buyer. Economic diversification, along with a sensitivity to pro-poor / poverty alleviation considerations, therefore stood out as two of the central criteria for characterizing the nature of local economic markets desired.
Historically, there has been some concern that companies were not giving enough thought to the (often unrealized) local benefits that their core business functions regarding procurement and supply could offer. In one example, it was noted that 80% or more of a mining company’s inputs were deemed nearly impossible to source to in local markets in a developing country. Recognizing this, a number of organizations participating in the workshop described their efforts to promote greater awareness (and capacity) around local economic opportunities surrounding major foreign investment projects.
In the Canadian mining industry, a positive trend regarding local procurement is being observed. A then-recent report noted that in the last five years, the number of Canadian companies reporting on local procurement has increased by at least 25%.
Often, local markets are more challenging, less reliable, and more expensive, and such many procurement managers would be inclined to competitively source required goods from a wider regional or global marketplace. One participant noted that the traditional procurement ‘footprint’ of a mining company does not lend itself easily to buying locally given the nature of goods sought. Similarly, global companies accustomed to working with major suppliers in developed countries are often not conscious of the various capacity gaps persistent in MSMEs in developing countries. Workign with local suppliers in this context requires a blend of traditional supplier relationship management, as well as mentorship and support.
Companies engaged in local procurement initiatives have learnt a number of valuable lessons, which were discussed amongst workshop participants. A common approach has been to develop business incubators, which provide a way of educating and informing prospective and current local suppliers on the opportunities for working with the company, as well as with respect to the policies and standards expected of suppliers. Furthermore, this is a useful platform for aggregating inputs from smaller MSME suppliers, and for guaranteeing the company some level of quality, quantity and reliability. These incubators have also proven a useful tool for engaging local companies and communities in capacity building around both traditional (business and technical) and non-traditional (human rights, gender equality, etc.) skills and competencies. Importantly, business incubators provide a useful means of ensuring regular and constant dialogue between the company and community.
From a social license perspective, such local procurement approaches are a clear demonstration of the socioeconomic benefits accruing from the mine, and contribute both to the demand for wealth sharing as well as to fostering stable local relationships. Throughout the life of mine, it is important for the company to be transparent and robust in communicating what opportunities and demands there are for working with, and sourcing from within, local markets. Equally, there needs to be clarity in terms of expectations around standards, policies and processes, and the company should be willing to find ways of working with local businesses to help get them up to the expected levels. Finally, expectations, codes, and systems for addressing human rights (including child rights), corruption, and other cross-cutting themes should be in place well before the company dives into the local market.
Over the last five years, considerable ground has been covered with respect to linking the core business of mining companies, specifically through procurement of goods and services, to local economic development opportunities. Not surprisingly, much of the industry leadership in this space is coming from companies that are members of the DI, and their experiences to date continue to be informative amongst the group, as this workshop showed. Across the industry more generally, there is still some ground to cover – only 25% of (Canadian) companies are reporting on their involvement in local procurement strategies.
NGOs continue to have an important contribution and opportunities in this space, and a number of organizations are actively developing innovative ways of supporting the socioeconomic development aspirations of their beneficiary communities through linkages with procurement opportunities. As well, a number of often overlooked stakeholders are beginning to receive more attention in this space, such as local chambers of commerce and nascent business groups, associations, and cooperatives.