Making policies work

GREAT insights Magazine

Involving Extractive industries in local communities

The case of anglo american

February 2013

Morgan, R. 2013. Involving extractive industries in local communities: The case of Anglo American. GREAT Insights, Volume 2, Issue 2. February-March 2013. Maastricht: ECDPM

Anglo American is a global mining company with the majority of its operations (over 80%) in developing economies. The company is acutely aware that they are increasingly judged not just on the value they extract (and the significant revenue that this can raise) but on the value that they leave behind. How to measure that value and where to collectively set the level of expectation is not fixed in advance: it has to be part of an ongoing dialogue against the political context of the day.

Any failure in this dialogue process increases the risk of mutually negative outcomes: governments are tempted to over-regulate, impose extra rents or nationalize, companies walk away without investing and resources stay in the ground. Conversely, getting this dialogue right delivers revenue for the host government, developmental benefit for its people and sustainable commercial returns for the mining company. Additionally, it also attracts the support of international development agencies, for whom responsible mining is an important socio-economic driver.

Engaging in dialogue in South Africa

Nowhere is this dialogue more critical for Anglo American than in South Africa, where it has major operations in four of our seven main business units – iron ore, platinum, diamonds and thermal coal. Anglo American has a good record both in revenue payments (over US$2bn in 2011) and is one of the largest private sector employers. but expectations are always moving to a higher level. 

In this context, in a recent speech in Johannesburg CEO Cynthia Carroll outlined ten commitments, that Anglo American would take to meet these expectations. These are:

(i). To re-double efforts to achieve zero harm in the mining industry. Safety is, above all, a moral imperative. The last twenty years have seen South Africa striving constantly to redress the historical inequities that existed in society. Whatever progress is made on economic issues, it is difficult to say that the society has become just until the mining industry can guarantee that everyone can go home safe to their families at the end of the working day. 

(ii) To promote health in the workplace and in the broader community. Anglo American has extended its world-leading HIV/AIDS testing and treatment programme to target the additional scourge of tuberculosis. It is also very active in supporting and expanding community healthcare initiatives. Good healthcare transforms lives. 

(iii) Make mining a positive force in the environment. Building on projects like the Emalahleni water purification initiative, which provides thirty million litres of clean drinking water to 80,000 people each day demonstrating that, mining can make a positive contribution to solving the problem of water scarcity in South Africa. 

(iv) Better employment equity in the industry. At Anglo American in South Africa, 55% of the managers come from historically disadvantaged backgrounds, and 19% of the employees are women. Across the industry, mining companies have been working to achieve the Mining Charter targets. But there is more to be done – particularly to promote the role of women in mining. It is therefore crucial for all companies to deliver on what was promised and to move beyond compliance to true transformation. 

(v) Support to education and skills development in the broader community. 18 years after the dawn of democracy, South Africa is still battling to overcome the legacy of prior decades of conscious underinvestment in education for the majority population. The mining industry has a crucial role to play in helping to accelerate the development of the skills society needs – for example, through support for Further Education and Training colleges. Anglo American is working with the Development Bank of South Africa to support capacity building and service delivery in local municipalities.

(vi) Use the power of mining to create jobs. Unemployment is a tragedy that must be tackled. With the right policy framework in place, the growth of the mining industry will itself create jobs and mining companies have a critical role to play in creating jobs beyond the mining sector. Anglo American Zimele has already created almost 20,000 jobs and our 31 business hubs are constantly driving that number higher. 36% of the beneficiaries of Zimele are women and 48% are young people. Again, there is much more to be done, beyond the target of 25,000 jobs already set, particularly by fostering the creation of medium-sized enterprises. 

(vii) Complete the transformation of the ownership of Anglo American. The company has already met the 2014 Mining Charter targets for Black Economic Empowerment (BEE) ownership. Since 1994, it has completed BEE transactions worth over €50billion. It is further extending the benefits of ownership not just to its host communities, but also to our key labour-sending areas. 

(viii) Improve housing for its employees. The mining industry of the past has left South Africa with a housing legacy which is quite disappointing. This cannot be addressed overnight, but it is important to work with determination to achieve good housing conditions for all employees. Across the Anglo American businesses in South Africa, the latter has committed to build over 23,000 houses and to convert the remaining hostel accommodation to single-person occupancy by 2014. 

(ix) Use local procurement to support South African businesses. In 2011 Anglo American spent over €2billion in procurement from BEE suppliers in South Africa. It is committed to local procurement as a core part of its business and to developing skills in the South African economy through partnerships between local and international suppliers. 

(x) Transparency and mutual accountability. The standards of the best mining companies can justifiably render both the nation and the company proud, and there is a mutual responsibility to work together to achieve the highest standards. Only then can the progress made be genuinely transformative. 

Going beyond Corporate Social Responsibility

The ten commitments above go beyond the Corporate Social Responsibility of Anglo America. While CSR is still valuable in some ways, its impact has not always been transformative. Anglo American therefore goes beyond, as exemplified by its approach, to enterprise development.

Believing in the innovative spirit of communities

In South Africa, Kutting Mpumalanga’s 24-hour mobile field service delivers on-site hydraulic repairs on a Terex machine. The company is supported by Anglo American Zimele’s supply chain fund.

Gaining and maintaining the “social license to operate” has turned into one of the most strategic goals for mining operations. Unlike formal permits, the social license to operate is an open and unregulated agreement between the mining company and the community.

Mining companies need to demonstrate that there are going to be direct socio-economic benefits for the communities otherwise the project may be delayed or even stopped. Anglo American believes that this process is also an opportunity to differentiate itself.

The traditional approach to deliver socio-economic benefits would be through social investments (i.e. grants). The advantage of a philanthropic approach is that it is simple to provide and usually does not take long to disburse. Moreover, sometimes grants are the only sensible way to support a community. However, donations may reduce incentives for the community to be independent; asking for more social investment has no cost for them. This not only reduces the capacity of the community to deal with their own needs but also increases costs for companies. And, because social challenges are rarely seen as solved, additional requests normally follow.

A more strategic way of delivering socio-economic benefits is through enterprise development programmes. These are schemes that provide financial, technical and implementation support to local small and medium size enterprises (SMEs). Importantly, enterprise development schemes respond to the strengths rather than the weaknesses of host communities – for example, their capacity to innovate and their potential to create value. With technical and business support, SME productivity grows, which allows them to repay the financial support. This process allows SMEs to deliver socio-economic benefits such as jobs, capital accumulation and better salaries. Most importantly, the long-term dependency risk is reduced as communities focus on solving their problems via their own income-generating activities.

Governments have run SME development programmes for many years with mixed success. However, as a business, Anglo American has an advantage – it has a large supply chain (over US$10bn globally) and can help SMEs to understand how to compete successfully for its custom. This information allows the company to design supplier development programmes that are more effective and provide enterprise development schemes at a lower cost. In South Africa, the survival rate of SMEs is one of the lowest in the world; however, the businesses supported by Anglo American have surpassed the five-year EU survival rate of 50%.

Enterprise development turns the conventional understanding of the “bottom of the pyramid” upside down: it is not seen as a potential market in a community, but a supplier base. It focuses on the production potential of local communities instead of their consumption capacity and provides the complementary assets and services, while the local SMEs provide the innovation and effort.

Enterprise development schemes also work as long-term platforms for partnerships. They are designed to bring together services that can be provided by Anglo American, but also by third parties. For example enterprise development programmes in Chile and South Africa already partner with governments, NGOs such as TechnoServe, and private sector companies. The result is that efficiency and performance are improved as each partner focuses on its particular area of expertise.

Anglo American is now launching new enterprise development programmes in Peru and Brazil to complement its well-established programmes in Chile and South Africa which, between them, support more than 47,000 jobs. In Botswana it is using its experience to contribute to the government’s economic diversification programme. The capacity of communities to innovate and the power of enterprise development programmes is thus essential to enable them to share sustainability of the socioeconomic benefits generated by mining companies.

Richard Morgan is an International Government Relations Advisor at Anglo American.

This article was published in Great Insights Volume 2, Issue 2 (February-March 2013)

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Economic Transformation and TradeExtractive Sectors

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Richard Morgan