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What the Extractive Sector Should Focus On – Part 1: Shared Value

07-02-2014

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As resource-rich countries continue to enjoy high growth rates, the time has come to think about what collaborative business relationships can finally do for inclusive and sustainable development.

From 3 – 6 February 2014, 8,000 people converged on Cape Town to attend the 20th edition of the Mining Indaba Conference. Much of the discussion centred around the question of shared value and the role the industry should play in this endeavour. In the first section of this two-part blog I discuss why shared value is the key to manage the relationship between governments and mining companies. In part two, I highlight the precisely the power of partnerships.

Shared Value is a Major Leap Forward

The pursuit of shared value represents the next big (r)evolution in the way business will be conducted. This is particularly valid in resource-rich African countries, which have so far struggled to harness their endowments to the benefit of their people. The legitimate concerns of translating economic growth into one that trickles down to the benefit of society, will become a defining characteristic of economic operations in this post-crisis era. And therefore these will have to be incorporated into strategies, operations, business management and public policies.

But shared value is a shared responsibility. The role of government is critical of course. It is equally, and increasingly, the core business of mining companies – echoed more and more at the highest level. We should also add to the equation, the responsibility of citizens whose role is to hold governments accountable for the management of the mineral endowments and the fair and equitable distribution of benefits derived from them.

The extractive industry has a very particular feature. Unlike a shoe industry, it creates far greater expectations by governments, companies, citizens, each one often expecting something totally different from each other.

Citizens see impressive growth rates, hear about high commodity prices, but do not see that yet translated into real economic and social benefits rapidly enough. They start to get impatient and ask for their fair share of the pie.

Governments are increasingly under pressure to deliver on sustainable and inclusive development outcomes and to diversify economies, now, not tomorrow. As a result, governments therefore respond through numerous policy decisions and requirements, such as increasing financial returns, more local sourcing, value addition, equity participation etc..

Companies are also faced with increasing pressure from their investors and shareholders, to deliver profits worth the large capital intensive investments made and in times of policy uncertainty and risks, to deliver fast, and with higher returns.

It also creates perceptions because of the multitude of actors involved, perceptions are sometimes distorted by mistrust and misunderstanding about each other’s duties and obligations. All that, if not well managed, can lead to policy or management decisions that may not be productive or profitable in the end. Finally, if one thing, it is full of politics – sometimes economic rationale and common sense simply does not work because expectations give rise to certain behaviours that are entertained and abused by elites involved in the business.

Despite the increasing disconnect between growing expectations from all sides and the realities on the ground, it is fair to say that the competitiveness of mining industries, the well-being of communities and broader economic performance are mutually dependent. Recognising that, capitalising on the connections between societal and economic progress has the power to unleash the substantial of economic benefits.

It makes sense therefore for companies to do things differently, if they want to gain and maintain their social license to operate, continue to be profitable, to access the next project or leave a meaningful legacy and imprint in the countries they operate. It makes sense also for government to make things differently if they want to win elections and if they are genuine about a better repartition of the benefits.

Read Part two of this post here

The views expressed here are those of the authors, and may not necessarily represent those of ECDPM.

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Economic Transformation and TradeExtractive SectorsMining