What the extractive sector should focus on – Part 2: Partnerships

In Part 1 of this blog I said that one of the main points that came out of the Mining Indaba Conference from the  3rd to the 6th February 2014 in Cape Town  centred around the question of shared value, and the role the industry should play in this endeavour.

To achieve results that are truly sustainable and inclusive, it is imperative that the value is shared and created in an equitable manner:

Created because the current model of mining economies, too often characterised by an enclave sector with little diversification simply does not work to foster broader transformation results. It requires more:

1. It requires enabling and supporting local cluster development, preferably through linkages with reliable and cost-effective local suppliers; or through the development of low-hanging fruit sectors, outside the mining sector, that can deliver quickly on building a wider economic base;
2. It requires functioning infrastructure that serves more than just the mine but help integrate the mine with the rest of the economy and vice versa; and
3. It requires access to talents, to name but a few.

Shared because this can have magnifying results, if done in an equitable manner. And it presents tremendous opportunities for mining industries to shift the paradigm through which they approach their core business; by factoring in and managing the expectations created and the realism faced by their businesses, in order to build competitive advantages. Mining companies that have embarked upon this journey have gained first mover insights and benefited from the engagement with suppliers and partners.

The Power of Partnerships

Creating and sharing values will only be achieved if conceptualised and materialised in strong strategic and collaborative partnerships. It is important to act collectively, and link actions in a smart and effective manner.

Two types of partnerships in particular, are important and can have tremendous transformative power to make mining work for development:

1. Partnerships between companies and governments: First, strong partnerships are key to share the understanding of the business logic by companies and to help to understand the challenges and the pressure faced by the governments. Also because governments have the capacity to mobilise financial resources for instance, for the joint provision of public goods that are in any case necessary for mining activities. It can be infrastructure, electricity provision or an educated population. It helps share heavy investment costs, has significant multiplier effects in creating indirect economic opportunities and serves non-mining sectors. Finally, it is important to have a common vision of development objectives and therefore define the role and responsibilities of each stakeholder.
2. Business-to-business partnerships – there is still great and untapped potential to foster business opportunities between mining companies and other businesses, such as local suppliers and entrepreneurs and to create clusters of productive activities and develop supply chains. This is important, because mining activities are generally capital intensive. If there is a business case to do so, such activities can be developed around mining activities by providing inputs or services that the mining sector needs anyway.

In cases where it may not be feasible to develop linkages within the mining sector, business-to-business partnerships with local entrepreneurs living around the mine can be a good catalyst to unlock economic potential for the local population. One may wonder why a mining company would partner with a local actor in an area unrelated to his core business? Well because if people living around the mines have productive activities and can create their own economic value, it reduces the propensity of tensions due to over-expectations, opens up job prospects for those that cannot be employed by the mine, and ultimately it is good for their business.

Finally, creating and sharing economic value in a way that all stakeholders get something meaningful out of it can be an important catalyst to address some of the challenges faced by the extractive sector. As Michael Porter said, it can unleash the next wave of global growth!

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