Tuesday, 23 May 2017

Industry

Shared value in mining: a strategic imperative

Patrick Cairns




One of the key talking points in Africa around mining development is the growing importance of creating shared value. Governments want to see companies in extractive industries not just exploiting a resource, but also ensuring that there is a lasting benefit to the people and the country.

This was one of the key themes of the keynote address made by former British Prime Minister Tony Blair at the 2015 Mining Indaba. He pointed out that there is a paradigm shift towards the need to create partnerships between investors, governments and communities.

It is also a topic picked up on by Women in Mining South Africa at a panel discussion on the side lines of the Indaba, where there was unanimous agreement that the concept of shared value is becoming a strategic imperative for business.

“I think the issue of shared value is starting to gain traction in the mining industry,” said Noleen Dube, an independent consultant. “A lot of companies have traditionally looked at it as corporate social responsibility, but more and more are realising that this is not the way they should be doing it. Rather they should be looking at strategic community investment. When you invest in something you expect a return out of it, and they are realising that we are actually investing for the benefit of both the community and ourselves.”

Often the concept of shared value is driven by governments who want to see their mineral wealth translate into wider economic benefits.

“When we look at countries with huge resource endowments, 80% of them have a lower than average GDP per capita, and 50% of them have lower than average growth rates,” said Fransje van der Marel of McKinsey & Company. “They are poor and they are not catching up, and that is one of the big reasons these countries are looking at their economies and asking why they don't get more out of their resources.”

However, there is also a growing understanding among businesses that creating shared value from their operations is not just about ticking boxes, but that it makes good business sense. Working in partnership with government increases the ease of doing business, building communities leads to greater security and an educated, healthy workforce, and assisting in the building of infrastructure supports their own objectives as well as those of the country.

“Shared value is a strategic imperative,” said Megan Jarvis of Webber Wentzel. “The difficulty is how you give life to this concept, and decide which strategies to adopt.”

Importantly, this means aligning business objectives around the shared value concept.

“Traditionally organisational structures are separate,” Jarvis said. “The operations staff and technical staff are separate from the staff who are driving shared value. Business and social performance are also often reported separately. So part of what one can look at doing is create different structures, increase communication and collaboration so that shared value is a central part of the business.”

Companies don't however want to feel that they are expected to supply all the resources when it comes to initiatives that realise shared value.

“There's sharing value and also sharing cost,” said Amanda van Dyk, the chairperson of Women in Mining UK. “So the question then becomes whose responsibility is it to pay for this, and are there ways that the costs can be shared?”

Initiatives within local communities where the community itself provides labour or land, for example, are therefore more attractive. They are also likely to be more successful over the long term as communities take greater ownership when they are involved in the planning and execution.

However, when weighing up such initiatives, it's also vital that companies consider the potential cost of ignoring a shared value approach.

“Obviously investment in societal issues and communities is difficult to quantify and measure,” Jarvis said. “In order to demonstrate the benefit of shared value, we need to find ways of measuring the business benefit, accounting for the full benefit and cost, and seek to understand opportunity cost that's involved.”

Most essentially, shared value is about a collaborative approach between different stakeholders that results in deeper levels of understanding that ultimately benefit all parties.

“The trust element must be nurtured properly,” said South Africa's Deputy Minister of Mineral Resources Godfrey Oliphant. “We should not only look at cost. We must balance cost and benefit. If you see everything as cost, that's where things go wrong.”

A key part of developing a shared value approach is the economic engagement that takes place around mining projects. This means the development of local businesses that supply material and services to the mines and their employees.

“We need to realise shared value through encouraging growth in entrepreneurship and local businesses,” Van Dyk said. “And one of the best ways to do that is to empower small businesses run by women.”

In this respect, many governments insist on mines using a certain level of local content. For this to be successful, however, the capacity must be built so that investors are not forced to use local suppliers to the detriment of their business.

“We've found that 90% of resource-driven countries have some sort of local content requirements in place,” said Van der Marel. “But the only way it works is if suppliers and government want to create globally competitive industries. These supply chains need to be able to stand on their own feet, otherwise you only make it more expensive and you make your country less attractive as an investment destination.”

Back to Top