Thirty years ago, the mining industry was something of a pariah. It wasn’t always careful of its workers’ lives and its image was one of exploiting the third-world communities in which it operated. How times change.
Too many people still die in mines. Mining is – and always will be – an inherently dangerous business. It will inevitably alter once pristine environments, though often to the benefit of the people who live there.
But, because of their bad-boy past and a shift in perception among stakeholders, reformed mining companies have become among the most committed of all industry sectors in seeking to contribute to the development of host communities.
Mining is a sector in which corporate social responsibility is genuinely business critical. Access to resources is vital. Without the agreement of local communities – and a credible track record of delivering benefits – future operations can be jeopardised, sometimes at enormous expense. Today, in most countries, without the permission of local communities, mining simply cannot take place.
Mining companies’ attitudes have also changed. Local procurement can be a key factor in establishing a licence to operate. As well as building community trust, it can create jobs, build skills and help develop local infrastructure. It can also directly benefit the mining company, as local supply chains tend to simplify logistics and can often reduce costs. While the shift might be self-interested, it isn’t necessarily cynical.
A mining company’s procurement spend is more than it expends on wages, social spending and taxes
All the big mining companies stress their credentials and have case-study examples.
Rio Tinto’s Indigenous Business Development Programme in Western Australia increased the number of its Aboriginal suppliers from six businesses in 2009 to 104 in 2012. In Chile, BHP Billiton aims to develop 250 local companies into world-class global resource industry suppliers by 2020 – where world-class is defined as companies selling more than 30 per cent of their product internationally.
But mining companies aren’t charities. Last year, for example, Anglo American’s spending on local procurement was ten times greater than its entire spending on social investment – in areas such as education, infrastructure and healthcare.
“A mining company’s procurement spend is more than it expends on wages, social spending and taxes,” says Jon Samuel, head of performance affairs at Anglo American. “It is by far the largest slice of the pie. Social investment is discretionary and can’t be leveraged through our value chain. But procurement spending can. So its social impact can be very much greater.
“Last year our local procurement spending worldwide was $1.54 billion – 11.3 per cent of our total supplier expenditure. That was up from 9.5 per cent in 2011. We want to buy more locally and all our operations have local procurement targets.
“We also have supply-side responsibilities, such as helping to overcome technical and managerial competence issues in our supplier base, simplifying our terms and conditions, and improving our payment policies.”
In South Africa, which generates half of Anglo American’s profit, companies are legally obliged to promote black economic empowerment. By 2014, Anglo American, Xstrata and other mining operations in the country will be required to source between 40 and 70 per cent of capital goods, consumables and services from companies owned by “historically disadvantaged South Africans”. Last year, Anglo American spent $3.1 billion with such businesses.
In fact, the company has an honourable record of supporting small local enterprises. For almost a quarter of a century, it has been running its Zimele programme in South Africa. This promotes black entrepreneurship and the creation of sustainable small businesses, some – but not all – of which supply Anglo American.
So far, Zimele has funded almost 1,400 businesses in South Africa, creating more than 25,000 jobs. And by using a similar template in Botswana, Brazil, Chile and Peru, Anglo American has helped create over 65,000 jobs.
The bottom line, says Mr Samuel, is that “socially targeted procurement, combined with regulatory requirements, can help alleviate poverty more effectively than either taxes or social investment”.
