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sharing in governance of extractive industries

Smart inclusive mining, a key approach to increase local content and deliver shared value

We are living in a time of transition, which involves an emerging socio-political and advanced technology paradigm that is impacting the performance of all businesses. Specialization in mining has the potential to be significant source for socially and environmentally sustainable growth that acknowledges and tackles the key challenges of this new paradigm, which requires a systemic and collective approach that integrates all the dimensions of sustainability.

 

While new technology present important opportunities to deliver higher productivity, safety and environmental performance, it will also shape the labor market and the structure of the supplier to the mining industry sector. This might generate difficulties to local, regional and national workers and suppliers.  

For instance, it can be argued that if workers and suppliers at local, regional and national levels that are not able to participate in the transition to “the mine of the future” then a significant part of the new works and procurement generated by technological change will go away and mining communities, regions and countries might face important difficulties.

 

Mining companies and technology suppliers in collaboration with governments, can include the preparation of local capabilities to enable workers and suppliers to participate in the transition to the new technological paradigm. This is a core element of the inclusion imperative. In other words, to be inclusive means to enable locals, regionals and nationals to participate in the process of value delivering that the new technology will generate.  For instance, if local suppliers and workers are fit for purpose, then they will be a key source of competitiveness for the industry and for the broader economy. A shared value arrangement.  

  

This effort cannot be done in isolation. It requires to build real partnerships between mining companies, suppliers, communities, governments and other key stakeholders at regional, national and international levels. The following list illustrates some actions to be taken into consideration in the definition of comprehensive collective agenda in which each stakeholder has a key role to play.

 

Government actions:

 

  1. To define standards of interoperability: This is a public good that aims to allow communication between different types of mining machinery and IT systems by standardizing data exchange. The definition of this "common electronic language" creates an open system that enables the participation of different suppliers to provide solution and avoid the creation of barriers to entry. This is key for smaller knowledge-based suppliers.

    

  1. To define competences of the workers of the future, including forecast of labor demand: Having an integrated view of the evolution of the workforce demand is key for vocational educational and training organization to update their program.

 

  1. Tax incentives to encourage transition to a Smart inclusive mining: There is a range of tax incentive that can be use. For instance, tax credit can be used to invest in generating a comprehensive plan to address the opportunities and challenges of automation. Possibly, this should consider a conceptual frame to identify the challenges and gaps that need to be addressed in a specific context and will inform decision making about key areas to be tackled.

 

Companies voluntary actions:

 

  1. Integrating local content criteria in procurement and bidding process: Local content can be included in company´s procurement policy and strategies. In particular, open bidding processes can include local content or inclusion criteria in the assessment of the proposals. Thus competing technology suppliers together with presenting a value proposition, need to present how they are going to address the impact in employment and local procurement of new technologies.   

 

Investors actions:

 

  1. Inclusiveness criteria in capital allocation or investment decision: The 2019 letter from Larry Fink, the head of the world’s largest asset manager urged chief executives to re-examine the purpose of the companies they lead, rather than simply focusing on profit maximization. This is shaping business decision of companies that need to attract capital for the development of projects. The transition to automation is a capital intensive process, and therefore companies need to attract resources. Investors can shape mining companies local content and inclusion policies if that factor is considered as a criteria of investment allocation.  

Question to open the discussion

 

Assuming that there is not simple solution that address the challenges of local content or inclusion of the transition to the new technological paradigm and that one size doesn´t fil all:

 

How to define a set of complementary policies and strategies to generate coherent set of initiatives?

 

Should mining economies arrange collective effort to define a shared vision and a road-map to succeed the transition to automation in terms of its economic, environmental and social impacts?  

 

Who should lead this process? Who should participate? What are basic enabling condition of this process to happen?

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Comment by Simon Njovu on May 23, 2019 at 9:13

Because of bad policies in the mining sector especially with Investors in the Southern African Countries, Communities have not fully benefited from our God given Natural Resources. This is the reason why Government of Zambia has disengaged Vedanta Resources from mining In Zambia. Investors Relations towards common benefits of its people must improve in Africa.

Comment by Simon Njovu on May 23, 2019 at 9:07

Comment by Jodi Liss on May 23, 2019 at 0:55
I am disturbed by the way that this conversation, for all intents and purposes, leaves out involvement of the community. All such projects are site-specific and companies should first talk to local communities on their issues, questions and ideas. Many times these ideas are sound and useful. Local people are the ones for whom capacity building is most critical. Not to put them first is not only arrogant but undermines company efforts toward a strong Social License to Operate.
Comment by Osvaldo Urzua on May 23, 2019 at 0:17

Hi Armando, What are the features of a good strategic vision? The process to generate that vision is key and the governance of the set of initiatives that lead to that vision too.  

Comment by Osvaldo Urzua on May 22, 2019 at 23:49

Hi Jeff, I am with you. Replacing, undermining or crowding out government is a mistake.  I think that capability building is a key element of any policy or strategy to support local sustainable prosperity. Each stakeholder has a role to play and the overall productivity of the sector is shaped by the “weakest link”. If there is a significant gap in terms of capability of any player, then upgrading that capability is a necessary condition to enabling collective action.

 

For instance, in the case of the development of innovative suppliers to the Chilean mining sector a key element that did not exist was an open innovation platform, i.e., a key public good to have a system of innovation. All the players agreed that this public good was required and collaborated to create it.

Comment by Osvaldo Urzua on May 22, 2019 at 23:16

Aaron, great question. I think we are dealing here with two different issues. One is related to the size of the pie, which might vary from one commodity to the other. For instance, the forecast of the demand of primary copper is quite positive, i.e., the pie is expanding (sources: Schipper et al.,2018 “Estimating global copper demand until 2100 with regression and stock dynamics”; World Bank, 2017 “The Growing Role of Minerals for a Low Carbon Future” ).

 

The other issue refers to who is participating in the process of value creation associated to the production of a given mineral. The value chain associated to finding an ore deposit and transforming that ore in a mineral is long and diverse. Even in a 100% autonomous mine, someone needs to provide the technology and services to make that possible. Therefore, understanding the structure and barriers to entry in the supply chains to mining, usually organized in global value chain, is key!. I am not suggesting that the potential new work in the supply chain of the mine of the future would be enough to off-set the work displace by automation, but there are opportunities there that needs to be understood. For instance, that is what Australia is doing in their METS sector.

Comment by Armando Mendoza on May 22, 2019 at 18:51

Thanks for a most interesting take on the challenges to increase local content in mining projects, particularly in the area of local employment.

Regarding the “basic conditions” that you mention ito deliver effective local content policies, I was thinking about the paramount importance of education and what are the minimums that should be guaranteed.

Unfortunately, in many developing countries access to education is a luxury, even at the basic level, particularly in rural isolated areas. Thus, it can be very difficult to develop vocational and training programs when the local population has severe educational deficiencies. If you are already a grown person, even the best training programs can’t always compensate or replace a defective education at the elementary level.

Certainly a mining project can’t be blamed for this “preexistent condition”. Ensuring that the population have access to, at the very least, good basic education is a national government’s duty, with or without mining projects in the horizon. That demands the development of a strategic vision and long term national education initiatives. Otherwise, by the time we start thinking on how to improve the educational level linked to local content initiatives it could be already too late...

Comment by Jeff Geipel on May 22, 2019 at 6:27

Osvaldo thanks for so thoroughly laying out the key components of a given country's mining system and their respective role in ensuring technological advances don't exclude local employees and suppliers.

Your questions also help guide the conversation which I hope other GOXI members and practitioners can join.

One response to your third question which I hope can inspire some ideas from the community. In the absence of a government fully able to lead this process, how can companies spearhead efforts without having the effect of undermining the government's authority to do so at a later point? What is the correct balance? Again, I hope mining company representatives can chime in drawing from their own experiences handling these challenging situations. 

Of course I am also interested in reading replies to Aaron's cautionary point as well from everyone.

Comment by Aaron Cosbey on May 22, 2019 at 5:35

Hi Osvaldo.  This is a compelling vision for moving forward. But let me play Devil’s advocate for a moment. While it clearly makes sense for governments and companies to focus more on local content policies in mining, what if we’re just chasing a bigger slice of a shrinking pie? That is, if the mine of the future is more like an oil rig, with very few workers during operation, then there’s only so much we can accomplish by boosting local employment, and local employee-related procurement like housing and food.

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