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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 Jeff Geipel on May 27, 2019 at 8:23

Hello everyone,

Great to see there was an exciting week of discussion on “Addressing the potential losses: What local content policies can make the greatest difference?” I am here to sum things up and draw out a few key points that will inform our upcoming New Tech, New Deal Roundtable in Paris, as well as the remaining online consultation weeks before that.

It is clear all of the participants understand both the huge potential that mining local content can play to upskill the economies where the sector operates – but also the incredible challenge it is to make this happen. Isabelle Ramdoo points out how the mining sector can provide a huge “anchor” spend – and Osvaldo notes how the sophistication of mining operations and investments provides a real opportunity. However, capitalising on these huge spends has proven difficult for mining host countries, even before this additional growing challenge of new technologies.

In terms of the focus of this week’s discussion, we can draw out a few points that are vital to inform our ongoing consultation and what the New Deal could look like:

  • Education is vital to the solution but is much easier said than done. There was broad agreement that part of the solution to making local content work in the context of new technologies, but there were sobering points made on the difficulty of doing this. For example Armando Mendoza made a great point that spending money on new skills training programmes and vocational schools can be undermined in host countries by a legacy of weak capabilities left by underfunded elementary education systems. Hugh Thompson pointed out that skills training requires an underlying education infrastructure that requires a lot of resources, and that attracting the teachers to the remote areas where mining takes place is a major obstacle. The discussion on this point did a great job of drawing out the nuances to show just spending large amounts of money on new training programmes is not likely to be enough.

  • We can’t regulate in a way that creates dependency, overlooks the potential shrinking pie of benefit, and ignores the need for diversification. If there was broad agreement that a multi-stakeholder approach that does not crowd out government is needed to ensure local content benefits amidst technological change, there was also serious concern raised about the potential of these regulations leading to dependency and a lack of economic diversification. Aaron Cosbey provocatively interjected at the start that we could just be chasing a bigger slice of a shrinking pie. Likewise, Armando raised the concern that we can regulate local content in a way that creates competencies that will be unnecessary in the long run anyway as those jobs become obsolete. In addition to this concern over regulations targeting a shrining benefit pie, Sun-Min Kim pointed out the need for economic diversification is vital and any approach to try to ensure benefits amidst new technologies needs to keep diversification as the ultimate goal. 

  • Partnership is vital and the government cannot be sidelined. In light of increasing attempts by governments to ensure more benefits of mining stay in host countries through local content regulations, there was a dual recognition that the government must be involved in making the New Deal, but it is not in the interest of anyone for this to mean simply government regulations without a multi-stakeholder approach involving everyone. Hugh Thompson also added that we cannot overlook policy and taxes that we may not traditionally think of as being part of “local content regulations”. He points out that sales taxes and import duties drive behaviors which can undermine pushes for local content. Against this backdrop Osvaldo also points out the weakest link in the system hampers all actors’ abilities to pursue local content – building up that weak link “is a necessary condition to enabling collective action.” These discussions were useful to emphasise that everyone needs to be part of any New Deal for mining amidst emerging technologies, including the government – but ultimately the way forward is through a multi-stakeholder approach. 

  • The New Deal cannot place the community on the sidelines. During all these high-level discussions on who should do what and how, Jodi Liss stressed that communities should be talked to first. Not only are these local community members the ones for whom capacity-building is most critical, but not putting them first can undermine a company’s social licence to operate. This reminds us that the best “New Deal” in the world between companies and governments will not matter much if the local community ultimately rejects the mine.


So that’s a wrap for Week 2 of this ongoing online consultation, though don’t be shy on contributing further comments on this thread. We now turn to Week 3 and the question of “Addressing the potential losses: What new arrangements are needed between host governments and mining companies?” which is a natural next step in this discussion. I look forward to the next round and all the insights GOXI members continue to provide.

Comment by Perrine Toledano on May 26, 2019 at 12:26

Hi Jodi

The last two sessions of this series (in June) will be dedicated to communities and their perspective. Looking forward to reading you there.

Comment by Osvaldo Urzua on May 24, 2019 at 23:48

Hi Armando and Sun-Mi Kim, I think that any local content policy or strategy, needs to be linked to productivity gains too. If local content is a source of productivity (at least in the long-term) then the risk of inefficiency can be reduced.  

Comment by Osvaldo Urzua on May 24, 2019 at 23:37

Hi Isabelle, I do like the idea about building bridges with other sector. Actually, most of the different supply chain to mining are also provider to other industry. Given the scale and sophistication of mining operations and investments, mining can provide the critical scale to support the development of a supply sector (for instance, maintenance services), which later on can also provide other industries (e.g. construction).

 

Can mining be the springboard to develop robotic solutions and entering in this high-tech industry?    

 

The supply sector to the mining industry is very diverse and is import to map the opportunities, to identify the high value niches and to create a collective agenda (public private partnership with high quality participation) to tackle those opportunities.

 

It is not simple to address, but it is possible and there are some experience to learn from. This is a path towards economic diversification too.

 

To have a more structured discussion I use to use the following graph to illustrate the transformational potential of mining.  Hope it helps

Comment by Hugh Thompson on May 24, 2019 at 3:15

Will mining get like an oil rig - no, I doubt it. There are a few isolated examples which are similar, eg. in-situ leaching of uranium, which come close.  But hardly a big player.  The mix of commodities in demand changes, so the locations change.  But we will still want / need to provide resources.  And will still need a lot of human effort.   As mentioned below, the rocks we dig up are remarkably inconsistent. 

Company behaviour - incentives needed to align with outcomes of stakeholders. Obvious and not new. But as examples; 
1) mining - now, and in the future - needs better educated workers.
So what are the impediments to encouraging mining companies to contribute / invest in local education? 

To take this further: the biggest future mining education issue is in maths / science. The higher tech future described here is based on maths.  This actually mirrors the biggest difficulty that
local & remote communities have anyway. ie. hard to get teachers to go to the bush anyway, and a lot harder to get maths teachers.  Maths/Science is also a stream that is most adaptable to remote distance education, than say history / literature.  And remote education systems generally need investment in their infrastructure.   

2) Look at incentives around apprenticeships / traineeships etc.
Often there are real disincentives to apprenticeships.  These often get based on needs /desire of non-mining industries.  Which makes sense as mining is not a huge employer in sheer numbers. But is very significant in the locations where it actually is.   Not unlike agriculture. 

3) Look at sales taxes and import taxes on components and supplies: What behaviours doe these drive? Again, often the result is to reduce the desirable outcomes of local content.

4) short sightedness - very few governments think beyond one or two election cycles (in democracies).  This vision horizon doesn't really align with either mining ventures, nor community requirements.   I have no real solution for this, apart from suggesting we align some of these topics with environmental management topics such as continuous rehabilitation and closure planning. 

Local content does not always / only mean local application.  mining is global.  One of the experiences in Chile mentioned below was founded on how to get suppliers who successfully work in the local market, access to the global mining community?  

Local content mandates have never been a success in terms of technology investment. There are always clauses concerning quality and supply in the local market, so become a lawyers picnic

Standards of interoperability - nice as a concept. Very complex to enact.  happens at a level where talking about safety.  But further than that, the topic becomes involved with the fact that these technologies are developed (by and large) by private industry, seeking a return on their investment.  hence commercial edge etc.   Not unlike the pharmaceutical industry.  Is also why is the big equipment suppliers (Caterpillar, Komatsu, Hitachi, Epicroc) driving the automation development. 

Comment by Osvaldo Urzua on May 23, 2019 at 22:14

Hi Jodi, Thank you for reminding us that the community is at the center. Responsible corporations recognize that they are intimately linked with the societies and communities. Building a trust based on an authentic dialogue and engagement is a prerequisite.

Comment by Isabelle Ramdoo on May 23, 2019 at 19:29

Armando, I agree with you. This is the whole difficulty with making local content work in the long wrong. Mining is a great 'anchor client' - it can provide security of supply for certain locally sourced goods and services, if local suppliers are able to meet the requirements of the mine. The main challenge is that it indeed intrinsically create a dependency: why would anyone who has a comfortable/ guaranteed market look elsewhere and compete? (works like a 'subsidy' right?). To me, a scheme would only be sustainable if it was not developed with only one sector but with more economic sectors, able to provide diversity of markets to the mine. As you say that should be built into a diversification programme.

That said, if the mining sector provides a large and sustained market (at least in the short term, as with technological changes, the nature of procurement will also change), then there is no reason why that should not be tapped.

My main worry is with regards to the changing nature of demands from the mine, as a result of technological change (new types of procurement? less employment-related procurement? increasing OEM contracts linked to tech providers etc). How do we look at new forms of partnerships for alternative livelihoods for local communities affected by coming changes?

Comment by Armando Mendoza on May 23, 2019 at 18:44

I gotta partially agree with Sun-Min Kim in that one.

Certainly linking the mining sector to other productive sectors can bring huge benefits to a developing country; but at the same time it could increase its dependency on extractive activities if we don’t have a clear vision on how to ensure a wider sustainable development process.

Furthermore, I wonder if sometimes the social and political pressure to link the mining sector to the rest of the economy could create forced and inefficient local content schemes that in the long run are unsustainable.

As mentioned, economic diversification is key. Ideally, policies on local content should be paired and balanced with policies on economic diversification.

Comment by Sun-Min Kim on May 23, 2019 at 17:54

Very interesting discussion so far.

Reading Isabelle’s comments on linkages to other productive sectors, the thought that comes to mind is: I think this links to the larger question and necessity for resource-rich and more so dependent countries to diversify their economies. How to leverage the mining sector for the broader development, without aggravating the dependency of local workers and suppliers to the sector, is a tricky question. If a good number of current local content policies have provisions ‘tailored’ or ‘conditioned around’ the mining sector (e.g. xx% of positions to be filled locally, etc.), maybe there should be a bigger focus on models that secure a portion of the mining contribution to be channeled for the development of other productive sectors strategic in the long-term for a country (e.g. agriculture, energy, etc.).

Comment by Isabelle Ramdoo on May 23, 2019 at 14:31

Hi Osvaldo

Thanks for steering this conversation. Your point about partnership is key. For one thing, regulatory pressures, such as local content requirements are likely to intensify if host-countries (through the voice of local communities; and more broadly resulting from lesser direct opportunities - jobs and/or procurement) do not feel they are getting a fair share of the 'deal'. While mining companies will be busy getting more efficient, if nothing is done, governments will get busy regulating more. And that is in no one's interest, because rules are not a silver bullet for economic prospects, unless there are business opportunities out there. 

In the advent of more automation on the one hand, and rising concerns (rightly so) over getting a better deal, on the other hand, what forms of innovative partnerships can emerge, so that the local communities and the economy at large can benefit from mining? Are we able to include other sectors in the conversation? Take for example the agricultural sector, which often co-exists with mining in rural areas, can we build synergies across sectors, to better manage the transition? 

To answer to your first question on complementary policies and strategies, we have to look beyond the mine and build bridges with other productive sectors. Some competencies could find their way in other economic sectors (truck drivers into the retail or fret transport for eg). Others of course will be more difficult, and therefore the question of skills development/ transition would have to be part of those sets of 'complementary policies'.

Not a simple issue to address.. 

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