May 2014

Community Relations

Local procurement through local content helps manage risk

By Monica Ospina

Some of the most serious and hard-to-measure risks mining companies face, particularly in the developing world, have nothing to do with geology or commodity prices. Rather, they involve risks to their social licence to operate. News of local opposition to a project, involving roadblocks and protests, can go global quickly. Influential bloggers and even tweeting celebrities can instantly turn public opinion and financial sources against a project.

Many mining companies overlook two of the most effective, cost-efficient and sustainable ways to build community support: local procurement and local content. This means buying goods or services on the basis of origin of the physical products and where the value was added. It could involve buying produce from local farmers, having the mine’s foodservice done by local caterers, and contracting construction work or road maintenance to locally owned companies.

Local procurement and content are distinct from local sourcing or local buying, which means sourcing products from local vendors without regard to their place of origin. A mine’s management might make a point of buying from local merchants, but the products might all be imported from distant places, bringing little benefit to the local economy. In these instances, beneficiaries are often just a few individuals within the community who have access to the capital and credit required to set up a shop. These situations can even cause social conflict because the mine builds relations with only a small group in the community, expanding the gap between the rich and poor, especially if the surge in demand for goods sold at the local market inflates prices.

Procurement through local content creates value for community residents, initiates and nourishes collaboration through local businesses, while contributing to a company’s ability to obtain a social licence to operate. This approach has the advantage of incubating business as compared to many initiatives around local entrepreneurship that have failed due to a philanthropic approach to economic development.

Through our Local Community Procurement Program (LCPP), we have found that a sound local content strategy always starts with a professional and strategic engagement process. This begins by looking for opportunities based on the socio-economic conditions of the communities surrounding the mining operation, alongside the operational and technical conditions of the project. It also considers expanding the local business’ service into markets outside of mining. This is the real power of the local content approach: when the mine’s suppliers can take the management and technical skills they have developed with the mine as a customer, improve operational productivity and expand into other markets. This local employment, innovation and social inclusion can lead to new businesses and sustainable living for communities even after the mine shuts down.

Kinross Gold in Ecuador adopted this model, bringing positive results for the company and local communities. The socio-economic conditions in the remote communities, which had high levels of illiteracy, defined what type of suppliers were likely to succeed under the circumstances. From Kinross’s side, the project’s local demands were minimal due to the complexity of technologies needed and the low-skill labour available in the region. Kinross’s program was adapted to both the community and the company’s needs, creating food suppliers and road maintenance units for the mine. Although Kinross is no longer operating in Ecuador, these productive units are still active today and provide their services to the government, schools and local hospitals. The extended benefits of local content proved to be an opportunity for the community and the best legacy Kinross left for the residents of Los Encuentros, who have openly expressed their gratitude for the program.

Local content strategies demand collaboration and commitment from both the mine and the community as they take time to fully develop, but the community relations benefits start immediately as local people are given the chance to take concrete steps that they can see will lead to sustainable opportunities. Junior miners, working in the first stages of mineral exploration, have the greatest advantage to add value to their businesses by developing a network of local suppliers. If the company is sold to a mid-cap or major player, the value of positive, non-conflicted community relations is greatly recognized by the acquirer, as it has a network of local business partners trained to work with the mine. The benefits for operations start from customization, monitoring of the quality of goods and services, on-time delivery, control of expedite orders and immediate response.

In many places, private businesses, like mining companies, have the ability to reach communities forgotten by their very own governments, bring opportunities for sustainable development and along with them a more durable social licence to operate.


Monica_OspinaMonica Ospina, founder and director of the social economic development consultancy firm O Trade (otrade.ca) has an MA in diplomatic studies from the University of Westminster and studied at London School of Economics and Harvard University. The Local Community Procurement Program (LCPP) was recognized by the World Bank among the Top 15 Innovations of the Procurement Innovation Challenge 2012.

 

 

 

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