Business People Top stories

Rethinking local procurement to create true value for communities and mining companies

Maintaining a social license to operate remains the top business risk in mining, while community conflicts have not diminished. Carly Leonida speaks to Monica Ospina about this disconnect and how mines can create opportunities for sustainable value creation for all

It’s now widely accepted that achieving and maintaining a social license to operate requires more than just mitigating the negative impacts of mining.

Most companies are aware of the potential business risks associated with community conflict, and several miners have faced costly losses in productivity, opportunities and time, as well as detrimental impacts to their reputation from ongoing conflicts.

While successful engagement with communities is one of the greatest levers mining companies have to contribute to social and economic development and to achieving several of the UN Sustainable Development Goals, community conflict has a direct impact on the ability of mining projects to contribute to social and economic development in the communities closest to them.

Considering that social license to operate has remained the top business risk for miners for several years in a row, and community related conflicts have been on the rise rather than declining over the past two decades, I wondered where the disconnect might be.

Where is the missing link that will enable both sides to benefit from mineral developments?

The pitfall: limitations of local buying

According to Monica Ospina, Founder and Director of O Trade, a Toronto-based socioeconomic consultancy firm with longstanding expertise in helping companies to partner with local stakeholders, there is a misconception about local procurement that can have “tremendous consequences”.

Monica Ospina is Founder and Director of O Trade

Ospina pointed out that there is a difference between ‘buying locally’ and building ‘local content’ that few companies are aware of. However, it’s important to understand the difference to successfully leverage the opportunities of engaging local communities, and to foster regional socioeconomic development and prosperity.

In her 20 years of experience in the mining sector, Ospina has seen a lot of ‘local buying’. In these instances, mining companies purchase selected goods – personal protective equipment (PPE) equipment, for example – from companies in the local area. However, these goods are not produced locally, but imported from faraway places.

While seemingly a good practice at first glance, simply buying products from local shops or service providers means that opportunities to benefit remain reserved for those businesses that are already well established. Meanwhile, the majority of the local population are missing out.

What’s more, as miners are willing to pay higher prices to the local service economy for items such as food and transportation, hotels, and other goods, both demand and prices increase causing local inflation to rise. This can put locals at an even greater disadvantage, fuelling discontent and resentment.

The bottom line is, local buying can end up being a consumerist approach that, in most cases, does not contribute to building a relationship with local communities. It’s often a one-way street, potentially, with a dead end.

While it may fulfil obligatory local content requirements, it’s unlikely to deliver the results required to secure a social license to operate, or to earn the trust and support of communities.

The shift: multiplying opportunities through local content

At the other end the spectrum is what Ospina calls “local content”. Local content means that services delivered, or products purchased by the mine, are produced locally within the community wherever possible.

Local in this case refers to the communities affected by or in closest proximity to the mine site which will be impacted by the mining operation in some way.

In order to match the requirements of the mine with the capacities available in communities surrounding each mine, a thorough analysis and mapping of local companies and their capabilities is required, along with identifying potential gaps where additional capacity building may be required.

“What can the people do who live here?” is the seemingly simple yet insightful question that Ospina asks at the beginning of the Capacity Mapping process. This is a tool and structured approach developed by O Trade to map and match local supply capabilities with the demand of mineral exploration or mining companies.

Supporting local businesses and empowering them to grow is sustainable, as their skills are very likely in demand beyond the mine. Image: O Trade

The answers can be simple too, yet create profound shifts in perspective and opportunities to accelerate the development of a dynamic local economy that benefits, not just a few, but multiplies opportunities for many.

Incentive demand from and for the project, or to serve individuals living in the area, can lead to a wide range of examples. These range from hiring and/or building up local catering services that also purchase their ingredients locally, thus empowering farmers in the region and contributing to strengthening entire value chains, to building capacity for hairdressers.

Services, such as hairdressing, food services or cleaning are in higher demand once a mining company sets up shop.

Supporting these kinds of local businesses and empowering them to grow is sustainable too, as catering, farming products, and hairdressers are very likely in demand beyond the mine. This means that community members can potentially apply their skills in neighbouring towns after the mine is closed.

Building a local ecosystem that can prevail after the mine is gone is the ultimate goal of local content.

The approach: mapping capacities, building relationships and multiplying opportunities

Ospina has seen how this can work and her eyes light up when she speaks about one particular project; a remote fly-in fly-out mineral exploration project in Ecuador that was located on the ancestral land of the Shuar peoples.

At this project, she was tasked with navigating the inclusion of the local and Indigenous communities. Starting with the skillsets that already existed, Ospina was able to identify economic opportunities that included the majority of community members.

Firstly, the community was given responsibility for building and managing an airstrip for the exploration team’s access. They were paid fees for every plane that landed and maintained the strip accordingly. This was a great success, and over time, more community members were keen to get involved so that their families could benefit too.

As a result of analysis and engagement with the communities, a warehouse was set up next to the landing strip which ensured the geologists’ equipment was cleaned and ready when they arrived, and food packages were provided for expeditions. In order for every family to benefit, each week another family took a turn on duty to provide the services and receive an income.

Community members prepare equipment and supplies for exploration expeditions at a project in Ecuador. Image: O Trade

Inventories were kept, equipment maintained, and supplies organised for the expeditions, all through local responsibility and ownership. Overall, the company created 1,300 short-term job opportunities, benefitting over 800 Shuar families, and successfully negotiated over 150 land access agreements. 

This is uncommon for exploration stage projects where there are usually few opportunities provided for local communities and mostly through buying locally. However, in this case, taking an inclusive and participatory approach allowed the project to provide opportunities for many business owners.

Ospina hopes that the landing strip will remain in operation after exploration is completed. However, the business acumen the community members gained through managing the airstrip and warehouse business will surely remain, and could potentially be transferred to other projects and people as well.

In other, less remote areas, opportunities to include local businesses from early-stage projects could be even wider.

At a mining development project in Mongolia, a Canadian mining company together with a team at the University of British Columbia, identified 43 local businesses that could provide services.

These included: building and construction services and supplies, light vehicle and plant maintenance firms, printing and publishing, garbage disposal, hotel accommodation, stationery/office supplies, cleaning and camp consumables, local transportation and food.

In addition, the team identified a number of businesses “that could be expanded to service the mine, such as a local water and juice bottling plant that might be able to expand and displace the need to truck bottled beverages from the provincial capital”.

Identifying potential service providers and opportunities for additional capacity building early and comprehensively allows mining companies to build relationships with those companies, so that value can be created and shared in a way that benefits all parties.

These opportunities are also not limited to developing regions… In a project for the Government of Alberta, O Trade applied its Capacity Mapping approach to identify opportunities for engaging local capacities in advancing the development of large oil sands projects.

It found that metal fabrication presented a strategic sector to maximise the inclusion of local competencies. Based on the analysis and mapping, over 500 people received training to enable them to access local supply chains and provide metal fabrication supplies and services to the industry.

Building on competencies that already existed, these could be developed into a strategic advantage that was mutually beneficial and empowered local companies and service providers to participate in regional value creation.

The goal: building a local socioeconomic ecosystem

According to Ospina, the key to success on the path to local content, aside from a thorough mapping process, is building long-term relationships with communities that are based on trust and mutuality.

Identifying potential service providers and opportunities for additional capacity building early in mining projects allows miners to build relationships with local companies. Image: O Trade

This step is often missing as it requires investment on the part of the mining company, especially in the beginning, to fully understand the local ecosystem and develop a strategy for its sustainable development.

Of course, there are also risks in the form of uncertainties as to whether the local companies will be able to deliver. However, the risk of losing a social license to operate is far greater.

Ospina has seen this approach pay off and wishes more companies would dare to engage early and earnestly to build relationships and include local skills in mine ecosystems.

The goal must be to create local inclusion and participation for long-term acceptance by linking local economies to mining projects and building a sustainable economic ecosystem.

This, to Ospina, is what it looks like when companies take their social license to operate seriously. It can benefit mineral exploration projects as part of early engagement, as well as mines that are already in operation.

The problem is that existing reporting systems and key performance indicators (KPIs) don’t measure the level of trust or the quality of relationships that have been built; they measure what was purchased or how much was spent in the region.

However, this is no guarantee for community satisfaction. On the contrary, many communities are frustrated with the current way local procurement is implemented, because true inclusion and participation, and trust, are missing.

There is no easy way to achieve this. Mastering the art of community engagement and successfully building a local economic ecosystem where mines act as accelerators for local prosperity requires much more than box checking or measuring success in merely economic terms.

Mining companies have profound impacts on the environment and the local communities they operate in.

Taking responsibility for these impacts can provide a starting point for shifting the paradigm in community engagement, and for leveraging the enormous potential mining companies have for spurring local economic development.

1 comment on “Rethinking local procurement to create true value for communities and mining companies

  1. davidchristineandjack

    Well captured views from Monica. This emphasizes the importance of starting engagement early in the process (often, many years before mining operations even begin). With mining at the core, the pre-established supporting business structure can become self-sustaining. For (a very crude) example, we have San Francisco still going strong well after the gold miners have wrapped up.

Leave a Reply

%d bloggers like this: