Mining sector ESD and ESG can be catalysts for African manufacturing
Enterprise and Supplier Development (ESD) investments coupled with a focus on Environmental, Social and Governance (ESG) frameworks, could provide a powerful combination for developing local manufacturing capacity to support the African mining and resources sector.
Environmental factors within ESG are possibly the best-understood element of the framework while people are less familiar with the ‘Social’ and ‘Governance’ pillars.
The social pillar has been particularly difficult to define – and even more so to measure. Nonetheless, it remains critically important and can be a key contributor to growing the trust placed in organisations by their customers, employees and the broader society in which it operates.
Broadly defined, the ‘Social’ pillar refers to the organisation’s values including policies and practices related to business ethics, diversity and inclusion, supply chain management and the social impact of its operations.
From an ESD viewpoint our focus on the ‘S’ looks at driving localisation and financial inclusion which we believe ultimately assist in job creation.
In the past, the emphasis on local participation has been propelled by diverse local content frameworks, such as Broad-Based Black Economic Empowerment (B-BBEE) in South Africa and Citizen Economic Empowerment in Botswana. These frameworks, encompassing various components, facilitate the sourcing of goods and services from local Small and Medium-sized Enterprises (SMEs), contributing to the development of the industrial base in crucial production sectors and manufacturing.
The mining industry has effectively embraced these frameworks, demonstrating robust ESD programs throughout the continent. These initiatives not only emphasise granting SMEs and local businesses access to procurement opportunities but also ensure they receive the necessary funding and business development support to execute these opportunities sustainably. Consequently, procurement targets within ESD programs are nearing fulfilment.
However, a key shift is currently taking place with many ESD practitioners recognising that much of the local procurement is taking place through middlemen and agents rather than developing local capacity, resulting in organisations being unable to truly diversify their supply chains.
A recent visit to a client operating in the mining sector highlighted how they are starting to unpack their value chain to identify goods that can be manufactured and sourced locally. Items such as chemicals and lubricants, Personal Protection Equipment (PPE), and rollers used in conveyor belts have been identified as potential products for local manufacturing.
A focus on developing local manufacturing capacity will de-risk supply chains, create sustainable local businesses and most importantly, drive job creation. Mining businesses need to remember that a key part of their license to operate will be the sustainability of communities surrounding their operations. As such, ESD investments should be considered a key component of their stakeholder engagement.
Mining executives facing operational headwinds will, however, be walking a tightrope as they balance community obligations with investor pressure to deliver profits.
We need to be cognisant of the fact that certain resource sectors are facing operational headwinds including a pullback in commodity prices and higher debt-servicing costs. Spending for ESD programmes is typically linked to profitability. As such, the sustainability of initiatives may be impacted in the short-term.
This cyclical nature of commodity cycles further highlights the need for ESD investments to assist in creating sustainable businesses and industries through sponsoring projects that drive local manufacturing.
Development Finance Institutions (DFIs) including the African Development Bank and Development Bank of South Africa (DBSA) are focused on developing local manufacturing capacity. Governments and policymakers have also recognised that manufacturing is a capital-intensive sector that requires a combination of seed funding and Research and Development (R&D) grants and incentives. We expect further funding to be made available here to de-risk ESD contributions from mining houses.
The mining sector across the continent is a large marketplace for manufactured goods and the future of ESD must promote local manufacturing which will drive the creation of jobs which all tie back to the ‘Social’ pillar in ESG. Mining executives have recognised the importance of working with skilled partners who have on-the-ground knowledge on the African continent to realise this opportunity. As a bank, we are looking forward to engaging in transformative projects that will unlock greater local manufacturing capacity in 2024.
