With low economic growth and high unemployment, South Africa’s economy is under intense pressure. Management consultancy Kearney’s research indicates that particularly mining and mining-related industries could improve the country’s economic outlook.
Government has challenged the mining industry to play a central role in helping the country achieve its social and economic objectives. Further, as policy and regulatory imperatives, such as those contained in Mining Charter III, compel industry players to prioritise the national agenda, “forward-thinking mining companies will commit to a transformation with inclusive growth”, according to a recent report by Kearney.
Kearney notes that, to preserve their social licence to operate by balancing approval from local communities and the management of legislative pressures, South Africa’s mining companies often invest in social-impact initiatives at national and site levels, including charitable or risk-mitigation programmes.
However, much of this outreach, in such areas as supplier development, which tends to focus on cleaning and catering, yields immaterial organisational spend: “Although these initiatives can create social benefits, they generate minimal levels of sustainable socioeconomic value. Local supplier bases become saturated, and organisations waste significant amounts of money on programmes that eventually fail,” says Kearney partner Francois Santos.
The reason for this negative outcome is that the leadership of many mining companies focus on the short term, delegating programmes to the procurement department to find quick fixes. This approach provides limited results and highlights the absence of a carefully considered and developed procurement localisation strategy that is aligned with the expectations of shareholders.
As a result, the industry is missing out on potential advantages, including from local procurement.
“Capturing and sustaining a competitive advantage will require embracing a shared value agenda – one that benefits not only the mining companies but also the communities in which they operate. What is needed is a strategy that addresses the national priorities of inclusive growth and transformation,” states Santos.
In this regard, procurement can be the driver and enabler for this transformation.
Kearney cites its AAA roadmap, a proven method to design a “winning procurement mandate”, which is used to assess localisation priorities, adapt to unique local needs and align with global best practices.
In South Africa, where the landscape is changing and social issues are becoming more prevalent, organisations must strategically position themselves to capture benefits from these changes and build a sustainable competitive advantage, the consultancy states.
For mining companies, this translates into emphasising strategic areas that align with the societal context and developing viable, local supplier bases.
“In a developing economy, procurement can play an instrumental role in not only developing existing suppliers but also establishing new suppliers. To generate shared value, the procurement team must be committed to resolving core social issues using tailored solutions that deliver a substantial, sustainable impact,” states Santos.
Kearney says context-specific initiatives and a localised approach are essential to delivering shared value and achieving procurement objectives alongside sustainable social development.
The following elements should be considered when addressing localisation: employment equity, which ensures that hiring policies and programmes encourage fair representation of local minority groups; supplier development, which allows for investing in the building of a local competitive supplier base; community development; and skills development.
While different areas might all rely heavily on mining operations, each mining community presents distinct local conditions across the four localisation elements.
The relevant factors to consider include different types of mining companies in terms of size and origin, different profiles in terms of the local population and what investment attraction policies local government is pursuing. They need to be identified, mapped, assessed and acted upon accordingly, says Santos.
Kearney has worked with a variety of companies in South Africa and globally to create localisation initiatives with clear benefits and measurable returns.
As a catalyst for change, the consultancy both accelerates benefit gain while improving the likelihood of success using a local and global team of specialists who are ready and motivated to support its clients.