Lifting mining sector SMMEs out of the single industry dependency trap with ESD initiatives

25th May 2022

Lifting mining sector SMMEs out of the single industry dependency trap with ESD initiatives

By Mpopi Khupe, Managing Director at Zevoli Growth Partners

While Enterprise and Supplier Development (ESD) has played a critical role in the development of many Small, Medium and Micro Enterprises (SMMEs), dependency on a single dominant industry in rural communities has left many SMMEs caught in a trap of survival. Agriculture and mining are historically predominant industries in rural South Africa. Prioritising the exploration of large areas of South African land for natural resources to mine has restricted access to available land for agricultural purposes, shrinking the diversity of value chain industries in which SMMEs need to operate.  

Typically, mining has a defined life cycle and lifespan. Accordingly, it is crucial not to lose sight of the fact that the economic viability of rural towns is best secured through the sustained stimulation and support of local businesses that offer core products and services with relevance across multiple industries. Today, most people living in rural communities are not self-employed farmers but rather those who depend on limited employment opportunities with a handful of dominant employers (e.g., mining houses, renewable energy projects, retail industry and government) as well as social grant recipients. Although medium-term with a heavy footprint and geographically fixed capital investments, mining can have a massive social, environmental, and political impact on surrounding communities.  

The good news is that mining stimulates significant economic benefits, but the bad news is that mining can cultivate dependence on a single industry by displacing existing previous industries within rural communities. 

Such dominant industries in rural areas have an obligation to make the circle bigger and reduce the single industry dependence trap. This must be done through a balancing act that needs to be struck by developing SMMEs that are aligned to the business’ value chain across the life of the corporate’s local operation. This includes focusing on those SMMES capable of long-term benefit even after local operations shut down in order to develop the resilience of rural communities and their economic activities. This dual approach has both supplier development benefits through the former approach and enterprise development outcomes through the latter method.

For potential suppliers, procurement opportunities should be more inclusive of SMMEs, particularly in respect of routine commodities that are non-critical, low profit impact and low supply risk by definition. Committing to making such opportunities more accessible to SMMEs is critical as these opportunities are currently not well placed to ensure that SMMEs develop skills and offerings that are core and critical, thus risking sustainability as routine products and services become highly commoditised. Instead, a collaborative approach at identifying leverage commodities (high profit impact, low supply risk) can start to chip away at the single industry dependence, particularly in communities where there is a presence of more than one dominant industry, such as mining and renewable energy. 

Mind the gap

Empowering SMMEs to move to the next level is what ESD is all about; both in terms of improved operational efficiency and increased procurement opportunities. This starts with larger organisations recognising that it is extremely difficult for SMMEs to have mastered the art of everything that relates not only to their offering, but also to the science of running a successful business, and then using ESD to address these challenges and close that gap. This cannot happen if large mining organisations continue to afford the strategic opportunities to the same handful of preferred suppliers. This leaves smaller businesses to continue eking out a living on low risk and often low value opportunities, despite their potential to transition to a product or service that is more closely aligned to their core business or a more innovative service. This is usually the case where mining companies lack the patience or appetite to remove their commercial hat when putting on their ESD hat; thus, not giving warranted consideration and more attention to the community socio-economic impacts of the inevitable journey to closure for the SMME.

Unlock growth incrementally

Perseverance on the part of larger organisations is necessary in bucket loads to grow a small business systematically and incrementally, because it must take place in a process that uses one lever to push another. As important as it is to identify the capacity and capability gaps in  smaller businesses, it is equally important to identify the appropriate interventions to identify and close those that will transition their offering to one that has continued relevance to the corporate’s core value chain. This needs to be anchored by a commitment to build local human capital, focusing especially on the education, skills and experience of local SMMEs, to increase the resilience of all local businesses and their productivity and capacity for innovation.  

Once those initial hurdles have been identified, an immediate procurement opportunity can be unlocked that fits with the SMME’s capability at that stage, whilst working towards ensuring that capabilities required to secure a more strategic opportunity are developed over time. If the SMME delivers well thanks to appropriate ESD interventions, a larger and more core procurement opportunity can and should be gradually unlocked with time as a result. 

This balancing act of unlocking growth and sustainability on the development side, along with the value and type of the procurement opportunity that can be afforded to the SMME due to their development, requires a mental shift. When performed consistently, it becomes the most prudent way of stimulating local businesses participation within the supply chain in a more equitable fashion. 

Win-win for everyone 

ESD is an incredible opportunity for mining houses to pursue innovation and contribute to building resilient, sustainable communities. It is an opportunity to do things better and smarter, by tapping into the agility of high potential small businesses which are the heart of creative sustainable socio-economic solutions that enable the achievement of a positive and unshakeable legacy that will far outlive the corporate’s presence in the community.