Buying from local mining suppliers is full of benefits for both the organizations in charge as well as the communities that the projects take place in. Local spending on goods and services, notably, leads to an increase in job creation as well as income generation. On the other hand, organizations can reap the benefits that come from easily obtaining a social licence in order to operate, decreasing costs in the long run and for achieving a prosperous bottom line.
The World Gold Council’s report on Responsible Gold Mining and Value Distribution further underpins the role the mining sector can have in supporting the economic development of host countries with the following figures. Based on data from 2014 with 15 World Gold Council member partaking, of the US$47bn paid out in 2013, almost 80% of that total spend (US$37.4bn) was incurred in the country of that project’s operation. From that spend, US$26.4bn (71%) went to suppliers, US$6.3bn (17%) on wages and US$4.7bn (12%) to the government in taxes and royalties. An additional US$3.8bn was paid to providers of capital that included the listing of dividends and interest.
Buying local in the mining sector proves that your organization is prepared to balance profit with ethic. It speaks into a company culture that promotes sustainability and an ethical social responsibility. Local procurement isn’t only a way to cut costs and present actionable PR opportunities - it’s about exceeding your immediate benefits and thinking about the gross impact your project has on its surroundings. For that reason, this article will cover why companies should support local markets with insights provided by the World Bank and Mining Shared Value.
Why You Should Buy Local in the Mining Sector:
From both an investor and government leader standpoint, mining companies that purchase locally are the ones who are more likely going to get the multi-stakeholder buy-in they need. In today’s landscape where resources are rapidly depleting, it’s essential for mining companies to behave responsibly and adhere to the regulations that benefit the socio-economic and environmental standards of the host country.
In many resource-rich regions, communities are often on the tail-end of benefits that come from mining projects. ESB states that this is usually caused by companies that source goods and services outside of the host economies. Due to this, we can often see an increase in poverty amongst a region with vast mineral wealth.
To alleviate these developmental issues, the pressure is therefore put on mining organizations to improve their local procurement strategies and inject opportunities into the community. Local procurement will offer mining companies with the opportunity to improve the economic and social impact of their activities as a result and thereby contributing to a sustainable growth practice. In return, organizations can expect to benefit in 2 major ways.
The World Bank states these benefits as:
- Purchasing locally has the potential to lower procurement costs and improve the performance of an organization’s supply chain
- Local procurement contributes to a project’s ability to obtain a social licence to operate
Beyond these 2 main points, businesses in the mining sector who buy locally can also expect to benefit from the following advantages.
The Benefits of Using Local Mining Suppliers:
Decreases the Potential for Community Conflict
Community conflict can easily arise within the mining sector. To mitigate the risk of operational delays and to keep costs low, it’s important for businesses to remain close to the local community and the government’s good graces. Buying local is an assured way of doing so due to the impact the mining company will have in the host country’s overall wellness. With jobs being created and money being put back into the economy, the locals of the area will naturally have a vested interest in the mining operation which will improve overall sentiment towards the industry at large.
Lessens Operational Delays
When exporting goods and services, you run the risk of delivery delays and external conflicts. With added time being put onto your projects, more money will consequently be spent with less action being taken. Sourcing your mining project’s goods and services locally will benefit enterprises because of the immediate operational turnaround times. Through doing so, an increase in business skills and supplier capacity will pay off in the long run for future projects too.
On the other hand, failing to adhere to the socio-economic and environmental regulations of the host country may lead to a delay in obtaining the licence to operate in the area. Without the appropriate licencing, the whole project will be put on hold leading to a substantial monetary loss.
Improves the Triple Bottom Line
Utilizing local mining suppliers improves the regional area’s environmental, social, and economic positioning. By purchasing local goods and services, the mining sector is therefore actively injecting resources into host countries who are often depleted within this regard. Essentially, mining businesses are able to focus on achieving an impressive CSR that underpins the company’s core ability to operate sustainably and responsibly.
The Bottom Line
Arguably, the most important benefit to take away from buying from local mining suppliers is the influence it has on the social licence to operate. Local procurement bolsters an organization’s ability to operate within resource-rich areas and to complete their projects. Through generating more economic and social benefits as a result of local procurement, mining companies will thereby develop healthy and sustainable relationships with the local government and communities. Ultimately, there will be fewer roadblocks to face within ensuring the profitability and longevity of your mining project.