Assessment of Supplier Development Programmes
The Assessment of Supplier Development Programmes in the Extractive Sector in Africa report from the African Natural Resources Centre of the African Development Bank (AfDB) highlights the growing trend in African states to mandate Supplier Development Programs (SDP) for mining operations in their home country. The advocacy of SDPs by host mine states reflects a desire by governments to create a local industry capable of supporting mining activities, though the ability of local industries to provide required mining materials is limited.
The report highlights a symbiotic relationship between states, mining supplies companies and official development assistance (ODA) bodies who interact with each other to engage in local production of mining supplies. States impose SPDs on companies, which then develop a capability to act as a local supplier, which are supported by ODA which provide funding to companies looking to enter the industry.
Governments have enforced these policies on mining companies through incentives or government-mandated regulation, but the implementation of the policy as a whole remains patchy at best. Whilst there have been some success stories with the implementation of SDPs, a lack of oversight by states means that mining companies have not been able to follow the rule in a meaningful way, where the preferences of local content used by some states is the only requirement which companies face. Zambia is an example of a country where SDP requirements are in place, but poor enforcement of the policy has meant that there has been no development of a local mining materials industry. Conversely, Angola has been successful in developing a local mining supply industry through the government’s partnership with oil and gas production companies to support local companies.
The report highlights the need for governments to combine targets with coordination between the government and mining entities. This combination of policy actions allows states to support local industry by allowing manufacturers to understand the needs of mining companies and to acquire investment capital to fund the creation of production facilities. Support for government initiatives can be bolstered from ODA organisations who specialise in providing assistance to companies looking to expand their own production capabilities to meet market demands.
The AfDB report highlights a best-practice guide for states to enforce a successful SDP within their country, using eight factors for governments to keep in mind. Governments must define the scope and the duration of the SDP, understand the role of mining companies, and structure the program in an effective manner. The SPD should also identify suppliers capable of meeting the material requirements of the mining firm, effectively communicate between miners and suppliers, and provide adequate access to finance.
The AfDB report provides Australian mining and METS companies with an opportunity to work with governments and private businesses operating on the continent with opportunities to manufacture goods locally. This desire for governments to manufacture mining materials within their own country will mean a gradual decrease in their reliance on imports, and companies looking to expand into Africa can use this opportunity to develop a new manufacturing base. The benefit of vertical value creation will allow companies to expand their revenue streams, whilst also allowing them to maintain adequate quality standards in manufacturing. When coupled with the African Continental Free Trade Agreement, this expansion into manufacturing on the African continent by foreign entities will further help them in expanding market share and opportunities.
- Joshua Fernandez