Memorandum submitted by Anglo American
plc
Introduction
1. Anglo American plc, with its subsidiaries, joint
ventures and associates, is a UK-based, global leader in the mining
and natural resource sectors. It has significant interests in
gold, platinum, diamonds, coal, base and ferrous metals, industrial
minerals and paper and packaging. The Group has operations in
Africa, Europe, South America, Australia and China. Of its 209,000
employees, 149,000 are resident in Africa, where the company has
operated for almost 90 years. Anglo American is one of the largest
private sector employers and investors in the continent.
2. This submission focuses on how Anglo American
seeks to contribute to poverty alleviation and sustainable development,
based on its belief that the depletion of natural capital should
be balanced by an enhancement of social and human capital. The
submission considers core business operations and social investments,
partnerships with public sector and civil society organisations
and advocacy and public policy initiatives conducted directly
and through associations such as the International Council on
Mining and Metals or the World Business Council on Sustainable
Development.
What can the private sector do to alleviate poverty?
3. Recent increases in aid, proposed by the Commission
for Africa and promised by the G8 Gleneagles Summit, are necessary
and welcome. However, private sector-led wealth creation is necessary
for these aid flows to translate into sustainable growth. In a
recent report[186],
the United Nations makes this point clear when it states that
'any approach to private sector development should be grounded
in the realization that the savings, investment and innovation
that lead to development are undertaken largely by private individuals,
corporations and communities.' This is not a point confined
to the role of international companies; poor countries need properly
functioning market economies that allow scope for indigenous enterprises,
including farmers. The growth of many such companies is severely
constrained by lack of access to capital; poorly defined property
rights; stultifying regulation and licensing requirements; the
difficulty of moving from the informal economy into the mainstream;
poor infrastructure; and trade barriers especially in relation
to regional markets.
4. As the experience of China has shown over the
last decade, Foreign Direct Investment (FDI) is an important element
in the private sector contribution to development. FDI tends to
bring above average incomes, knowledge transfer, training, jobs,
access to capital, and access to markets. In addition the private
sector contributes to development through such core business activities
as supply chain development, prompt payment to suppliers, tax
payments[187], local
recruitment[188], and
may contribute to overall capacity building, the promotion of
international standards of safety, health and environmental performance
and infrastructure development.
A 'resource curse'?
5. The 'resource curse' theory remains in currency
in parts of the development community and has particular relevance
to the leading oil, gas and mining companies that are headquartered
in the United Kingdom and which are also amongst this country's
biggest overseas investors. The theory, put forward originally
by Jeffrey Sachs and Andrew Warner, suggests that there is a link
between mineral endowments and levels of conflict and corruption.
However the conclusions of the theory are very dependent upon
the particular time period selected for analysis; for the relevant
time period a correlation could equally be made with accumulated
debt levels; and that there are many contrary 'good practice'
examples - including Chile, Botswana, South Africa, Malaysia,
Oman and Peru - where the role of natural resources has been either
pivotal or at least benign'.. The key factor in development is
much more likely to be the presence or absence of good governance
rather than a deterministic model which sees a country's development
prospects as being dictated primarily by its mineral endowment.
Having said this, resource dependence does present specific developmental
challenges including revenue management in the light of the volatility
which typifies many commodity markets, the danger of a relatively
concentrated source of revenue acting as a catalyst for conflict
or aiding corruption, the inflation of exporting countries' currencies
and the 'crowding out' of other economic activities.
6. In order to find a new approach to
addressing the challenges posed by resource dependence, the International
Council on Mineral and Mining (ICMM) - of which Anglo American
is a member - is currently undertaking, with other stakeholders,
a 'resource endowment' project. This aims to develop tools to
assist mineral-rich developing countries to use their resources
to achieve wider socio-economic development. It is expected too
that the tools will help to inform companies' future investment
decisions and capacity building efforts in order to enhance the
contribution of the mining and metals sector in developing countries.
7. The current boom in commodity markets, principally
driven by the burgeoning demand from China and India, provides
a window of opportunity for reducing poverty and triggering wider
economic activity in resource-dependent economies. This will only
be achieved if the lessons of the past can be learned and if governance
standards can be improved. Big extractive operations have not
always been good at recognising the extent of their impacts, and
especially their indirect impacts on social structures and alternative
livelihoods. There has, however, been a significant improvement
in the understanding and management of these impacts and there
is significant emerging 'best practice' on the means of improving
local development impacts. Anglo American, for example, has evolved
policies and practices to alleviate HIV/AIDS, to work in partnerships
with the public sector and civil society organizations to tackle
social challenges beyond the 'perimeter fence', to assess the
socio-economic priorities and the needs of the communities where
we operate, to combat corruption, and to minimise adverse environmental
impacts.
What are the constraints on the private sector
in developing countries and how can they be addressed?
8. The same constraining factors - governance
failures, a weak or misdirected regulatory framework, and the
preponderance of activity in the informal economy - inhibit both
poverty alleviation efforts and private sector development. However,
initiatives to address these factors often 'fail to probe sufficiently
deeply into the nature of governance and, more importantly, into
the underlying conditioning factors and rules of the game that
affect social and economic interactions'[189].
9. As noted above, there are many factors at work
that constrain the ability of would-be entrepreneurs to start
or to grow companies. Some of these constraints have been highlighted
through the World Bank's work in this area and were underlined
by the Report of the Commission for Africa. Donors have a major
role to play in the sphere of enterprise development. DfID, with
additional funding from Anglo American, Unilever and Shell, has
recently announced support for the establishment of the NEPAD
'Investment Climate Facility' (ICF). To date some $37.5 million
has been raised towards an initial target of $120 million over
three years. The Facility will help to support business development
in Africa by 'streamlining regimes for business registration
and licensing; improving customs procedures and facilitating trade;
removing barriers to competition; reducing red-tape; and promoting
a more positive image of Africa as a place to do business'[190].
10. Public-sector corruption poses a range of obstacles
for the private sector and can significantly add to the cost of
doing business, especially for indigenous businesses. It 'impedes
economic growth, distorts competition and represents serious legal
and reputational risks'[191].
This is not to say that such corruption is unique to developing
countries but, where it is a problem it tends to be more pervasive
and to impose a heavier burden than in some developed country
contexts because of the sheer lack of resilience in many poorer
economies. 'Supply-side' initiatives such as the OECD Convention
against corruption are to be welcomed and within country there
are a growing number of multi-stakeholder anti-corruption initiatives
taking root in which business is involved.
What type of donor interventions have strong
leverage in changing the business climate (in partner countries)
towards PSD and pro-poor growth?
11. Donors can play a crucial facilitating role in
helping developing country governments to create the conditions
for PSD by strengthening public governance frameworks and by building
capacity among public officials, for example by encouraging partnerships
between public inspectors and private auditing, monitoring and
certification schemes. DfID-supported work by the Crown Agents
on the streamlining customs procedures is a useful example of
how donors can support work which facilitates the more efficient
working of markets and build capacity around better regulation
and the understanding of regulatory impacts.
12. International Financial Institutions (IFIs) such
as the World Bank's International Finance Corporation (IFC) and
bilateral development banks have helped to raise performance standards
in a number of industries through the conditions attached to their
lending as set-out in their social and environmental Safeguard
Policies. This is particularly true in the metals and mining industry.
The leverage available to promulgate such standards has been significantly
increased through the creation of the Equator Principles initiative
through which significant project finance availability in developing
countries is increasingly tied to observance of IFC safeguard
and disclosure policies.
How is the private sector engaging in development?
13. The debate within the international business
community around its role in development has been transformed
in recent years; reflecting much of the debate about the nature
and implications of 'globalisation'. This is evident from reading
the sustainable development reports emanating from many of the
leading UK international companies or from initiatives such as
the recently published Oxfam-Unilever analysis of the impact of
the latter's business in Indonesia. Major companies are increasingly
accepting that they have a role in addressing the indirect impacts
of their activities and in seeking to promote good governance.
Partnerships between public and private organisations, and with
civil society organisations, provide a mechanism for the private
sector to engage in development. These bi- or tri-sectoral arrangements
are rarely straightforward or free from risk to the participants
but, when successful, open up a new range of skills and expertise
on issues such as combating corruption, fighting HIV/AIDS, upholding
human rights and encouraging enterprise development. They help
to ensure that companies do not become detached from the areas
surrounding their operations on one hand, or creating an unhealthy
culture of dependence, while also helping to ensure that host
governments remain engaged in their proper roles and responsibilities.
14. Anglo American, for example, is involved in a
range of international, national and local partnerships. The company
is a signatory to the Extractive Industries Transparency Initiative,
which is seeking, through greater transparency about tax and royalty
payments and receipts, to reduce the potential for wholesale embezzlement
by governments of revenues generated by extractive industries
and to increase accountability around how they are spent. We believe
that in its next phase of development the EITI would benefit from
being underpinned by a UNGA resolution - as was done for the Kimberley
Process - to increase its perceived legitimacy on some parts of
the developing world. We would also like to see the principle
of transparency extended to sub-national distribution of revenues.
Similarly, the Voluntary Principles on Security and Human Rights
seek to provide a framework within which extractive companies
can broaden their security-risk assessments and minimise the chance
that their security requirements - whether public or private -
impact negatively upon the human rights of local communities.
Internationally it has provided a valuable forum for engagement
around 'best practice' between governments, leading human rights
NGOs and companies supported by a number of national level dialogues.
These initiatives essentially involve international companies
in debate around governance issues - this requires care since
advocacy is not the primary purpose of companies but we recognise
that as international actors with a degree of influence we should
seek to use it to the good in association with other stakeholders.
15. Leading companies are becoming more adept at
understanding their supply chain needs and at becoming involved
in building capacity in many developing countries to meet those
needs. This is not always easily achieved given the counter trends
in many companies to consolidate procurement spend globally. Nevertheless,
making suitable tenders accessible to competition from indigenous
companies and the pursuit of enterprise development programmes
are significant factors in increasing linkages between FDI and
building local economic capacity. Anglo American, for example,
has active enterprise development programmes in South Africa and
parts of Latin America. The South African initiative, Anglo Zimele,
works on the basis of taking an equity stake in business start-ups,
making loans available and providing mentoring and companies remain
in the 'incubator' for an average of three years. On average the
unit supports about 30 companies at a time, between them employing
some 2,000 - 2,500 people. The central unit is supported by a
network of local business development officers. The officers'
responsibilities include understanding the capabilities of the
regional supply chain; talent-spotting and mentoring among local
entrepreneurs; and ensuring that procurement tenders are not so
large and inflexible as to cut smaller firms out of the picture.
.Within our individual business units we are also pursuing
a range of multiple resource use and sustainable livelihoods projects..
16. Anglo American has developed a Socio-Economic
Assessment Toolbox (SEAT) to further improve our local development
impacts. Based on a set of 22 tools, the SEAT process equips managers
to understand the totality of their economic and social impact,
on issues including jobs, training, local procurement, tax payment,
informal settlements, and disruption of traditional livelihoods
and social structures. Working with local stakeholders, SEAT helps
managers to develop an action plan to improve their operation's
impacts. By making its commitments publicly, the company is held
accountable to local stakeholders. The process has been implemented
in some 15 countries to date with a number of beneficial local
development impacts.
17. Amongst the SEAT tools is one which helps business
managers to understand where they may be able to access donor
funding on behalf of a local community or a partnership. USAID
appear to have pioneered a number of very successful public-private
partnerships of this type. Moreover Anglo American has worked
through the DfID Business Linkages Challenge Fund to support the
development of new small-scale mining enterprises and to establish
a network of charcoal manufacturing businesses associated with
our Southern African forestry plantations. These 'black gold'
projects - by way of illustration - have created some 450 jobs
in KwaZulu Natal. The increased aid flows that are envisaged for
Africa over the coming years may create a challenge in terms of
maintaining the quality of expenditure. We believe that partnerships
with companies may be a dimension of this. Companies can, after
all, offer project management capabilities, robust financial controls
and can offer communities the capacities that they need to chart
their way through grant application processes.
18. Business can take a leading or innovative role
in addressing social issues in advance of the development of a
political consensus. An example of this has been Anglo American's
position on HIV/AIDS in Africa. We announced in 2002 that we would
make anti-retroviral therapies available free of charge to our
employees and we have sought to extend access to care and treatment
programmes in communities. This was in advance of a decision by
most of our host governments on the provision of treatment and
has been widely credited with creating greater momentum in the
corporate sector behind testing and treatment strategies. We have
been able to partner with the Global Fund to extend treatment
in Zimbabwe and are looking at schemes involving PEPFAR. Anglo
American's Chairman, Sir Mark Moody-Stuart, is currently serving
as Chair of the Global Business Coalition on HIV/AIDS, which seeks
to 'harness the power of the global business community to end
the HIV/AIDS pandemic'[192].
The GBC is intended to spread best practice within the corporate
sector and to play an advocacy role in encouraging governments
to adopt enlightened and effective policies in relation to the
management of the pandemic. In addition to the work which it does
in Africa, the GBC has been active in engaging with the Governments
of China and India on their approach to AIDS...
What aid instruments can be used by donors
to encourage PSD? Private benefits versus benefits to society
(public goods) - how much is this an issue?
19. In parts of some developing countries, large
private companies are one of a relatively small number of institutions
with the capacity to contribute to development. This is particularly
the case for the extractive sector, as natural resources tend
increasingly to be found in remote, and sometimes poorly-governed
areas of the world. Companies such as Anglo American offer skills
and resources, as well as a secure method of channeling aid funding,
through cross-sector partnerships. The international development
community has often been suspicious of the private sector and
yet there should be many synergies between the public and private
sectors in relation to issues like the investment climate and
infrastructure development and development objectives are unlikely
to be met without a properly functioning wealth-creation sector
of the economy. Many international companies have, in turn changed
the ways in which they look at their interactions with the societies
where they work. From this basis there should be a more structured
and regular dialogue and co-operation.
8 February 2006
186 Unleashing entrepreneurship: making business
work for the poor United Nations Commission on the private
sector and development, March 2004 Back
187
In 2004 Anglo American paid $2,309m in taxes to governments around
the world, including $823m to the South African government Back
188
After an intensive training programme at a new zinc mine in Namibia
Anglo American recruited over 90% Namibian employees Back
189
Using Mineral Resource Endowments to Foster Sustainable Development:
Synthesis Report of Four Country Case-Studies, ICMM, ERM,
Oxford Policy Management, October 2005 Back
190
Anglo American announces $2.5 million investment to promote
enterprise in Africa, news release, 17 November 2005 Back
191
Business against corruption: a framework for action IBLF,
Transparency International and the UN Global Compact, December
2005 Back
192
www.businessfightsaids.org Back
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