Why Australian Extractive Companies and Sustainable Development Outcomes?

Australia’s investment in the extractives industry in Africa is significant. Australia is one of the lead investors in mining exploration in Africa with over 200 ASX-listed companies carrying out more than 600 projects[i] across 38 countries and 60 percent of Australia’s mining equipment, technology and services companies exporting services to Africa worth an estimated $15B annually[ii]. In comparison Australia’s two-way goods and merchandise trade with Africa was valued at $7.3 billion in 2015-16[iii].  

With the Australian extractives industry being the dominant Australian sector investing in Africa, it is critical that growth fuelled by this activity creates benefits for the poorest and most marginalised in Africa. This is particularly important given that Africa is home to 30 percent of the world’s mineral resources[iv] and yet on average countries whose economies are dependent on the extractives sector consistently score lower on the human development index in comparison to less endowed countries. As the United Nations Development Programme identifies, of the 3.5 billion people living in resource-dependent countries, approximately 887 million live below $1.25/day.

In addition to contributing to African development at a macro level through GDP growth, tax revenue, export earnings, and employment, Australian extractive companies have the capacity to contribute to the sustainable development of the region by enriching local communities in project impact zones. Going beyond traditional community development investments that put poor communities on a pathway to overcome poverty, these companies can drive economic empowerment through focusing on initiatives that address the aspirations of the poor for jobs and higher incomes for the long term through creating non-mine dependent economies that will exist beyond the life of the asset.

Specifically, by fostering the development of inclusive agribusiness opportunities, extractive companies supported by African country governments, DFAT, communities and civil society can work together to drive inclusive growth that reduces poverty, generates income and creates sustainable development for the regions poor. In so doing, these extractive companies can also meet contractual obligations that may exist with host governments to deliver community outcomes by using a shared value approach that benefits communities while also gaining commercial outcomes.

Nexus of Extractives and Agriculture for Sustainable Development

For Australian extractive companies to seriously address sustainable development outcomes in Africa, the sector must address smallholder farmer poverty.

Though mining plays a substantial role in the makeup of many African economies contributing up to 77 percent of total export earnings, 42 percent of government revenues and around 28 percent of GDP[v], the agriculture sector is of even greater significance, by providing employment for around 60 percent of the economically active population[vi] and small-scale farming supporting the livelihoods of up to 80 percent or half billion people in Africa[vii]. Despite the prevalence of agriculture, in sub-Saharan Africa, its benefits are not being fully realised with more than 300 million rural poor and 62 percent of those living on less than US $1.25 a day. The vast majority of smallholder farmers are also women, producing over 70 percent of the food in Africa[viii].   

Australian Extractive Companies Operating in Africa

As part of a community development program, the creation of sustainable income earning opportunities, beyond that of the mine, through agriculture is perhaps the most meaningful way for Australian extractive companies to reduce poverty, tackle the empowerment of women and enhance food stability in Africa.

The opportunity for the extractives sector to drive inclusive growth for smallholder farmers is particularly strong given that extractive companies typically operate in close proximity to rural and remote subsistence farming communities. By fostering inclusive agribusiness development, Australian extractives can ensure that impact communities can pursue increased and sustainable livelihoods both during and beyond the life of the asset. This can be done while minimising the loss of agricultural capabilities that occur when subsistence farmers discontinue farming practices either due to mine based employment, being moved off/transferred to other land holdings and or the receiving of royalty payments.

In these instances, extractive companies act as social investors and catalysts stimulating inclusive business activity by building the agricultural capabilities of smallholder farmers to supply local, regional and international markets.  

Australian companies can play a significant role in initiating the development of inclusive business by aggregating farmer groups, assisting farmers with access to credit, training, tools, inputs and facilitating direct market connections with buyers supporting the establishment of new food supply chains. In addition, extractives can utilise existing infrastructure investments including roads, airports, ports, power, water and transportation to position farmers to connect to markets in ways that have not been previously possible. At the closure of the extractive asset, farmers can continue to utilise these infrastructure investments to access these markets.

Australian Food and Agribusiness Companies Procuring From Africa

Australian companies dependent on agricultural commodities can purchase directly from African smallholder farmers in order to future proof their supply chains. Extractive companies can play a critical role in reducing risk and facilitating these market linkages from farm gate to Australian firms.

The G20 Inclusive Business Framework states that “inclusive businesses provide goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people living at the base of the economic pyramid (BOP) making them part of the value chain of companies´ core business as suppliers, distributors, retailers, or customers.”

By supporting and integrating African farmers into regional and global value chains through inclusive business models, Australian extractives and companies procuring from Africa can directly contribute to increased yields, increased incomes and sustainable livelihood outcomes.

In doing so, these companies can directly contribute to Sustainable Development Goals:

1.1 By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day

2.3 By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment

Kwale Cotton, Kenya – an Australian case study

Background

Designed to address smallholder poverty in Kwale County, Kenya – Kwale Cotton is an innovative agricultural program led by the private sector that addresses both commercial and development needs through driving a step change in practice amongst smallholder farmers while also connecting farmers with an international market.

Working directly with local farmers, the project has supported the management of crops, provided education on best practice and equipped farmers with the resources they need to increase yields and income selling to one of Australia’s leading clothing brands.

With almost half of Kenya’s population living below the poverty line, three-quarters of the population living in rural areas and mainly dependent on agriculture for their income[ix] and the country ranked 146 on the Human Development Index, Kwale Cotton will have a transformative impact on 10,000 smallholder farming families in this region by 2020.

Overview

Australian mining company Base Titanium commenced operations in Kwale County, Kenya in 2013, and is committed to working with local communities to improve living standards and livelihood opportunities. To achieve this end,Base Titanium engaged Australian NGO Business for Development to design and implement a smallholder farming community development program that will outlast the life of the mine. Centred on growing cotton, key to the success of this initiative has been the introduction of the Cotton On Group as an off-take partner in 2014 to pilot a program to off-take cotton sourced directly from farmers near Bases’ mine in Kwale.

Going beyond the pilot, the program is now yielding strong results having now impacted 1,600 households with a specific focus on women. Kwale Cotton is integral to meeting the Cotton On Group’s strategic objective of having 100 percent sustainable cotton in their supply chain by 2023. To meet this demand, the program is set to exponentially grow and impact 10,000 farmers. For Base Titanium, investment in the community through the Kwale Cotton initiative is central to its business objectives and has contributed to the expansion of the company’s mining concession as issued by the Kenyan Government. In addition, the development outcomes achieved through the Kwale program will help establish Base Titanium’s as a “miner of choice” for national governments as the company looks to expand its operations in Africa.

DFAT is a key partner to this program through the Business Partnerships Platform. Importantly DFAT’s contribution of $313,000 to the project has been key to leveraging $1,411,500 in investment from the private sector. In addition, DFAT is able to share its deep knowledge of business, political and regulatory environments and assist in strengthening the project by providing access to professional networks and catalytic funding.

Key supporters and enablers of the project within the Kenyan context include the Kwale County Government, the Kenyan Fibre Crops Directorate, the Kenyan Agricultural and Livestock Research Organisation, the Competitive African Cotton Initiative, Cotton Made in Africa and additional funding German, Dutch and British funding partners DEG, FMO and DFID.

Impact and Outcomes

In terms of life-cycle, this partnership has proven to work and is now scaling-up for expanded cotton production. In a time frame of five years, this program is seeking to be self-sustaining. This means, with appropriate structure, a livelihood micro-economy will have been established which will out-last the mine and seeks to have an ongoing impact for thousands of members of the Kwale community for decades to come. Taking into account that 67 percent of households participating in the program have access to less than US $1.25 a day, 63 percent of households have none or no more than primary education and 52 percent of households contain between 5 – 10 members, the program is already creating substantive change by achieving average productivity and income increases of 30 -100 percent.

Building on the success of the cotton project, Base and the many other partners – NGOs, donors, private sector companies – are forming collaborative partnerships to undertake truly transformative work with farmers by extending the initiative to include a range of other agricultural opportunities. This involves crop rotation programs to reduce the risk for farmers, diversify revenue streams and has the potential to address food security issues for local communities. These additional agricultural programs include poultry, corn, potato, sorghum, soybean, cowpeas and green grams bringing the total current number of participating households in the broader Kwale initiative to 3,682. Markets and offtake partners have been developed for sorghum, cereals and pulses.

Our Approach

At the centre of the Kwale program is the application of Business for Development’s LINC methodology. A LINC (Long Term Inclusive Commercial Enterprise) mediates the interests of smallholder farmers and buyers while finding appropriate supporters, like Base and DFAT, who are seeking livelihood programs that have sustainable, long-term broad impact.

A LINC is an independent financially sustainable social business established to create opportunities for farmers and meet the needs of buyers. As the LINC supports farmer productivity and sells the product to buyers, profit is held in trust for the exclusive purpose of community benefit. Farmers are 100 percent beneficiary owners of the LINC model while the buyer and investors are part of the governance structure.

As a farmer owned producer company the LINC:

  • Addresses community ambitions for higher incomes
  • Aggregates and trades commodities from farmers to offtake partners
  • Invests in technologies and training that lift yields
  • Facilitates credit and insurance for farmers
  • Grows and scales by engaging new farmers
  • Builds non-project economies; reducing pressure on the project to provide employment and that continues to have an impact after mine closure

Impact 

It is key when extractive companies seek to develop their Social License to Operate, consideration is given to the agricultural sector and how their community development program can improve income opportunities through supporting local smallholder farmers.   

One way to achieve this is through developing inclusive business opportunities near the mine site and using the LINC model. It is the objective of Business for Development that these LINC’s impact over 50,000 farmers by 2020.  Over 50,000 farmers and their families income will improve, better importunities to negotiate deals with offtake partners and overall advancement in their livelihoods. The LINC is currently being rolled out in Kenya, Papua New Guinea and Laos in partnership with leading extractive companies Oil Search, MMG and Ok Tedi Development Foundation and food and agribusiness companies Olam, Diageo, Trukai (owned by SunRice) and Ironbark Citrus. It is these partners and DFAT that see the power of working together to not only meet their value chain needs but also using the power of the markets to improve the lives of smallholder farmers. 

 

References 

[i] Africa and the Middle East, Africa region brief, Department of Foreign Affairs and Trade

[ii] Fact Sheet, Australia-Africa Minerals & Energy Group

[iii] Africa and the Middle East, Africa region brief, Department of Foreign Affairs and Trade

[iv] Ibid.

[v] Mining and Agriculture, Strange bedfellows or a match made in heaven? International Mining for Development Centre

[vi] Africa and the Middle East, Africa region brief, Department of Foreign Affairs and Trade

[vii] The Challenge, African Smallholder Farmers Group

[viii] Ibid.

[ix] Rural Poverty in Kenya, International Funding for Agricultural Development