Increasing Domestic Impact of Investments Through Linkages

1. Increasing Domestic Impact of Investments Through Linkages

2. Broadening Domestic Impact • The impact on the domestic economy of large-scale investment varies significantly • In part depends on the intrinsic capital-intensity of the sector • Promoting linkages to domestic firms can enhance and broaden the impact of major investments

3. Benefits of Linkages • For Large Firms: • Reduced procurement, production, and distribution costs • Improved integration in new overseas markets • Enhanced reputation and local license to operate • For Small-Medium Enterprises (SMEs): • Access to new clients and markets • Enhanced skills, standards, and capacity • Acceleration of knowledge transfer and technology upgrading • For Local Communities: • Stimulation of economic activity, increased employment opportunities, and local or regional competitiveness • Added local purchasing power

4. Approaches to Promoting Linkages • Building SME Skills and Capacity • Procurement Opportunities • Access to Information • Access to Finance • Corporate Social Responsibility • Leveraging Global Standards

5. Building SME Skills and Capacity • Facilitating training, mentoring, and consulting for SMEs over a period of time • Mozlink, an IFC program in partnership with CPI. • Program has had a significant impact on SMEs and the local economy • Built the capacities of 45 local SMEs. • Mozal spends $17 million with 250 Mozambican companies monthly. • The success of MozLink encouraged four corporations in Mozambique—Mozal, Sasol, CDM, and Coca-Cola—to partner with IFC to design a three-year SME development and linkages program, MozLink

7. Building SME Skills and Capacity (cont.) • Standardized training modules can be very cost-effective. IBM & IFC have developed an online SME Toolkit containing self-guided modules. • Martins Group in Brazil has provided online training to 11,000 people through its Martins Retail University. • A number of companies have developed best practice guidelines specific to particular industries or business activities. • Unilever’s Sustainable Tea Initiative provides guidelines for tea farmers to produce crops with high yield and nutritional quality, and low environmental impact.

8. Procurement Opportunities • Firms can establish internal programs that aim to increase engagement with SME suppliers • ExxonMobil in Chad is an example • TheNational Content Strategyencourages: • Contracts to be broken up into manageable sizes • Shorter payment cycles • Longer-term contracts • TheLocal Business Opportunity Programhas helped develop local suppliers through: • Supplier assessment program, which found significant gaps in accounting, risk management, HR. • In response, training initiated in IFC managed facility

9. Access to Information • It can be difficult and costly to identify the right SMEs, and especially costly for large numbers of small transactions • One solution is dedicated staff or departments • Anglo American has created Anglo Zimele to identify and perform due diligence on potential SME suppliers. • In Chad, ExxonMobil has developed supplier databases for 60 potential suppliers, as well as 1,000 additional SMEs surveyed by IFC/Chamber of Commerce. • SBP shares supplier databases with large firms in South Africa, Tanzania, and Malawi.

10. Access to Finance • Financial services are critical to SMEs success in scaling up production and upgrading technology, but SMEs often regarded as high risk. • Financing coupled with technical assistance for entrepreneurs can help promote access to finance. • Mozambique Small and Medium Enterprise Initiative) • Programs can also catalyze lending to SMEs through providing risk guarantees and training to financial institutions • Madagascar Partial Risk Guarantee Program • BP Supplier Finance Facility in Azerbaijan

11. Corporate Social Responsibility • Ensures management commitment to domestic linkages • Local content targets become a part of Managers’ performance assessment • Social Responsibility Agreements can help assure balanced expectations on all sides, and provide performance measures • Newmont in the Ahafo mine in Ghana has involved traditional, local and regional officials in its Social Responsibility Agreement, which will underpin a broader community development plan • Diavik Diamond Mines (Canada) socio-economic monitoring and participation agreement signed with authorities and indigenous groups outlining company’s commitments to local SME development and linkages

12. Leveraging Global Standards • Increasingly global accreditation bodies are working with multi-nationals to ensure compliance with social and environmental standards

13. International Standards • ISO Standards on Environment • Extractive Industry Transparency Initiative • UN Compact

14. Challenges and Lessons • Securing internal commitment within large firms • Plan early, plan for the long-term, consult widely, and be prepared to adjust • Managing expectations and reducing dependence • Strengthening public policy environment • Customize to fit industry, investor, and local context • OBRIGADO!