Socio-Economic Resource Development Model (SERD)
A new practical resource development model that improves livelihoods for people and increases profitability for resource development companies in conflict-affected and high-risk resource rich developing countries especially in Africa. The SERD Model transforms operational inefficiencies, illegal financial flows, instability, the cultural effects of extreme poverty and corruption into a driving force for peace and stability to encourage the success of the Millennium Development Goals and the Africa Mining Vision.
William Quam Profitability Through Operational Excellence and Socioeconomic Resource Development 15 August 2014
About the author ~~~~~
William Quam Nordic Sun Worldwide The Green Program ~ www.thegrenprogram.org
[email protected] +43 688 600 60430
Senior management and strategy development experience with Fortune 500 and SME companies in the US, EU, Russia, Africa and several Emerging Markets in various sectors including resource development, banking, manufacturing and public government. Forensic business analysis and investigations. Designed and developed The Green Program (http://thegreenprogram.org/) the only complete socioeconomic 3TG "conflict minerals" certification solution. Managing Director experience of 6 production mining concessions (greater than 150,000 ha) that included underground and open cast mining operation with 3,800 staff and ASM (artisanal miners). Within 3 months brought a $1.5 million loss making operation (previously owned by H.C. Stark, The Carlyle Group and Advent International) into profitability. Management level compliance and audit experience with 3T (Tin, Tantalum and Tungsten) minerals certification and due diligence programs including Dodd-Frank & SEC, iTSCi, Certified Trading Chain (CTC), OECD, ICGLR and UN Group of Experts. 25 years experience managing operations and developing strategy, investment and operational plans for the banking, mining, renewable energy and industrial development sectors for the US, EU, Russia, Great Lakes region of Sub Sahara Africa and other Emerging Economies. ~~~~~
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The investment and operational model for FDI and resource development in Africa has changed little since colonial time. The “resource curse” is the description of the total societal breakdown of the mining regions of Africa. As a direct consequence of this “resource curse” Africa continues to move backward on most socioeconomic scales. The causes for this backward movement of progress is a combination of many facts however myopic Foreign Direct Investment (FDI) operational goals and the related $55 billion annual illegal financial flows out of Africa are the main causes. Foreign business practices throughout history have kept this process virtually untouched to the present day. The traditional FDI approach to resource development is to use an extremely narrow view of the process of generating and recognizing profitability in resource rich developing countries of Africa that is not transparent. This operational lack of transparency is combined with culturally dysfunctional Corporate Social Responsible (CSR) programs that do not directly contribute to improvements in the standards of living where the resource development operations are located. This disjointed focus ignores the cultural reality of the participatory nature of African societies which sets the stage for missed production, profitability targets and instability. FDI operating budgets are developed with little concern for the socioeconomic realities of the local communities where they operate. The often incomplete and underfunded CSR programs have little relationship or interaction with the FDI operations. This lack of significant interaction leads to cultural breakdowns that substantially degrade FDI project profitability and sustainability. In post-conflict and politically unstable areas this cultural breakdown is particularly acute and leads to production losses, labor unrest and an undercurrent of support for a return to instability. What is needed is a Socio-Economic Resource Development Model (SERD) that can bridge the cultural and economic divides for the mutual financial benefit of all the stakeholders impacted by FDI and resource development projects. The foundation for a socioeconomic bridge to change this dynamic lies in more closely aligning the qualities all parties can contribute to increasing local standards of living that also enhance resource development profitability. Each resource rich region has characteristics that can be used to assist the resource development project become more socioeconomically connected to the community. In many cases both large and small resource development projects in Africa fail because they did not provide real economic benefit to the local population while allowing too much of the minerals wealth to be transferred out of the region via legal and illegal financial flows. A lack of transparency in the mineral wealth generation process is demonstrated by the high levels of illegal financial flows, corruption, resource wars, instability and the general failures of the Millennium Development Goals and Africa Mining Vision to deliver development to Africa. Very little practical operational consideration is given by the host governments or outside investors to discover and require new, creatively dynamic solutions to break this cycle. The myopic, “standard operational structure” view of FDI resource development projects continues to be used because of a misinformed belief that this structure is the easiest path to profitability. Addressing the local extreme poverty of the mining regions does not enter into the budgetary process in any meaningful way. The result of this shortsighted view is that local communities experience downward standards of living while resource development projects regularly miss sustained profitability and longevity targets no matter how many billions of dollars are set aside for CSR activities as is demonstrated with Nigeria oil development. The projects that can bridge the realities of operational inefficiencies, extreme poverty, corruption and lack of transparency will find the key to sustainability, lower operating costs and greater profitability. The old colonial era business model of relying on underfunded and ill-conceived CSR programs to pacify the local population are actually ensuring the failure of their operations over time. Increasingly, local populations are disrupting production and profitability with labor unrest, corruption and instability events. The SERD Model provides the process to create a sustainable bridge with measurable standard of living improvements that also drive profitability improvements for companies. Page 3 of 5
The existing resource development/CSR business model is a relic of the “Great White Hope” colonial period of Africa. These times are noted for resource development where no thought is given to what the local populations could supply the colonial business activities except their labor and lives producing an abundance of minerals or raw materials. In exchange for their labor, a barter system was developed that included necessary digging equipment, imported foods and medicines along with some education and religion. The lessons the local population learned from this barter business arrangement was that if they were to survive they had to travel deep in the jungles of the DRC and extract a few kilos of minerals from their family plot and exchange these minerals for extra food and medicine to support their extended families. Except for the change of cash becoming the medium of exchange there is actually very little difference in how the mineral and resource supply chain operates today, except that the standard of livings of the mining and resource extraction areas in Africa has decreased over time. The SERD Model turns this colonial era business model completely upside down and uses the desire of the local population to work themselves out of their extreme poverty as the engine of growth for the local areas while increasing profitability for resource development companies. One example of how this socioeconomically focused approach would work is in the generation of electrical power that is a significant operational issue for all mining projects and people in the DRC. There are many renewable power generation methods and unused fuel sources that could be utilized to give significant numbers of the local population a basic supplemental livelihood while decreasing diesel fuel expenses for the mining project. A series of mini bio-mass powered electrical grids could be established in the remote mining areas to generate a portion of their power requirements. The locally produced bio-mass fuel could form the basis on a for profit barter exchange process to provide electrical power for a few hours in the evening for the local population. The community generated bio-power fuel source could also replace the dangerous candles and lanterns that are currently the only means for lighting at night. The resultant bio-mass could also be used to replace the rain forest charcoal that is destroying large portions of the Virunga Rain Forest and causing serious interior health issues. Additionally a series of mining company funded for profit cottage industries producing new cooking stoves and other activities could be jointly launched. These additional income sources and lower expenses for the mining company would be transcended by the benefit such an process would do to demonstrate deep connections with the local community in very practical and cultural sensitive ways. Each mining and resource extraction location is unique however a fundamental change in the rigid operational structure of FDI mining and resource extraction projects if they want to achieve sustainability and profitability. The most important quality for success in the resource development project will need to be a willingness to become local economic development partners with the communities where they operate. The defining characteristic of this participatory operational approach is centered on developing a series of local, profit orientated activities that financially benefit the mining operation together with the local population. This community engagement focus, over time, will lower operational cost and assist the local communities thrive. When the overriding concern of the mining companies is to extract minerals as quickly as possible the local population easily senses this prime objective and reacts accordingly. The more enterprising members of the community begin to engage in a series of passive or active methods to extract their own portion of the mineral wealth in ways the foreign companies can never control or eradicate. The local foreign managers actually become willing participants in these activities in order to show operational progress. The result for the mining sector is a willingness to accept and explain the profitability loses in terms corruption and smuggling as the necessary cost of doing business in the DRC. In the longer term this standard FDI reality ensures that the development of local communities and profitability for the projects move in a backward direction. The SERD Model combines successful operational strategies with a participatory mechanism to bridge divergent cultural realities and give local communities the portion of economic benefit they know the mineral Page 4 of 5
wealth should bring to them. The mining companies are able to build sustainable and increasingly profitability operations because they are now a contributing member of the local community. The SERD Model is a unique, sustainable resource development and local livelihood development process that is feasible because the local population is anxious to contribute to new solutions that end the instability and resource wars. The SERD Model does not increase the overall FDI budget but only allocates it with a different investment and CRS time-line. Resource wealth is much like water that will follow the path of least resistance. The SERD Model is an example of a new aqueduct that will allow the resource wealth to deliver immediate benefit to the local population while increasing FDI profitability to levels that are not now possible.
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