Africa's productivity challenge

A FORMER South Africa mine plant engineer turned senior business advisory consultant believes there are signs of the cultural change needed to rescue the country’s crippled mining sector. By Mining Journal editor in chief, Richard Roberts

Staff Reporter

While this could be expected after productivity levels hit an historic low two years ago, DuPont Sustainable Solutions sub-Saharan Africa regional leader Thabo Molekoa believes companies still must be prepared to take a different approach to investing on the continent given its increasing thirst for training and jobs.

He said the recent era of high mineral prices, when miners almost across the globe decided to grow output and build capacity at all costs, concealed the impacts of falling productivity, poor capital discipline and cost inflation.

Nowhere was this more evident than in South Africa where, according to the SA Chamber of Mines, costs increased across the board between 2007 and 2012: 26% for electricity prices to the mining sector, 15.7% in diesel costs, 15.3% in the price of reinforcing steel, and 12% in average remuneration per worker.

The current brief respite from lower oil prices wasn’t sustainable, Molekoa said.

“In February 2013, labour productivity in the mining sector dropped to a 50-year low according to Adcorp,” he said. “Labour costs are a significant component of the overall cost of mining, ranging from 20-25% of total production costs for modern open cast mines, to 50-60% for mature deep-level underground mines.”

The latter made for an especially big challenge for established South African gold and platinum miners, but the rising cost of labour in a part of the world where governments were almost uniformly insisting on skilled-job creation on the back of mine investment, and in return for licences to operate, meant the productivity challenge was not confined to the region’s former number one economy.

Mechanisation and technology, which demonstrably have improved productivity and safety elsewhere, could not be the whole solution in Africa, Molekoa said. Not yet anyway.

“From an innovation perspective the mining industry hasn’t invested a lot in research and development over the last 10-odd years,” he told Mining Journal.

“The industry has been quite relaxed, and in fact behind the curve, in terms of R&D, and as a result at a time when we need innovative answers and solutions to problems, we don’t have them. If we’d invested in R&D at the same level as the oil and gas industry has, I don’t think we’d be in the situation we’re in now.

“I think there is no doubt [increased] mechanisation would give you results that surpass other approaches … but how quickly can that happen? I’m not too sure.

“So part of it for me is the speed at which mechanisation is being introduced … and then you’ve got a double-edged sword where there is huge unemployment – not just in South Africa but in a lot of African countries – and there is a bigger push by governments in regards to job creation.

“And it’s not just about low-skilled jobs but also the higher-skilled jobs connected to the mechanised drills, and other mining equipment.

“If you’re paying more you must get the right productivity level; and if those jobs go away [to offshore-based workers] that creates a bit of friction with government and threatens your mining licence.

“You have seen in the last three to four years that countries are becoming a lot more strict about … what they get out of the mining houses.

“So I’m very sceptical about anything related to mechanisation which doesn’t actually address the issue of employment, or unemployment.”

Molekoa, who started his career as an engineer then assistant manager with De Beers, and joined DuPont last year, said the ability to attract and retain skilled workers was a challenge facing many industries in general and the mining industry in particular. Beyond the issue of skills, another critical issue was empowerment and motivation of workers to do their jobs more effectively.

“It’s a concept we refer to as operational discipline,” Molekoa said. “Not discipline in a punitive sense, but in the sense of consistency and rigour.

“We’re starting to see a lot of the language evolving around output, good quality, impact on the value chain, profitability … which wasn’t there a couple of years ago.

“This suggests to me they’ve probably adopted the approach of engaging their workforce, empowering them, and realising you only will succeed if you get the workforce behind you and change the culture that was rewarded [previously for just high output], to a culture that encourages productivity.

“I think the first thing that needs to be happening now is the elimination of silos.

“Things like equipment availability and the output [of different departments] are important, but you need an end-to-end assessment of your operation.

“I often ask people, are you looking at a problem from a silo view or value chain view? You can’t afford to just shift a problem from one area to another, so you’ve got to properly align the solution to achieve the bigger strategic objective.

“That alignment of objectives with overall strategy has taken a back seat for a while.

“But the cultural adjustment is key because these operations are people intensive. The emphasis has got to be on getting performance at the right level, and it’s got to be sustainable.”

Organisations that had seen 20% returns on their investments in a “relatively short space of time – three-to-four years” offered evidence the approach worked.

Investments by large miners over the past decade in underlying IT systems needed to provide the right levels of integrated supply chain management reporting accuracy and visibility had also been important, Molekoa said.

“But you are right in saying it’s an enabler. It’s not an answer in itself. If it’s [technology] used as a good enabler, then you’ll see the returns,” he said.