- Horizontal Linkages (Beyond Extractives)
- Assessing the Potential to Create Increased Economic Links
- Assessing the Depth of Backward and Forward Linkages
Assessing the Depth of Backward and Forward Linkages
- It is advisable to examine both backward and forward linkages for each stage of the project, even if one particular stage may not have significant linkages.
- Types of backward linkages for each stage of a project life cycle are provided in the chart below. This chart can act as a useful starting point in assessing the potential for horizontal linkages in the mining sector, which can also be developed from forward linkages.
- It is important to assess the current situation from the perspective of the depth of backward and forward linkages (referring to the quality of the linkage based on the degree of value added) not from their breadth (referring exclusively to the number of linkages).
- Horizontal linkages that involve the transfer of capabilities can only emerge from linkages that have actually developed local capabilities and added value.
- How to Successfully Access the Mining Supply Chain (Saskatchewan Ministry of the Economy)
- Mining Local Procurement Reporting Mechanism (Mining Shared Value, Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH)
- The Local Supplier Development Company Self-Assessment Tool (International Finance Corporation)
- Extractives Industry Local Content Early Gap Analysis (Adam Smith International)
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To understand the skills and capabilities that are being created by extractive industry activity in host countries, policymakers must understand the extent of goods and services that are being supplied (backward linkages), and the extent of processing of the industries outputs (forward linkages). Examples of forward linkages include the refining of extracted oil and the cutting and polishing of extracted diamonds.
It is advisable to examine the backward and forward linkages for each stage of the project, even if one particular stage may not have significant linkages. During the exploration stage for mining, for example, there are generally not significant supplying opportunities. However, those that do exist can be utilized to build skills that can be used for other sectors. For example, technical skills needed when drilling for samples during exploration can be used for other sectors such as construction.
To illustrate this concept, the chart below shows the types of backward linkages in each stage of a project life cycle, thus providing a starting point to assess the potential for horizontal linkages in the mining sector. Horizontal linkages can also be developed from forward linkages.
To create appropriate horizontal linkage policies, it is important to assess the current situation from the perspective of the depth of backward and forward linkages and not from their breadth. The “depth” of linkages refers to the quality of the linkage through the degree of value added. This concept is different from “breadth” which only refers to the number of linkages. For instance, depth would be assessed through the quantity of local expenditure spent by the companies on goods manufactured in a country, while breadth would be referring to the local expenditure spent on goods simply available in a country (but not necessarily made in country). Horizontal linkages that involve the transfer of capabilities can only emerge from linkages that actually developed local capabilities and local value added.
For further guidance on assessing the extent of backward linkages from extractive industry activity see Assessing the Current Situation.