5.5 Local Content

Most petroleum and mining laws require that international resource companies adopt some measure of preference for local goods and services. Apart from the direct benefits to stakeholders such as local businesses, entrepreneurs and communities through access to business opportunities and diversity of markets, access to capital, technology and productivity, there are wider benefits: increased employment and skills, increased domestic and foreign investment, technology and knowledge transfer from foreign companies, exports and foreign exchange and increased government revenues.

The definition of ‘local content’ is very important. Some countries consider ‘local’ companies to be those that are registered nationally, rather than fully taking into account the degree of value addition and the levels of participation by local individuals. Ideally, preference should be given to companies that are involved in actual manufacturing activity, as well as those with significant ownership, management and employment of local citizens. Companies within the ‘region’ should also be treated as ‘local’.

Problems can arise in implementation of a local content policy such as is required in the following provision in Chad that requires the licensee to “give priority to those goods and services available in Chad insofar as their prices, qualities, quantities, delivery terms and sales conditions compare to goods and services available abroad and do not require the licensee to bear any kind of extra economic burden”.  Provisions such as these are often insufficiently disseminated, monitored and enforced. Moreover, it may be difficult or impossible to compare factors such as the reliability or performance quality of a local supplier of goods and services in relation to other competing suppliers.

Nonetheless, contracts may include fairly elaborate provisions on this which specify criteria, including certification, to identify when materials are not available locally or at reasonably comparable quality standards. They may also involve a monitoring system through the national resource company or a specialized government agency or procurement office.

Scoping the capital budgeting implications of local content development legislation

The above presentation, highlighting the examples of Nigeria and Ghana, is part of the EI Source Book's H2Oil Research Seminars Summer 2012 series.  View the webinar page to see the video of this event alongside the above slideshare.

Box 5.3: Equatorial Guinea example

Equatorial Guinea has the highest GDP per capita in Africa (estimated at US$37,800 in 2008). Hydrocarbons (crude petroleum and derivatives such as LNG, LPG and methanol) dominated the minerals industry and accounted for about 88% of GDP in 2007. It is Africa’s seventh largest producer of crude petroleum (3.65%) and ninth largest producer of natural gas (0.6%).  Source: BGS International.

As part of the 2012 Africa Cup of Nations (soccer), the BBC published a series of 18 photographs on the country, giving a snapshot of its development. The quotes from these slides are often directly relevant to the EI Source Book in general, and this Local Content section in particular, i.e. its substantial absence: "most of the roads are being built by Chinese companies. While in some other African countries foreign firms are required to hire local people, most construction workers in Equatorial Guinea seemed to be Chinese."

External commentator's view (Harvard University researcher Shelby Grossman): whilst taking strong issue with a large swathe of this BBC reportage, Grossman's comments on Local Content are in line with those of the BBC for this state: "one of the ways in which Malabo is different from other West African cities is that there are Chinese workers everywhere. Not managing people, but actually doing work that local people normally do. There are Chinese construction workers literally putting bricks into a sidewalk in front of a stadium that will be used for the Africa Cup of Nations, which Equatorial Guinea hosts later this month. There are Chinese women working as cashiers at big supermarkets. I’m not sure what explains this. One guess is that the government doesn’t have restrictions on the types of work that foreigners can do." (see also Chinese in Malabo comment).

 

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  • daniel gilbert: To give context to the below comment from Prisca, she is commenting on what is now the main body text of this section, not Box 5.3. This main body text used to be in a comment box. btw - congratulations to Prisca on her new job in Senegal for… read more
  • Prisca de Beauchamp : I finally had a chance to look at the local content area of the source book website. Of course, there is a lot to/too much to say about local content for a box! But here are a few comments that crossed my mind reading the document. 1-… read more