PROMOTING LOCAL CONTENT IN THE MINING, OIL AND GAS INDUSTRY IN WEST AFRICA.
Like in most developing countries, West African resource-rich countries have not succeeded in sufficiently using their mining sector as a leverage for broader economic development and transformation. As a result, although the industry is a significant revenue and foreign exchange contributor, its linkages with the rest of the economy remain rather weak. To address this issue, and under mounting pressure to deliver more sustainable and inclusive outcomes, governments of mining, oil and gas producing countries in West Africa are increasingly taking regulatory measures and developing frameworks for implementing local content policies with the objective of increasing the use of domestic factors of production in the mining, oil and gas sectors, and provide more prospects for local economic development that will enable them to benefit from their extractive industry.
The motivation for the adoption of local content policies by West African mining, oil and gas producers is the desire by these countries to obtain the greatest economic and financial benefits from the extraction of these exhaustible resources. Therefore, local content policies have a strong political appeal, as they respond to popular pressures to deliver on employment and wealth-creating promises made during political campaigns. Furthermore, they are considered to be fiscally neutral and do not present any financial implications for government and are perceived as a “quick win” by governments. Finally, on the social front, there is a clamour by societies denouncing constant policy failures and the inability of governments to deliver on inclusive and sustainable development objectives and welfare support systems. Local content policies are, therefore, seen as an instrument for governments to navigate through the various interests to secure deals to maintain social peace and to maximize benefits at the national level. On the part of mining companies, local content policies are considered as a tool to secure the social license to operate and transfer some benefits to the mining, oil and gas communities, through some forms of voluntarily defined local content policies.
2. Local Content Policy Frameworks.
Local content frameworks are designed to realize certain policy objectives essentially aimed at securing maximum socioeconomic benefits from investments in the mining, oil and gas sector. For effective implementation, the design of local content policies have been inscribed into policy instruments and legal frameworks. Government intervention in the mining, oil and gas sectors to support broad-based economic and social development is the reason behind the design of local content policies in West African countries. The extent and type of policy intervention has evolved over time from the restrictions on imports, and direct state intervention, to more complex policy frameworks aimed at creating backward linkages (that is, supplying input to the local economy through transfer of technology, the generation of value-added in domestic supply sectors, the creation of local employment opportunities, and increasing local ownership and control) and forward linkages (that is, processing the sector’s output prior to export through, for example, the establishment of refineries, petrochemical industry, and the production of fertilizers).
The policy instruments and frameworks used for designing local content policies in West Africa are varied but the common ones are Policy statements: Some countries outline their local content policy objectives and principles in broad statements of government policy, such as the 2012 Sierra Leone Local Content Policy. Primary legislation, enacted in Acts of Parliaments and statutes. Examples include Nigeria’s Oil and Gas Industry Content Development Act 2010. Secondary legislation, which are delegated and emanate from primary legislation. Examples include regulations, such as Ghana’s Minerals and Mining (General) Regulations of 2012. Mining contracts, agreements and bidding rounds for concessions or production-sharing agreements, which contain legally binding requirements in respect of local content are also common policies. This is mainly used in the hydrocarbon sector but rarely in the mining sector. Community Development Agreements which are formal agreements between investors in the mining, oil and gas sector and the host communities that are likely to be impacted by the project. Though such agreements could be of a voluntary or mandatory nature but often guided by primary legislations frameworks, they are expected to engage mining, oil and gas companies in delivering social and economic benefits to the local community. A combination of these policy frameworks could be employed in the design of local content policies in mineral-rich countries of West Africa.
3. Concluding remarks
Local content policies have the potential to create employment and stimulate the development of local suppliers of goods and services. It is estimated that mining, oil and gas companies spend between 40 and 80 per cent of their revenues on the procurement of goods and services (McKinsey, 2013), far exceeding their contribution to host government revenues, assessed between 3 and 20 per cent of GDP. Therefore, expenditure from mineral sector procurement represents a lucrative market into which the local private sector can tap if they have the capacity to supply competitively and within the required standards. This finding clearly supports the use of local content policies to extract more value from the companies operating in the mining, oil and gas industry in West Africa.
While local content policies have the potential to stimulate broad-based economic development, their application in resource-rich countries has achieved mixed results. The mining, oil and gas industry is characterized by the use of specialized input, often at the high end of the technology spectrum, sourced through globally integrated supply chains. Consequently, supplier concentration in many industry-related sub-sectors is high, adding further barriers to the development of a local supply sector. Countries with a limited economy would naturally find it difficult to develop a local supply industry at the pace, size, and quality necessary to satisfy the demand from mining, oil and gas projects.
Governments often design blanket policies hoping that they will help achieve the multiple objectives of job creation, industrial development, local ownership and so forth. Yet in practice each of these objectives would require tailor-made or sector-specific support. For instance, policy-makers need to have an understanding of the resource supply chain and of domestic capacity to supply the mining, oil and gas industry. This includes knowing whether domestic suppliers are sufficiently capable of supplying quality and competitive inputs, whether skills are available domestically to perform the tasks required by the industry, the size of the procurement market and where the highest value can be captured by local enterprises. Therefore, any effective local content policy must be based on systematic information, partnerships with the industry to identify areas along the mining, oil and gas value chain where a country at a particular level of development can usefully adopt local content policy framework to meet its development objectives.