National and Local content: A Policy dilemma on Extractive industry in East Africa

As I pen down these views, my intention would be to create a platform for constructive, logical & sound critic on policy issues in a bid to come up with better policies for this industry. National or rather local content is subject matter that East Africa policy makers cannot afford to ignore as we move forward towards upscaling our mid and down-stream of the Extractive industry.

A simple definition of National /local content is, a means by which a country wants to take control of its destiny by increasing indigenous participation in the industry. looking at the East African region, the debate that has been going on in respect to National content in oil and gas industry.

Nigeria recently enacted a Local content policy, where extractive companies are required by law to submit a local content plan of how many Nigerians are going to be employed, how much of the goods are going to be procured from Nigeria, as opposed to foreign countries. The policy also prescribes that government has to first consider local companies in the award of blocks before the foreign companies.

I sense there is a bit of tension between what I will call the political expectation versus Economic realities of the oil and gas industry.

Angola has similar policy commonly referred to as Angolanisation through which the aim is to get up to 70% of Angolans involvement in the oil and gas industry, how realistic this is, is the subject for debate, which is what this article looks at. I sense there is a bit of tension between what I will call the political expectation versus Economic realities of the oil and gas industry.

Political Expectation Vs Economic Imperatives

The political expectation that is shared across the east African region, is that we own the oil and the minerals, and thus we deserve the right to extract as much value as possible, including having as much local content as possible in the oil and gas industry, which on the face value is perfectly okay. The economic realities on the other hand is that this is an international global trade, the procurement is global, the competition is global and the market is global and therefore you cannot defect or localize the entire industry and hence the rise of the tension.

Is there a need for local or National content policy?

Laws are an important aspect in Oil and Gas industry more so because they look to contain those in this case (extractives companies) that may be reluctant to capture other interested parties and therefore you have an instrument that you can use in case a company does not comply.

Primarily the reason why most African Countries push in towards a law is because there is a lot of political pressure not just for purpose of competing between parties, but also because the general populace wants governments to demonstrate somehow the issues have been addressed, and therefore the easiest and simplest way on the part of government is to pass the law.

What unfortunately nationals do not understand is that much more needs to happen to achieve that. These creates a perception that somehow when you have passed a law on a given issue of public concern, then everything has been done which is far away from the truth.

Moreover, it creates somewhat an element of quick fix solution on the part of governments as they are seen to have a deliverable to their constituents, but again there is also genuine expectation that this might be a vehicle to motivate change, both in terms of behaviour of local Entrepreneurs, as well as the mining companies. In my view this by itself cannot be expected to achieve the end goal, much more needs to be done in addition to putting a law in place.

What is important in my view is that, governments need to appreciate what genuine constraint are facing industry and for industry to understand what genuine pressure does government operate under, and for them to work together as partners in narrowing this.

Lessons from Other countries in respect to National content in Extractive industries

Generally, there two approaches to public policy, the first one is prescriptive in nature for example (thy shall procure to certain extent) and one that is somewhat persuasive (enticing, motivating persuading).

The Ghanaian policy is more prescriptive and stipulates that 80% of Ghanaians should be involved in the oil and gas industry, in addition the law is very aggressive in the sense that it attempts to divide all sectors in the industry and give percentage of local participation now, in 5 years, and in 10 years.

In some instance the law requires that in 10 years, 100% of certain products and services should be provided by Ghanaians, which is a bit unrealistic given that Ghana is pumping oil for the first time and the fact that it doesn’t have the capability to meet the requirements of the industry, then 80% of local participation is unrealistic, these are the political expectations that I’m alluding to.

Zambia offers an extreme case in which national content if not well managed can be disastrous, in 1970’s Zambia decided that from an equity perspective the country was going nationalize and take over the assets in its copper mineral industry, the results of which was that 30 years later the mining sector has all but collapsed.

Zambia was at the same level in terms employment and production as Chile, today Zambia produces about 800,000 tonnes of copper annually while Chile produces about 5.5 Million tonnes and employees a hundred times more than Zambia.

Interestingly, the best case available is a country that doesn’t have law on Local content but simply says, we encourage you to procure as much as possible from the locals but we recognize that your commercial success has to do with us not interfering with the industry and that is the government of Botswana, the results of which is that industry is able to pace its self towards achieving the desired targets .This does not entirely mean that government of Botswana goes without interest, in fact they engage with industry very frequently to make sure that progress must be made .

What is important for policy makers especially those in east African countries to note, is that Botswana is mindful and understands that the success of the mining industry lies in making sure that open market conditions prevail, and thus in a bid to narrow the diversions between what policy makers expect and what industry is realistically able to deliver under the circumstances, partnership and a lot of engagements is required.

In my view they must be some thoughts given to benefit the community for simple reason that one, they are displaced from the land and secondly that they are impacted environmentally, and so should otherwise. There must be away through which National and local content should be realized but care should be taken when realizing this, especially in regards to policy and law around this subject matter.