Local content – why it doesn’t work
- 31 December 2024
- Posted by: Trudi Stevens
- Category: energy excellence
Local Content Policies (LCPs) – making international companies contribute to the development of the country whose resources they are extracting – what is not to like? Employing local people, using local suppliers, buying local food, materials, equipment, vehicles – why would any self respecting international company not do that?
It turns out there are many reasons why international companies will not and cannot be on the side of the angels, with the best will in the world. Let me explain why, starting with the government.
Policy design
Conflicting regulations.
If the national Local Content Policy promotes sustainable development, then how does that reconcile with mining activities in environmentally sensitive areas, even if local people are employed to clear the farms and ecosystems where the mining will take place?
Unrealistic targets.
A country in West Africa has stipulated in their LCP that 50% of management staff must be indigenous, rising to 80% within 5 years. Local qualified and experienced managers from this country are already working in well paid jobs or running their own businesses. Competent managers are not just trained – they have years of experience in their field and cannot be created within a handful of years, even if they were available.
Lack of institutional capacity
Inadequate monitoring and evaluation.
National governments almost always have a resourcing problem – they do not have enough people and those they have do not have the knowledge and experience to challenge or test the information they are provided. I have seen, first hand, a government technical officer being given a 1500 page document to evaluate by a huge international company with one week to do so before the operation commenced. To have insisted that he be given longer would have incurred the wrath of the Vice President who was adamant that there be no delays in the operation. Did the international company do that deliberately? I couldn’t possibly comment but they certainly will claim that they ‘consult’ with the government when carrying out their operations.
Corruption
This is so pervasive, blatant and brutally obvious I don’t need to elaborate on its impact on local content. It is sobering to reflect that hundreds of good, ethical international companies have done their Environmental Social Governance (ESG) risk analysis and concluded that it is simply too difficult to invest in the country or just easier to ‘buy from the trader’.
Skills and knowledge gap and local industry capacity
International companies have insurers and financiers who require the company to employ only technically qualified people and only use suppliers that have the necessary ISO accreditation. That, alone, represents investment of $millions in education, training and compliance systems. That is not going to be replicated in a couple of years in a country where a tiny fraction of the population reach higher education.
I smile wryly when I read about the scholarships provided by international companies in engineering and science as part of their local content provision. These scholarships are inevitably taken up by well educated young locals who are well educated because their well connected and wealthy parents had the money to send them to be educated abroad.
Resistance from multinational corporations
In a volatile trading environment an agreed rate of return needs to be guaranteed for financiers and shareholders to allow investments to proceed. Anything that might threaten the rate of return will be resisted. Boards of Directors who return huge profits will be supported by their shareholders (many of whom are pension companies protecting their clients) in their resistance.
Local Content requirements are expensive, particularly if they are open to interpretation or poorly designed. If this has the potential to change the % rate of return on the investment then the international company will water it down, pay lip service or ‘game the rules’, example being the 1500 page report to be evaluated in one week.
This is a brief overview of a few of the challenges facing governments trying to design and implement local content policies for the benefit of their citizens. However, there are ways that the presence of international companies can be leveraged to benefit citizens and to help build capacity. This does mean that governments need to move away from a purely transactional perspective and to develop a broader, wider and deeper perspective when considering local content. This will be explored in the next blog.
Empowering local talent for sustainable growth
At Future Energy Partners we believe in the importance of developing local skills and capabilities. With decades of industrial experience combined with academic achievement, we assist policymakers in defining Local Content Policies and ensuring their successful implementation.
Our expertise enables us to deliver bespoke training solutions that empower individuals and organisations alike. We recognise the value of not only building technical knowledge but also fostering the softer skills essential for success—teamwork, career growth, performance management, and conflict resolution.
We are dedicated to unlocking local potential. To find out how we can support you, contact us today.