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The roots of Local Content Issues – International Companies (ICs)

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In the first of this series on Local Content Policy (LCP), I described how it seems obvious to demand that international companies (ICs) employ local people, use local companies, transfer knowledge and provide cash to pay for education and training of the Government’s choice.
I explained some reasons why this rarely happens in the way it is planned:

  • conflicting Government regulations
  • unrealistic targets
  • lack of monitoring and evaluating because of lack of Government capacity
  • corruption
  • ICs required by law and contract to employ qualified people and accredited supply chains
  • unpredictable and onerous costs rejected by shareholders.

An example that is well documented is the experience of Shell in Angola. They faced these issues:

  • Workforce Localisation: Shell and other oil companies struggled to recruit and train enough local talent to meet the high quotas for local employment, as specialised skills were scarce. Angola requires that at least 70% of a company’s workforce consist of Angolan nationals, restricting the hiring of foreign workers to situations where no qualified local candidates are available. (The National Law Review, 2014)
  • Supply Chain Constraints: Angola’s industrial base was underdeveloped, making it difficult for Shell to source equipment and services locally. Importing materials while meeting local content requirements created logistical and financial challenges.
  • Compliance Costs: Ensuring compliance with these laws increased operational costs and led to delays in projects, as Shell had to navigate bureaucratic procedures and invest in local capacity-building initiatives. (The Energy Year, 2022).
angola map

These constraints forced Shell to alter its strategies and allocate substantial resources to meet the regulations, which affected profitability and operational efficiency.

Local operating environment

ICs do not operate in self contained bubbles. They frequently operate in remote and underdeveloped parts of countries where Government finds it difficult to exert control. ICs do not only have the local laws to comply with, they also have many external laws and regulations to comply with. These include obligations to ESG (Environment, Social and Governance) policies and regulations which are not easy or inexpensive.

If the LCP requires the use of local suppliers then who is policing the local suppliers? Do these local suppliers themselves follow the ESG requirements of the IC?

A recent conversation I had on LinkedIn describes this dilemma – join the debate. 

Negotiating with ICs

I cited the example of the IC who gave the government official a 1500 page document to evaluate in one week. This was one of several similar examples of behaviour by the same IC that I witnessed in that country. The country operations of this IC is one of their largest sources of profit, just under half of the total profit made. Their annual turnover in 2024 was more than $350 billion and the average daily wage of this country is $12. The extraction agreement with this country is recognised, even within the industry, as being particularly unbalanced in favour of the IC.

The shareholders of this IC recently voted to re-elect the directors who run this company and to support opposing tying executive pay to better environmental standards and reporting on gender and racial pay gaps, and other ESG related policies.

This country’s government chose to not invest in scrutinising the development plans of this IC, instead pay a token amount to consultancies that also work for the IC in other parts of the world, to evaluate their development plans and data. The government’s belief was that the IC was the expert in these matters and knew what they were doing.

As naive as that perspective might seem it is not unusual. Self-perception plays a critical role in negotiation and if you are in a leadership position in your country, your perception may be that the charming and accommodating lawyers who are negotiating the Extraction agreement for the IC are no match for you. It is not difficult to believe them when they tell you that the mountains of technical data and information provided to the two qualified technical officers to evaluate are the truth and accurate. Why, if I bring in expensive outside consultants it will make it look as though I don’t trust my new partners who emphasise that they friends of my country and want to see it develop and grow!

Even highly developed countries employ the best civil servants, lawyers and experts they can to negotiate with international investors, as well as monitor and evaluate the with the same army of experts.

Governments building Local Content Policies, as well as extractive agreements, should do the same.

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.