Local Content: Government Must Lead the Charge
Local content is the bedrock of intelligent, efficient and economic operations in the African oil and gas sector. Striking the balance between regulation and over-regulation, making sure locals can get financing and securing training and jobs are the major challenges. Governments have the most critical role in making local content work for all.
By NJ Ayuk, CEO of Centurion Law Group
Sustainable development of African economies can only be attained by the development of local industry — by investing in Africans, building up African entrepreneurs and supporting the creation of indigenous companies.
While this is most certainly the right thing to do, it also makes good business sense. Real local content will always be the cheaper and more efficient alternative for international companies operating in Africa, as opposed to bringing in expatriates and goods from abroad; and local content works to diversify and strengthen a country’s economy.
However, as local capacity still needs to be built and mindsets still need to be changed about indigenous workers, local content policies must be driven by the creation and enforcement of strong local content regulations, especially within the natural resources sector. This government-led initiative must strategically address the obstacles that keep indigenous companies from success, including, but certainly not limited to: accessing financial capital, attaining technical expertise and overcoming biases that prevent them from competing with international companies.
Regulating, financing and hiring
First, there is perhaps no greater obstacle to young Africans than accessing fair, patient financial capital. Loans in Africa are often hard to obtain, and even when available, they are offered at extremely high interest rates and require excessive collateral. While the lack of funding capacity certainly needs to be addressed by the financial sector, national governments are capable of passing regulation that restricts interest rates so that predatory lending is illegal, and that also prioritizes local companies in project financing efforts.
Governments must also lead the charge in creating opportunities for education and technical training, by creating state-run institutions, forming partnerships with international universities and sponsoring the study of qualified Africans with financial assistance. Local content regulation must also stipulate that international companies are responsible for providing training for local employees.
As we saw in this oil and gas crisis, across the African continent local employees were the last hired and the first fired. The lack of technical training for local employees means they are easily lost and replaced as major companies continue to make huge profits from national resources.
As international companies operating in Africa tend to rely on what is familiar when subcontracting and hiring by bringing in expatriates to do jobs that Africans can certainly do, it is imperative that governments intervene by providing a regulatory framework that prioritizes the hiring of locals and local companies. It is wrong that local companies make up less than 7 percent of contracts with oil companies in Equatorial Guinea, Cameroon, South Sudan, Gabon and Congo-Brazzaville or under 30 percent in Nigeria, Ghana, and Angola. Obviously, though, morality cannot be depended upon to increase the number of contracts and jobs for Africans. Instead, regulation and consistent enforcement of regulation will turn the tide for the development of national economies.
Avoiding red tape
While regulation it is necessary, it is equally important that over-regulation be avoided. Few things have the ability to strangle business initiatives as much as over-regulation. Unbalanced, unclear or biased regulations will choke development of oil and gas projects, and thwart new investment. Complex regulations will drive away new businesses, and take with them money for new projects, corporate social responsibility budgets, educational resources and job creation. Effective local content regulation needs to be fair to international companies by incentivizing local content and ensuring that international oil companies can operate in an efficient and cost-effective way. Local content regulation is not meant to drive international companies, but instead form a bridge of trust between international and local companies, and create a system for continuous knowledge transfers and improvement on both sides.
Additionally, governments must ensure that local content regulations do not negatively impact indigenous companies, though the regulations are directed at international companies. Too much regulation can slow the creation of business and make it more difficult to facilitate contracts.
Governments have a critical role to fill in creating opportunities for national companies. They must ensure there is a fairly regulated financial sector to support entrepreneurs and invest heavily in each country’s greatest resource: human capital.
For their part, international oil companies must change their approach to local content, recognizing it as the truly economic choice and forming trusting partnerships with local companies. And, when international companies are not fulfilling this role, the government must have laws in place and effective monitoring and enforcement to bring them to heel.
This dynamic will lead to Africans benefiting from their own natural resources and the establishment of truly diverse economies.
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