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Demand higher levels of local content from China-funded projects–IDB tells Guyana, other Caribbean states
Chinese multinational companies have often been criticized in Guyana and across the Caribbean for having ‘low local content’, that is, not hiring local labour and using only minimal amounts of locally sourced materials in their operations.
The Inter-American Development Bank (IDB) is advocating that this state of affairs needs to change. In one of its reports titled, “Chinese Rise in the Caribbean. What Does It Mean for Caribbean Stakeholders?,” the IDB said that Caribbean states must demand higher levels of local content and seek transfer of skills and know-how when engaging Chinese multinationals.
The Bank pointed out that as a result of Chinese firms using low levels of local content, the development impact is reduced especially in the case where the local unemployment rate is high and qualified local talent is displaced or underused.
The IDB said it is aware that the argument used to defend low local content is that local firms in the Caribbean generally have low capacity to deliver complex and large-scale projects on time.
The financial institution stressed, however, that the “low local content” proposition reduces the spending multiplier effect and does little to build know-how or add value to local resources.
The Bank said it is crucial that the institutional capacity of the host country is strong in monitoring and enforcing compliance with assorted labour, environmental, and consumer safety standards vis-à-vis any foreign investor.
It said, “Host countries have to be extra cautious in engaging with companies that either come from home environments with non-uniform application of best standards or who are still on a learning curve and adjusting to internationally recognized best practices.”
The Bank added, “Some Chinese firms have been accused of being more lax in complying with environmental regulations, and given that the majority of Chinese investments are in environmentally sensitive sectors such as energy, mining, and dam and road construction in developing countries, this may pose a reason for concern and make the case for extra efforts to improve enforcement capacity on the part of the host country.”
Not only should Caribbean territories demand higher levels of local content and strengthen institutional capacity, but they must also ensure that transparency, accountability, and full appropriation of benefits are overarching goals in any bilateral relationship.
The IDB posited that when these elements are missing, the distribution of benefits may be skewed or fail to be realized.
It said, “When foreign partners are prone to non-transparency in business practices, this may reinforce the power of corrupt local elites, especially in country settings with compromised procurement systems, weak systems of oversights and audits, inadequate enforcement of anti-corruption laws and a weak press that could serve as deterrents or countervailing sources of power in the host country.”
The Bank added , “According to Transparency International, Chinese companies tend to publish little about country-to-country operations (revenue, taxes paid, capital expenditures), reveal little about organizational and signed contractual arrangements, such as corporate holdings, interlocking board memberships, political contributions, effective prices for goods and services rendered) and they tend not report on audits and internal anticorruption mechanisms.”
It also noted that most Chinese financiers of development projects in developing countries tend not to publish or list on their websites, Environmental Impact Assessments for their major projects in either Chinese or English.
The Bank warned that these proclivities and tendencies could pose another challenge for host countries with weak institutions and again point to the need to strengthen their capacity as quickly as possible and aspire for full transparency and accountability. (See link for full report : https://finance.gov.gy/wp-content/uploads/2017/06/chinese-rise-in-the-caribbean-what-does-it-mean-for-caribbean-stakeholders.pdf)
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