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Op: Ed Guyana’s success with Local Content Law will only be as good as its capacity for enforcement
By Kiana Wilburg
Kaieteur News has been at the forefront of several major local content awareness initiatives for seven years. Our most recent demonstration in this regard was the dedication of a page daily towards featuring provisions of the Local Content Law.
To recap, this newspaper highlighted that the legislation cordons off 40 categories of participation down from the previously criticised 153 for maximum local participation; strips oil companies of the power to procure goods and services as they please; removes loopholes for shell companies and crooks to disguise as legitimate companies with the creation of a Local Content Register; mandates that bidders with the highest local content targets should win; and requires oil companies to report local content use by value and not volume.
These are but a few of the praiseworthy provisions of the legislation. However, the authorities of the day, as well as industry stakeholders are to be reminded that legislation or policies are only as good as a country’s capacity for enforcement. This very point is strongly supported by a plethora of research and even in the policies and previous interviews, which Kaieteur News conducted with revered Trinidadian Local Content Expert, Anthony Paul.
Kiana Wilburg
Independent studies by DAI Energy and Resources Group’s also provide a compelling case on the importance of capacity for enforcement, drawing from the lessons of Angola, Brazil, Ghana, Mozambique, Nigeria, and Tanzania.
In Ghana, for example, DAI noted that some multinational companies have skirted joint venture requirements by establishing illegal shell companies. DAI’s research found that these shell companies fulfill the letter of the law without actually earning revenues that feed positive impacts back into the greater Ghanaian economy. DAI said Ghana’s Petroleum Commission has attempted to crack down on shell companies, but with limited success. Given the experience of Ghana and others, the international consultancy group warned that countries with relatively weak institutional capacity for enforcement should consider Ghana’s challenges and devise an approach that ensures the return of benefits to the local economy.
Further to this, DAI said its research has also found that local participation in the form of equity ownership by nationals may not translate into national development objectives. To cement its case, it highlighted that the stated objectives of local content policies in Angola, Ghana, Nigeria, and Tanzania were capital retention, local employment promotion, technology transfer, and broad-based development. However, the link between equity ownership and these development objectives was found to be generally weak in Angola and Nigeria. DAI said the alternative approach, as in Brazil, promotes the development of domestic value chains by incentivising foreign companies to perform activities in-country. Taking these lessons into account, DAI said Brazil’s approach is generally more effective at promoting economic development and worth consideration by other nations.
DAI further stressed the importance of robust data. The consultancy said this is crucial for setting realistic local content targets. In Brazil, it highlighted that a detailed picture of the local supply capacity and of industry demand allowed for the design and implementation of impactful local content interventions in areas such as financing, capacity building, and infrastructure investment. Conversely, it noted that lack of data and information on local capacities has made it difficult to set local content targets elsewhere. For example, Ghana and Nigeria mandated local content targets inconsistent with their supply capacities. The group said that Tanzania is another case which lacks structured information management systems to manage the knowledge required to support local content policy formulation and implementation. DAI said both cases highlight the need for countries to make evidence based targets. In light of the foregoing, it is safe to conclude that while Guyana may have passed a historic piece of legislation to capture local content benefits and opportunities; these can only be had through strict data management and impartial implementation. The real work therefore begins now.
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