Local Content Policy
As 2020 draws closer the learning curve associated with Guyana becoming an oil and gas country will become steeper. This applies not only to the functionaries whose task it is to manage the resources that will flow from oil revenues and the local oil and gas experts who will be responsible for ensuring the effective running of the local oil and gas-related institutions. Not to be overlooked of course is the wider public education exercise that will have to be undertaken and which will have to target the various communities, professions and sectors all of which will be affected by our Local Content Policy.
When Stabroek Business spoke with the former Energy Minister of Trinidad and Tobago Kevin Ramnarine he made the point that part of Guyana’s preparation for the advent of oil and gas would have to be to ensure that the media here develop the requisite level of expertise to ensure that they are sufficiently competent to effectively deliver the critical oil and gas information to the various publics. Mr. Ramnarine’s point has long been valid since while he did make the point that the media here was more or less holding its own as far as reporting on current oil and gas issues was concerned, the complexity of the sector requires that information is communicated in a manner the allows for clear public understanding of the issues. Truth be told we cannot say with anything even remotely resembling certainty that the Guyanese public, at this stage, knows everything (or even most things) that it needs to know about their country’s imminent arrival at the point of becoming an oil-producing nation.
In terms of its own reporting on oil and gas issues (which has been limited up to this time) the Stabroek Business owes a debt of gratitude to Professor Leyland Lucas of the University of Guyana’s School of Enterprise and Business Innovation for his column titled `Some issues associated with Local Content Policy in Guyana’. We believe that our ordinary readers, particularly, owe Dr. Lucas a debt of gratitude for his effort first, to demystify the concept of Local Content and then to go on to point out that setting aside the indirect ad-ons that a host country, its people as a whole, its communities, its professionals and its businesses can derive from oil and gas operations taking place there is need for careful contemplation of the various ways in which we move to benefit from Local Content since misapplication can have a dangerous downside.
Here, Dr. Lucas sites several examples including the shifting of goods and services the more lucrative markets which the exploiting oil companies offer so that one of the downsides might be, for example, the shifting of food items (fresh greens and vegetables might apply in our that the requirement that a specific percentage of inputs be produced by local manufacturers represents one of the simplest ways in which local firms can benefit through backward linkages. However, he contends that in order to exploit these opportunities there is need for a vibrant manufacturing base, one that can deliver inputs in a timely manner. “To do so the manufacturing base must exist and delivery systems must be reliable. These are inseparable as products that cannot be delivered are valueless. Hence there must be some commitment, (locally) to building a manufacturing base supported by a reliable logistics system to ensure timely delivery.”
The strengths of a robust local content policy, however, do not gainsay the threatened downside of what he describes as a “Johnny come lately” effect on material supplies. He explained that firms capable of supplying items to the oil and gas sector, upon discovering that the prices being offered “are significantly higher than what is paid elsewhere may withdraw from the traditional market thereby creating an artificial shortage. “With that shortage comes rising prices and possible health consequences for the remaining populace. Thus, as part of local content policy one must attempt to ascertain the possible effects of supply diversion.”
Lucas says that similar instances of artificial shortages can also emerge for human capital in already undersupplied areas. He contends that “if nurses, doctors and other critical human resources determine that through local content policy they can
case) to the oil men. The same, he says, might apply to those on-shore skills (he cites nursing as one of those) that might shift to a market where the pay is better,
Dr. Lucas goes further, alluding to what, if not guarded against might well be a seamier side to Local Content pursuits, where persons simply pursue on-shore local content operations on behalf of more influential but silent partners in operations known as ‘fronting.’ “Whenever new opportunities arise,” writes Dr. Lucas, “there will always be efforts to accrue benefits by some who are not entitled to do so… particularly in a country such as ours where control systems are stretched and dishonesty is pervasive”. benefit from increased earnings, then they will opt to pursue this option. By doing so it again creates artificial shortages in other already stretched areas.”
The UG Business Professor says, however, that amid concerns about artificial shortages, one possible unintended but highly beneficial consequence of any local content policy “could be a significant shift of population away from the coastline towards regions close to the oil and gas sector. He said that while it is possible that a significant number of supplies which can yield returns from local content policy are likely to come from the coastline and traditional regions of production, “incentives could be provided to encourage firms to relocate to areas currently underpopulated,” Lucas added.
No one who has even the remotest understanding of this country, particularly in the matter of the various creative ways of how corruption works would challenge what Professor Lucas has to say and the real value of his bluntness has to do with the point made earlier about the importance of helping the public to understand what one might call the ‘ins and outs’ of a local Content Policy, how it can work to the economic advantage of the country and its various communities and how it can be abused and exploited. These are lessons that are critical to ensuring the effectiveness of the involvement of Guyanese at every level of the society in the public discourse on oil and gas. We recommend Dr. Lucas’ article as more than just a good read.