Revisiting local content requirements

◆ including in non-mining activities, such as agriculture.

In SA, Anglo American launched a Small Business Initiative to provide business opportunities for SMEs, in particular for historically disadvantaged populations.

Mozambique also has a good track record of collaborative partnerships with the private sector to scale up business linkage programmes.

For instance, the Mozal aluminium smelter was designed and implemented in partnership with a range of stakeholders to stimulate and strengthen local business capacities and enable small enterprises to compete for contracts at different stages, from construction to ongoing operation.

Key lessons from LCR experiences

A few lessons can be drawn from the experiences of countries that have implemented LCRs. First, policymakers need to ensure that the objectives of LCRs are clear and that they are implemented and monitored in a way that they create fully capable and competitive local suppliers and not become obstacles to the development and competitiveness of industries.

When local content policies were well defined and monitored in a pragmatic manner, as was the case in Norway, Chile or Brazil (including quantitative measures), they were found to be more successful.

Second, while mandatory quantitative requirements can work, quotas should not be fixed at a level that local suppliers are not able to deliver.

In addition, they should be temporary, performance-based, and should be phased out as industries become competitive.

Functioning and effective LCRs require a holistic approach to industrial policy. This implies that LCRs need to be accompanied by support to build the capacity of suppliers, and address skills gaps or financial constraints, as in the case of SMEs.

Partnerships with the private sector are equally key to develop capacity.

Third, LCR ambitions need to be realistic and implementable

They must be flexible enough to be able to adapt to changing situations. Norway phased out certain performance-based requirements as its industries became globally competitive. They need to be able to assume some potentially politically difficult trade-offs.

For example, Petrobas in Brazil skimmed 20 000 jobs (one-third of its headcount) during the restructuring process in 1997 but gained in efficiency and sophistication.

Fourth, successful experiences suggest that it is important to ensure a balance between quantitative and qualitative measures based on how far those measures can be monitored or implemented.

For example, a legally binding quota for technology transfer may be difficult to monitor because it may not be possible for governments to identify, in the first place, which technology companies should use.

In the case of joint venture requirements, unless there is a business case to do so, there is a risk of creating a “forced marriage” that will fail if there is no trust, no shared objective, and no complementarity.

Countries were most successful when local content development was conducted through strategic collaborative partnerships with companies.

Finally, the importance of innovation, R&D, upgrading capabilities, and technology transfer should not be underestimated.

These are essential complementary policies to build competitive local suppliers and efficient providers.

Dr Mugano is an Economic Advisor, Author and Expert in Trade and Competitiveness. He is a Research Associate of Nelson Mandela Metropolitan University. Feedback: +263 772 541 209 or gmugano@ gmail.com