Comments
Local Content (staffing, procurement..) section of EI Source Book revamped http://ning.it/LCzEjl #localcontent
Very interesting. However I'm wondering, what happens when the population of the area is not able to fulfill the minimum requirements of the mining company? This is very common in Colombia when the companies try to hire locals, but because of their education is not always possible to hire or even offer higher positions.
Hi, Eduardo.
Yes, I am sure that this is a common problem. Local Content legislation has costs, including for the nation concerned and not just international companies and investors. Get it wrong and expected internal rates of return simply are not there for investors, and projects don't run. Or they take much longer to happen, and revenues fail to flow to the national treasury as expected.
Ultimately, its a tricky game to optimize and good outcomes are far from guaranteed - and again, I talking about the host country here, not the mining company, which the paradigm of Local Content says that policy makers should only care about to the extent that its wealth creation accrues to national citizens in some way.
Policy makers need to be highly realistic in devising the Local Content regulations, given that they want them in the 1st place, such that they get international firms to really pull up/ capacity build local people and firms, helping them to achieve higher levels of performance, and by so doing helping international investors make a good profit too (otherwise they would not be there, after all).
This will be possible in some areas of work, but less so in others, and the patterns therein should be fairly predictable with good information (another issue for many governments...).
Hence, realism and pragmatism dictates that policy makers may well often need to take a view that for some areas of work Local Content targets must be really very modest where there is good reason for them to be, for otherwise development fails to happen and no-one benefits.
Hope this helps?
Eduardo makes a great point, and Daniel is right to emphasize the crucial role of the concerned governments here. It is important for them to prioritize private job creation through policies intended to unleash entrepreneurship such as the one discussed here. In the case of Columbia where the literacy rate of about 92% is much higher than that of most African countries, it is clear that the Columbian government possesses a larger pool of potential partners. A more proactive information campaign and possibly a series of specialized training initiatives can help an engaged government increase the size of the labor force employed by the sector. I understand the cost behind such endeavor but the long term benefits seem convincing.
Daniel and Hass: Thank you very much for taking the time to answer my question.
I do agree that this - taking aside the operational area - is the most important area to attack in terms of policy making. The institutional instability is directly related to the creation of mechanisms of wealth distribution. However it gets trickier in the incentives you can use to promote Local Content, in part because you can be tainted to design protective policies that could be understood as market protectionism.
Although my question was directed to field day to day operation. Both of you are absolutely right, this is moreover an institutional matter that need to be addressed by central governments. And as Hass pointed out, the literacy rate makes easier the policy design, however my next question is: What can you do to promote Local Content and not falling in protectionism?
Dear Eduardo,
Dr Michael Warner, in his book "Local Content in Procurement", (page 36) "offer(s) and important test of impending protectionism: namely, whether a local content regulation will break the core principle that, regardless of externalities and offsets, a contract should be awarded on the basis of international competitiveness in price, quality and deliver". This is at the close of Chapter 1 of the book, and whilst this Chapter is not available for free online, you can read the 10 page introduction for as a free excerpt from the publisher at http://www.greenleaf-publishing.com/content/pdfs/local_content_intr... and decide if you agree with what he is saying.
Personally, I am not so sure (whilst I remain a huge fan of the book as a whole). After all, if the above is still the case in a Local Content regime, then (as he himself points out) did the local company actually need the Local Content legislation to win the tender, or would it have done so in an open market anyway?
Dr Warner gives a good account of the externalities and offsets in his account, which is well argued through. However, all my instincts are to say that, by definition, Local Content is Protectionism, i.e. that they are synonyms for one another, one a nice way of saying it and once a nasty way of saying it. I am not convinced by the reassuring conclusion that there is a Golden Thread of competitiveness benchmark which, when reached, makes Local Content not Protectionism. I simply don't buy it.
Which is not to say that Local Content is not a good thing, done in the right way and for the right reasons. After all, I don't believe that capitalism is perfect by any means and I cannot see anything wrong with policy makes in Gabon, Benin, Togo or wherever being upfront about caring about their own populations more than caring about a global capitalist system that certainly cares not an iota about them. But get it wrong and Local Content is a disaster - and this can be with the best of intentions and no foul play, e.g. by raising the bar too far, too fast.
In any event, as Dr Warner says, whether we like it or not Local Content is a fact and has to be dealt with in the real world just like any other fact.
Chapter 2 of his book is called "Local Content Optimisation" and provides modeling analysis. Perhaps that Chapter would be a good place to start in your search for how to do Local Content as best as possible and, in Dr Warner's view at least, without resorting to protectionism.
Thanks, Daniel
Cesare Pagani, Manager Operations Staffing Asia (Singapore) at Heerema Marine Contractors, post to GOXI further to LinkedIn/ EI Source Book discussions:
'Firstly, a personal note on what I would like to see more is the interconnection between local investments and know how transfer through employment, training and development of the local labour force.
I have been working as Local Content Manager in Angola for Heerema Marine Contractors where we focused on know-how transfer as the very ultimate goal toward our sustainability effort. Investments in physical assets where only a mean; a base to enable our direct involvement in know how transfer activities.
There is very little literature about the effect on empowering people to generate wealth on their own as the ultimate sustainability achievement.
Another point where a lot can still be done are the metrics. How do you measure sustainability? Metrics available today are a relative measure of the “value” that stays on the country as a measure of the total project / program value but, the real question of how much has that contribute to the overall effort toward sustainability remain unanswered.
During my work I came up with a model where it is possible to “measure” the trend of this effort. Whether it is flat on a down slope or progressing. Yet a measure of how much that means in sustainability terms it seems to be still elusive.
It will be nice to see that a new discussion take place on those two topics:
1. The relevance of know how transfer toward human resource initiatives on sustainability and
2. How to actually measure sustainability.
An answer to those two topics might well bring us to a totally new approach or a refreshed approached on how we implement local content in the industry and how this might represent a strategic advantage to all stakeholders involved.'
See Cesare's profile at http://www.linkedin.com/in/cesarepagani?_mSplash=1
Very interesting topic! I appreciate the fact that it addresses one of the fundamental problems in most african countries which is the need to spread the economic benefits of the extractive sector. Good Job!