Local Content in the Extractive Industry……Who Cares?

Local Content is a complex word and its use has increased substantially in the last few years especially in the extractive industry. While the challenges and expectations of local content are huge, there is limited expertise in understanding the subject matter and appropriating its benefits and this poses a challenge to international firms trying to do extractive business in developing economies whether it be in oil or gas or even in mining. There is a clear benefit to local content and local content development for host governments especially in the stimulation of jobs, the increase of workforce skills, the development of international competitiveness in local suppliers and the protection of a nation’s key strategic industries. As a result, national governments have developed regulations and policies aimed at increasing and in some cases incentivizing the participation of local suppliers in the supply chain.

This is the first and most paramount driver of local content development in oil and gas rich states. Therefore, in the last ten years or more, Local Content has been principally driven by compliance requirements and performance target specifications imposed by governments. Also becoming apparent is that local content is driven by government economic priorities i.e. using the supply chain expenditure to drive the development of strategic sectors of national significance like the development of Brazil and Nigeria’s fabrication and engineering industry.

The overwhelming crises in unemployment especially in developing countries remains a major driver of local content development and strategies. Not to mention the poor standard of education, technical competencies and skills in these oil rich developing economies. This is increasing the pressure on oil and gas companies to address these challenges as part of their corporate social responsibilities or as part of their overall long term business strategy. In order than extractive companies maintain their license to operate, keep healthy and working relationships with host governments, build country-needed reputation and profile, achieve a smoother market entry and acquisition profile, attention to local content regulations has become crucial. Therefore the need for strong stakeholder relationship management has equally been a major driver of local content. However, all these are external drivers of local content.

More recently, Local Content is being viewed as a core principle for sustainable business especially in the extractive industry irrespective of national regulatory frameworks. This has paved way for more internally-focused factors referred to as business drivers of local content. On a business level, established government relationship increases the likelihood of competitive differentiation especially in binding rounds as well as negotiations with host governments. The opportunities for lower costs on some locally procured goods and services and the opportunity for quality delivery through supplier proximity and development also drives local content intent especially when long term business portfolios are in consideration.

Local Content development is a business sustainability offering to the extractive industry with benefits to all stake-holders – government, communities, operators, service providers, non-governmental organizations etc. Therefore smart organisations should invest in the alignment of external and business drivers so as to benefit optimally while operating in local content inclined host countries. This is achieved through the development of an overarching local content strategy embedded in the oil and gas supply chain.

Whether you like it or not, local content is here to stay…..Local Content development….who cares? You should….

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