Local Content Policies - Do They Work?

When mining companies can clearly demonstrate a project will provide tangible benefits for local communities, they're far more likely to obtain a social licence to operate that project. However, as we pointed out recently in another article, technological advances that lead to increasing automation of local mining operations will potentially reduce some of the traditional ways in which companies currently provide those benefits. Notably around jobs and employment for locals on mine sites.

All is not doom and gloom for these communities however! As some doors close, others open. One of those opening doors is increased involvement in the mining supply chain ie increased local content.

Forcing the issue though is not a good idea….

Some local jurisdictions have implemented laws that mandate mining companies MUST use local businesses and individuals in the supply chain but sometimes these mandated rules cause more problems than they solve. Particularly when they're applied with a heavy, arbitrary hand and get mining companies offside. 

Experience for example has shown that forcing mining companies to use 'local content' doesn't work if local communities aren't capable of supplying that 'local content' for whatever reason. All such unrealistic expectations do is foster ill will and discontent on both sides, particularly if the arrangements are rigid and inflexible.

It doesn't have to be that way however. 

Mining supply chains that have had the benefit of careful thinking and pre planning can significantly benefit both local communities and mining companies. In order to achieve this, all involved parties (policy makers, commercial enterprises on both sides of the supply chain etc) must work together to design, apply, and supervise the 'instruments' that underpin the process. 'Instruments' in this instance include the incentives, rules, agreements, partnerships and so on that determine the extent of local involvement in the supply chain. 

For these 'instruments' to be truly effective, those tasked with pulling them together need to ensure some essential pre-requisites are present, and that there is room for flexibility to address any shortcomings. When both these conditions are met at the start, and the whole process is carefully monitored once operational, there is a greater chance of producing a local content policy that actually works well for all parties involved.

It's all about the vision!

All too often we find policies have been implemented hastily to satisfy short-term objectives, such as meeting a profitability deadline for the current financial year, or complying with election promises before a term in office runs out. And so on. Act in haste, repent at leisure is probably an appropriate thought…. 

By contrast, successful local content policies have a long-term vision that looks beyond these types of immediate short-term objectives. Importantly, all parties to the policy have a clear understanding of this vision, and have been involved in developing the objectives, responsibilities, and targets needed to achieve it. They have worked together to identify what is most strategic and beneficial for all, found common ground, agreed upon mutually advantageous solutions, and dovetailed diverging interests. Policies that lack this commitment to any type of long-term mutually beneficial outcome invariably end up being ineffective and inappropriate.

Ghana – A Case In Point

When Ghana introduced a local content regulation in 2012, its stated long-term aim was "growing local employment and local procurement." The implementers made sure there were processes in place to monitor ongoing progress and make appropriate adjustments to ensure optimal outcomes. 

Ghana's Minerals Commission is tasked with the responsibility of overseeing local supply content of goods and services and is "required to establish and maintain a local procurement list, updated annually, which outlines the goods and services that must be procured in Ghana." Authorities have also set in place a number of reporting and review processes that allow all stakeholders (but specifically the government), to see how effectively it's working, and also spot any weaknesses that need addressing. 

Knowledge is King 

From a government's perspective, officials tasked with the responsibility of designing, planning, implementing and overseeing local content policies must have a thorough knowledge and understanding of the components of a mining supply chain. They must also be familiar with and thoroughly understand all the various marketing opportunities that exist for goods and services required by this chain, at every level – locally, regionally, nationally, and globally. And be prepared to implement tailored policies to suit rather than expecting a blanket policy to work.

Address the grass roots issues, including human resources

For local communities, there may be (often is) a significant need to improve the infrastructure; organisations and business entities; and overall business, commercial and industrial environment so they can successfully play their role in these contracts. This typically requires resources – training, incentives, financial assistance etc that will support and help local businesses wanting to scale up their operations. All too often this doesn't happen thus expectations and demands aren't met, and mining companies are forced to source products and services elsewhere, which then gets local communities off side.

Reduce red tape

Another contributor to low, or lack of, local content in mining supply chains can be bureaucratic red tape! In some countries there are so many hoops to jump through to open or expand a business that owners simply walk away. If they do persevere, ongoing red tape can significantly raise their CODB, adversely affect productivity, and make it extremely unattractive for them to keep going. 

Effective monitoring

In Ghana's case, one of the significant issues noted after the first 5 years was that there were indeed not enough reliable domestic suppliers for a number of products and services. This prompted the government to launch their National Suppliers' Development Programme (NSDP) at the end of 2017. The program encourages stakeholders across the supply chain to connect, consult and develop partnerships that will provide ongoing support to local businesses and services. It also creates an institutional framework through which locals can be trained in the required competencies and skills. Should it work successfully, it will likely be a good model for other African nations, and indeed any developing country requiring the implementation of a workable local content policy.
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