Local Content Policies – Historical Evolution of Local Content Policies

The evolution of local content policies has been ongoing over time. It was however a means to improve industrial policy. This was the case during their rigorous implementation as productive development policies (PDPs) during and more so after the Second World War.

From a general economic strategy, local content policies were referred to as import substitution policies/Industrialization (ISP/I). This meant encouraging the development of domestic industry and elimination of foreign goods and services.

It is done through exchange control barriers such as tariffs and quota. In addition, it includes exchange rate policies as well as fiscal and credit policies.

Evolution of Local Content Policies – Start of Industrialization

No doubt that the initial design of ISP was actually at the beginning of industrialization of Europe in the 1750. You should know that this had its origins in the writings of List (1841), which outlined the ‘Infant Industry Argument’.

As the basis for formulation of local content policies is the idea of bringing about industrialisation. In this regard, it is essential that domestic circuits be built in the economy. This can only be achieved by protecting the domestic economy from the world economy.

However, the major facilitation and actual inducement of these policies was as a result of World War I, the Great Depression of the Thirties and more so the  World War II in larger Latin American, Asia and some African countries.

Import substitution policies have distinct objectives in the different countries where they are or have been adopted. There are historical reasons why some of  the countries of Africa, Asia and Latin America did not undergo ISI at the time of, or right after, the European ISI’s but only at a later stage in the 19th Century.

Local Content Policies Evolution – Economic Strategies

The idea of ISP gained further prominence as government interventions increased. In particular, this is towards inward looking strategies which are an attempt by economically less-developed countries to break out of the world division of labour.

In Latin Americas for example, a catalyst to that effect was the United Nations Economic Commission (UNEC) that advocated vehemently for Latin American countries to be self-sufficient in petroleum products and avoid over dependency on exports.

Under this division, Latin America as well as most areas of Asia and Africa specialized in natural resources and the export of food and raw materials. However, they are importing manufactured goods from Europe and the United States.

If anything, throughout most of the fifties and sixties many Latin American as well as Asian governments adopted ISP. This was as the principal method to achieve domestic economic growth and socio-economic modernization.

Local Content Policies in Latin American Countries

Latin American countries grew predominantly on the basis of their  natural resource base. On the other hand, the Asian market grew exponentially as labour-intensive sectors which were facilitated by high level of education.

As a result the concept of protectionism came about and the use of complex system of policies like LCPs was geared to promoting these sectors.

We continue to read and learn more about local content policies evolution.

Brazil Local Content Regulations – A Historical Perspective

Brazil local content regulations are of strategic importance to the country. It enhances domestic industry and promotes jobs as well as increase in incomes.

The promotion of import substitution industries in the fifties and sixties was no doubt an indiscriminate.  There were not attempts to concentrate on industrial sectors which might have had a potential comparative advantage. All industries irrespective of their sizes had protection policies implemented to safe guard the growth in Brazil.

It is thus important to focus on only issues that border on oil and gas industry of which a number of illustrations can be referenced from.

In 1944, for example, the Venezuela government passed a hydrocarbon law that forced oil companies to refine oil in the Republica Bolivariana de Venezuela.

Brazil Local Content Regulations – History

Brazil as country has a long history of import substitution policies. Infact, the government was anxious to promote maximum vertical integration, to promote both final consumer goods industries and intermediate and capital goods sector.

This would thereby give the government national control over most sectors and even more precisely the energy sector.

From 1934, Presidents Vargas regime was eager to pass the mantle of exhaustible natural resources to the nationals. Therefore, the promulgation of the Mine Code declared that mineral resources from the ground belonged to the Federal Union.

In addition, the code declared that foreign and domestic firms alike interested in exploring, production and even refining needed permission from the federal government.

Birth of Petrobras in Brazil

In addition, an announcement that saw an inclusion of local participation came in 1953 by President Vargas when he declared that Petrobras (NOC) should use only Brazilian capital, workers, and know how.

It was a landmark for the people of Brazil and a clear sign of independence from foreign dominance and the beginning of industrialization of the country in the oil and gas industry.

Even though Brazil didn’t have a sophisticated outlook to industrialization in the fifties and sixties, ISPs helped to increase local participation in joint ventures with foreign companies. Brazil was finally able to operate modern technology and developed a capacity and capability to supply the countries needs in the oil and gas industry.

But an even more pressing goal came about in the seventies when Brazil commenced its offshore drilling which resulted to a more national orient model in the eighties.

As a result the transfer of responsibility to the national oil company Petrobras to find and develop a new and national supply industry.

In turn many laws were passed and regulations bodies were set up to foster the growth of the industry. Today it is said that Brazil is one of the countries that focus on new, innovative and complex technologies and even more importantly Petrobras is referred to as one of the most experienced operators in deep waters exploration and production in the world.

But could this be as a result of the higher coefficient by multinational companies in Brazil, a research conducted by Clare Rodriguez shows there is a positive externally from MNCs to supplier which creates a positive knowledge spill over’s which would intern lead to higher total factor productivity.

New Brazil Local Content Regulation

Brazil’s local content regulations have been the subject of much debate. Introduced in the fifth licensing round in 2003, the requirements, along with fines for non-compliance, increased exponentially over subsequent rounds. This resulted in not only stifling offshore development, but also restraining the domestic industry that the regulations were meant to cultivate in the first place.  

In 2017, the Brazilian National Petroleum, Natural Gas and Biofuels Agency(ANP) rewrote the terms for the Libra (now Mero) FPSOs. On April 11, 2018, after two years of discussions, the Brazilian National Council for Energy Policy (CNPE) and the ANP published a resolution allowing companies to swap the local content commitments of their existing exploration and production contracts for lower and simpler requirements with reduced fines.

Local Content in Norway

When it comes to local content in Norway, it provides you with an example of great examples in terms of policy. The Norwegian government has introduced legislation necessitating that companies using natural resources also contribute to economic development.

Exploration for offshore oil and gas in Norway began in the mid-1960s and from the 1970s onwards ministers started implementing policy to protect the interests of communities and the economy. Its local content strategy has therefore been held up as an example of good practice for other countries.

Local Content Strategies in Norway

To start with, the government aimed to award contracts to Norwegian bidders when they proved to be competitive in terms of price, quality, delivery time and service. The rationale behind this was to promote the establishment of local industry and this was achieved through cooperation with international oil companies.

When foreign operators started entering the Norwegian industry in the late 1970s, they were strongly encouraged to form research and development (R&D) partnerships and joint development programmes with Norwegian companies and institutions, thus engaging in local content growth.

Overseas firms’ commitment to and strategies for technology transfers were made a crucial and determining factor in the licensing process by the Ministry of Petroleum and Energy, once again putting local content programmes at the heart of investments.

Governmental local content policies meant that Norwegian oil and gas supply companies developed leading class, state-of-the-art technologies and, as a result, many international companies have located part of their R&D chain in the country.

The competencies and technological expertise developed as a consequence of Norway’s local content policies also strengthened its position within the international oil industry. Local supply and service providers to oil activities have proved truly competitive by global standards.

Local Content in Norway – A Historical Perspective

Nevertheless a more interesting case study which has been debated over time is the successful implementation of local content. It si a concept of promotion and development of local industry in the oil and gas industry.

Norway has never made specific legislative requirements as to the share of local content in comparison to a country like Brazil. However, the Norwegian government and authorities alike appreciates the choice of local firms if such firms were competitive in price, quality and delivery.

However in the 70s and 80s it can be argued that local firms were chosen even if they were not arguably the most cost effective”

The Norwegian industry was predominantly that of foreign investors; shell, Exxon, Phillips and BP which is a mirror of what most oil and gas industry initially looked like. Nevertheless at a much later stage  there was an establishment of local oil companies like Statoil and Norsk Hydro.

Even though concessions were awarded to foreign oil companies with exclusive rights for exploration, the local companies are tasked to be operators in production licences. This saw a joint participation of foreign and local companies and a result there was a transfer of technology know how.

At the time of bidding, foreign companies could present Norwegian authorise with its list of operators and the Ministry could also add to the list of operators a local company that fits with the requirements. 

In addition there were agreements among the companies both local and foreign to promote research and development cooperation through Norwegian institutions of higher learning.

Nevertheless Norway never diverted its attention from international competition unlike Brazil’s local content development if anything most local firms are internationally competitive due to their geographic proximity, which has in many ways, is said to have deter protectionism of the industry but has eventually improved international standards nonetheless.

Conclusion

In conclusion, Norwegian tax regime was a vital facilitating concept in the 70s. It saw the government take up to 85% of profit margins.

But due to the drop of oil prices in the 80s the tax regime changed by some fraction of 78%. According to a Deloitte report, the ordinary tax amounts to  27% and special tax 51%, that even today Norway oil is still heavily taxed in order for the state to acquire as much profits as possible. 

Norway is argued in many instances to have passed the Mills and Bastable test. The former requires that a protected industry nevertheless should eventually survive international competition without the protectionism,

The latter is a more stringent one and calls for present value of future benefits arising from policy to compensate the present cost of protectionism.

Note: There is an ongoing Upstream Awards process that seeks to recognize and celebrate individuals or companies that are positively promoting local content policies in oil and gas industry in Africa. You should consider attending one of the events this year!

Local Content in Norway – A Historical Case of Local Content Strategy Success

When it comes to local content in Norway, it provides you with an example of great examples in terms of policy. The Norwegian government has introduced legislation necessitating that companies using natural resources also contribute to economic development.

Exploration for offshore oil and gas in Norway began in the mid-1960s and from the 1970s onwards ministers started implementing policy to protect the interests of communities and the economy. Its local content strategy has therefore been held up as an example of good practice for other countries.

Local Content Strategies in Norway

To start with, the government aimed to award contracts to Norwegian bidders when they proved to be competitive in terms of price, quality, delivery time and service. The rationale behind this was to promote the establishment of local industry and this was achieved through cooperation with international oil companies.

When foreign operators started entering the Norwegian industry in the late 1970s, they were strongly encouraged to form research and development (R&D) partnerships and joint development programmes with Norwegian companies and institutions, thus engaging in local content growth.

Overseas firms’ commitment to and strategies for technology transfers were made a crucial and determining factor in the licensing process by the Ministry of Petroleum and Energy, once again putting local content programmes at the heart of investments.

Governmental policy meant that Norwegian oil and gas supply companies developed leading class, state-of-the-art technologies and, as a result, many international companies have located part of their R&D chain in the country.

The competencies and technological expertise developed as a consequence of Norway’s local content policy also strengthened its position within the international oil industry. Local supply and service providers to oil activities have proved truly competitive by global standards.

Local Content in Norway – A Historical Perspective

Nevertheless a more interesting case study which has been debated over time is the successful implementation of local content. It is a concept of promotion and development of local industry in the oil and gas industry.

Norway has never made specific legislative requirements as to the share of local content in comparison to a country like Brazil. However, the Norwegian government and authorities alike appreciates the choice of local firms if such firms were competitive in price, quality and delivery.

However in the 70s and 80s it can be argued that local firms were chosen even if they were not arguably the most cost effective”

The Norwegian industry was predominantly that of foreign investors; shell, Exxon, Phillips and BP which is a mirror of what most oil and gas industry initially looked like. Nevertheless at a much later stage  there was an establishment of local oil companies like Statoil and Norsk Hydro.

Local Companies Participation

Even though concessions were awarded to foreign oil companies with exclusive rights for exploration, the local companies are tasked to be operators in production licences.

This saw a joint participation of foreign and local companies and a result there was a transfer of technology know how.

At the time of bidding, foreign companies could present Norwegian authorise with its list of operators and the Ministry could also add to the list of operators a local company that fits with the requirements. 

In addition there were agreements among the companies both local and foreign to promote research and development cooperation through Norwegian institutions of higher learning.

Nevertheless Norway never diverted its attention from international competition unlike Brazil’s local content development. In addition, most local firms are internationally competitive due to their geographic proximity.

This in effect deters protectionism of the industry but has eventually improved international standards nonetheless.

Conclusion

In conclusion, Norwegian tax regime was a vital facilitating concept in the 70s. It saw the government take up to 85% of profit margins.

But due to the drop of oil prices in the 80s, the tax regime changed by some fraction of 78%. According to a Deloitte report, the ordinary tax amounts to  27% and special tax 51%. Today Norway oil is still heavily taxed in order for the state to acquire as much profits as possible. 

Norway passed the Mills and Bastable test. The former requires that a protected industry nevertheless should eventually survive international competition without the protectionism,

The latter which is a more stringent one and calls for present value of future benefits arising from policy to compensate the present cost of protectionism.

Brazil Local Content Regulations – A Historical Perspective

As we look into the oil and gas industry in Brazil, local content regulations are of strategic importance to the country. It enhances domestic industry and promotes jobs as well as increase in incomes.

The promotion of import substitution industries in the fifties and sixties was no doubt an indiscriminate.  There were not attempts to concentrate on industrial sectors which might have had a potential comparative advantage. All industries irrespective of their sizes had protection policies implemented to safe guard the growth in Brazil.

It is thus important to focus on only issues that border on oil and gas industry of which a number of illustrations can be referenced from.

In 1944, for example, the Venezuela government passed a hydrocarbon law that forced oil companies to refine oil in the Republica Bolivariana de Venezuela.

Brazil Local Content Regulations – History

Brazil as country has a long history of import substitution policies. Infact, the government was anxious to promote maximum vertical integration, to promote both final consumer goods industries and intermediate and capital goods sector.

This would thereby give the government national control over most sectors and even more precisely the energy sector.

From 1934, Presidents Vargas regime was eager to pass the mantle of exhaustible natural resources to the nationals. Therefore, the promulgation of the Mine Code declared that mineral resources from the ground belonged to the Federal Union.

In addition, the code declared that foreign and domestic firms alike interested in exploring, production and even refining needed permission from the federal government.

Birth of Petrobras in Brazil

In addition, an announcement that saw an inclusion of local participation came in 1953 by President Vargas when he declared that Petrobras (NOC) should use only Brazilian capital, workers, and know how.

It was a landmark for the people of Brazil and a clear sign of independence from foreign dominance and the beginning of industrialization of the country in the oil and gas industry.

Even though Brazil didn’t have a sophisticated outlook to industrialization in the fifties and sixties, ISPs helped to increase local participation in joint ventures with foreign companies. Brazil was finally able to operate modern technology and developed a capacity and capability to supply the countries needs in the oil and gas industry.

But an even more pressing goal came about in the seventies when Brazil commenced its offshore drilling which resulted to a more national orient model in the eighties.

As a result the transfer of responsibility to the national oil company Petrobras to find and develop a new and national supply industry.

In turn many laws were passed and regulations bodies were set up to foster the growth of the industry. Today it is said that Brazil is one of the countries that focus on new, innovative and complex technologies.

In addition, and more importantly Petrobras is referred to as one of the most experienced operators in deep waters exploration and production in the world.

But could this be as a result of the higher coefficient by multinational companies in Brazil? Research conducted by Clare Rodriguez shows there is a positive externally from MNCs to supplier which creates a positive knowledge spill over’s which would intern lead to higher total factor productivity.

New Brazil Local Content Regulations

Brazil’s local content regulations have been the subject of much debate. Introduced in the fifth licensing round in 2003, the requirements, along with fines for non-compliance, increased exponentially over subsequent rounds.

This resulted in not only stifling offshore development, but also restraining the domestic industry that the regulations were meant to cultivate in the first place.  

In 2017, the Brazilian National Petroleum, Natural Gas and Biofuels Agency(ANP) rewrote the terms for the Libra (now Mero) FPSOs.

On April 11, 2018, after two years of discussions, the Brazilian National Council for Energy Policy (CNPE) and the ANP published a resolution allowing companies to swap the local content commitments of their existing exploration and production contracts for lower and simpler requirements with reduced fines.

You check out; Can local content spur economic prosperity of a country?

Winning Awards – What are the benefits of winning upstream awards?

Winning awards as a company in the upstream oil and gas industry has many benefits. In this article, we look into the 4 ways your company can profit from winning an Upstream Award this year.

Has your company hired a number of new employees? Do you contribute to philanthropic endeavors? Do you have a great CEO or believe your company is a great place to work? It may be time to submit your company for an award.

Benefits of Winning Awards

Many companies shy away from the idea of entering into award competitions because they think it’s too self-promotional and they worry the entry might be too time-consuming.

The benefits of entering and winning an award largely outweigh any reasons not to.

Entering and subsequently winning awards makes your company shine and sets it apart from your competition. Here are four advantages to winning at Upstream Awards.

Winning Awards helps to elevate the status of your company.


Upstream Awards can raise the credibility of your company, its brand and products. An award also increases visibility for your company.   

Educate and attract.


Awards can draw new customers and new employees to your business.

Winning Awards improves company morale


Current employees are excited to share the news of an award with others. Awards can also build motivation within your team.

Increase customer loyalty.


Knowing that you are skilled and recognized for your work, team, product or service encourages customer loyalty and drives sales.

Upstream Awards – Judging Process

Upstream Awards panel of judges is made up of key business people. The panel also includes cultural leaders as well as eminent oil and gas stakeholders led by a chairperson.

The chairperson will preside over a nomination committee of prominent companies. In addition, he or she will preside nomination of individuals from various backgrounds and walks of life across upstream oil and gas value chain.

A transparent process will determine the winner for each of the award categories.

We aim to increase participation to be part of the upstream oil and gas industry . Winners of a few awards will be decided through a thorough nomination process.

In conclusion, I would propose that you consider being part of the upstream oil and gas awards this year.

Let me know if you would like to know anything more. Leave a comment below.

Local Content Requirements – Background of Local Content Policies

Local content requirements were not an objective in itself.  It was however a means to improve industrial policy. This was the case during their rigorous implementation as productive development policies (PDPs) during and more so after the Second World War.

From a general economic strategy, local content policies were referred to as import substitution policies/Industrialization (ISP/I). This meant encouraging the development of domestic industry and elimination of foreign goods and services.

It is done through exchange control barriers such as tariffs and quota. In addition, it includes exchange rate policies as well as fiscal and credit policies.

Evolution of Local Content Requirements – Start of Industrialization

No doubt that the initial design of ISP was actually at the beginning of industrialization of Europe in the 1750. You should know that this had its origins in the writings of List (1841), which outlined the ‘Infant Industry Argument’.

As the basis for formulation of local content policies is the idea of bringing about industrialisation. In this regard, it is essential that domestic circuits be built in the economy. This can only be achieved by protecting the domestic economy from the world economy.

However, the major facilitation and actual inducement of these policies was as a result of World War I, the Great Depression of the Thirties and more so the  World War II in larger Latin American, Asia and some African countries.

Import substitution policies have distinct objectives in the different countries where they are or have been adopted. There are historical reasons why some of  the countries of Africa, Asia and Latin America did not undergo ISI at the time of, or right after, the European ISI’s but only at a later stage in the 19th Century.

Local Content Requirements – Economic Strategies

The idea of ISP gained further prominence as government interventions increased. In particular, this is towards inward looking strategies which are an attempt by economically less-developed countries to break out of the world division of labour.

In Latin Americas for example, a catalyst to that effect was the United Nations Economic Commission (UNEC) that advocated vehemently for Latin American countries to be self-sufficient in petroleum products and avoid over dependency on exports.

Under this division, Latin America as well as most areas of Asia and Africa specialized in natural resources and the export of food and raw materials. However, they are importing manufactured goods from Europe and the United States.

If anything, throughout most of the fifties and sixties many Latin American as well as Asian governments adopted ISP. This was as the principal method to achieve domestic economic growth and socio-economic modernization.

Conclusion

In conclusion, Latin American countries grew predominantly on the basis of their  natural resource base. On the other hand, the Asian market grew exponentially as labour-intensive sectors which were facilitated by high level of education.

As a result the concept of protectionism came about and the use of complex system of policies like LCPs was geared to promoting these sectors.

We continue to read and learn more about local content policies evolution.

Joe Watson Gakuo – The Man Behind Upstream Awards

Joe Watson Gakuo is the founder of Upstream Awards. He has been actively involved in the upstream oil and gas industry, and in the promotion of local participation.

You can join my network here.

More about Joe Watson Gakuo

My journey began on the slopes of Mount Kenya. The past 20 years have been a whirlwind of experiences; from school, to investment banking, to oil and gas. I have learned to adapt fast, be resourceful and build friendships with diverse people from across all walks of life.

Like every human being, I have made my share of mistakes. However, I am proud of what we have achieved so far, and am truly excited about the future. I feel more equipped to take new challenges, and add value to someone’s life.

I believe in creating genuine ties to form communities of diverse yet like-minded ecosystems. This is what we have been building in the upstream oil and gas sector, and that is what Upstream Awards is all about.

Joe Watson Gakuo Promotes Local Content

In every country with natural resources like oil or gas, the government will often implement local content policies. Local content initiatives are intent or are an effort to create jobs, spur local industries and tame ‘Dutch Disease’.

The policies aim at promoting a system where international companies work with locals or source local products or services as well as local human resources.

Joe Watson Gakuo – Views on Local Content Policies

Local content policies have their origins in the writings which outlined the ‘Infant Industry Argument’. The argument was first articulated in the 1790s.

Local content is a topical issue, and has become a hot issue in the natural resource industry in general, and oil and gas in particular.

In Africa, local enterprises are the drivers of economic activity and development. Efforts have been made to promote inclusivity and local participation in this emerging sector, and local content as a whole.

The local content policies aim towards maximization of the national value creation. This is by means of employment, value addition, technology transfer and the acquisition of knowledge.

The pre-requisites for enhancing local content are the rule of law, skilled workforce, and investment-friendly atmosphere. However, we also need to be aware that on their own, these policies are not a silver bullet

Examples of Companies Served 

We serve the upstream oil and gas value chain. The clients include operators, oilfield contractors and service providers in the industry drawn, both local and international.

For example, we have worked with logistics, banking, drilling, camp facilities and oilfield services companies among others.

We have served companies such as National Oilwell Varco, Stanbic Bank, ATS Group, Vivo Energy, Schlumberger, Spedag Interfreight, Liberty Insurance, Britam Insurance, Weatherford, Tullow Oil, Shell, Total, Tsavo Oilfields, Afex Group, Kenya Pipeline Company and Delta Air Lines among others

Upstream Awards going forward

In the short-term, we are keen to continue promoting local participation by providing information about the emerging opportunities.

In addition, we are seeking individuals and companies that are making positive impact in the industry. This is across the many African countries with oil and gas resources.

Infact, we shall continue to look for men and women in the industry. This is to celebrate positive contribution in the upstream oil and gas industry.

In the long-term, we need to have more local businesses involved including and not limited to oil and gas exploration. This is part of the larger local content discussion.

We are on a mission to tell the positive stories from across the upstream oil and gas industry in Africa.

How has the market responded to the Upstream Awards?

The response has been great. I am glad to see more people joining this initiative.

There is increased participation and nominations indicate that more people, as well as companies want to be part of this important initiative.

Look, it is our mission to tell our positive stories, and Upstream Awards is a proactive initiative that sees the best in other people.

 

Upstream oil and gas industry in Africa?

We have come from far. Many oil and gas producers in Africa have put in place mechanisms to support local content. We want to celebrate that.

Africa is not where we truly want to be, and a lot needs to be done, but we can appreciate that we are moving in the right direction.

International oil companies, national oil companies and oilfield services companies that are making great efforts in working with locals. The companies are also putting in place measure to support local enterprises in the oil and gas industry.

There is also need for more citizen’s involvement to ensure that they participate in this new industry. We need to also put in place measures that will ensure the oil and gas resources are well managed for the benefit of all.

I am happy that we are witnessing final investment decisions being made in countries like Mozambique and Senegal. In addition, we expect FIDs in Kenya and Uganda among other countries.

Conclusion

In conclusion, Upstream Awards is going to be on a tour to several countries. These are Kenya, Uganda, Mozambique, Angola, Nigeria, Ghana and Senegal.

Upstream Awards is a platform that takes us on a journey to celebrate individuals as well as companies that have contributed, and continue to positively impact the upstream oil and gas industry.

We are also in discussion with partners to collaborate in hosting the Upstream Awards across Africa. We shall keep you updated! Watch this space.