Local content bill in Kenya when well implemented has the potential to spur the economic prosperity in the country.
Local content is an engine that can create value in the economy. Promoting local participation in the upstream oil and gas industry is critical.
Every country with natural resources like oil or gas often implement local content policies with a noble intent. This is in an effort to create jobs, spur local industries and tame ‘Dutch Disease’.
These kinds of policies aim at promoting a system where international companies work with locals. In addition, it promotes the buying local products or services. Therefore, Local Content Bill 2016 is a great start.
Origin of Local Content Bill Kenya
Local content policies have their origins in the writings which outlined the ‘Infant Industry Argument’. This is an argument that was first articulated in the 1790s.
Local content is a topical issue. It has become a hot issue in the natural resource industry in general, and oil and gas in particular.
In developing countries like Kenya, local enterprises are the drivers of economic activity and development.
Since the discovery of commercially viable quantities of oil in Kenya, efforts have been made to promote inclusivity. This improves local participation in this emerging sector, and local content as a whole.
Local Content Bill Policies
The Local Content Bill policies aim towards maximization of the national value creation. This is by means of the oil and gas value chain through 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, on their own, these policies are not a silver bullet. Two issues come to mind;
Skills Gap in Oil and Gas
First, skills gap are typically the most prevalent barrier to meeting local content requirements. These gaps creates a void which is bridged through various technical assistance and training initiatives.
Local suppliers who bid for procurement opportunities often fall short of meeting industry requirements. This is in areas such as information technology, systems management, environment, health and safety standards.
This is not surprising given that Kenya is a new entrant in the upstream sector. I would argue that for the technical initiatives to be sustainable in the long term, the government must take the lead.
KEPTAP Program in Kenya
One such program is Kenya Petroleum Technical Support Project (KEPTAP), a USD 50M credit facility from the World Bank whose aim is to strengthen the capacity of the country to manage its petroleum sector and create wealth for sustainable development.
It is also worth noting that Kenya Pipeline Company (KPC) has taken the initiative to bridge this gap through their Morendat Oil and Gas Training Institute.
Oil and Gas Local Enterprises in Kenya
Secondly, the implementation of the local content regulation will promote the growth. Infact, this will help small and medium-sized enterprises across the value chain.
The procurement of local goods and services is very important as it establishes a multiplier for local economic development. This will happen through contribution to employment, skills strengthening, supplier and local enterprise development.
Oil and gas exploration companies expend up to 80 per cent of their investments on products and costs that are supplied from without. Thus, indirect employment in the sector accounts for a large proportion of total employment and value addition.
The opportunities available however have not been sufficiently usurped by SMEs due to the information gap on how to create business partnerships, requirements of the industry and actors in the industry.
This is serious challenge given a National Economic Survey report by the Central Bank of Kenya indicated that SMEs constitute 98 percent of all business in Kenya and creates over 80 percent of jobs
In conclusion, if these regulations are implemented effectively, they can have great impact on the Kenyan economy.
For example, since Brazil, a giant in the offshore oil industry, passed its local content rules, an estimated 875,000 jobs have been created. The value of domestic purchases has reached USD 14 Billion (Kshs.1.4 Trillion).
With the envisaged creation of the Local Content Training and Development Fund, the bill is very futuristic. It ensures that the local content requirements are implemented in full.