Local Content Policies and their value on the African Continent

Earlier this year, Peter Leon joined Sheila Khama as a guest on her Extractives Podcast series. In this episode, Peter and Sheila take a deep dive into the issue of Resource Nationalism. In particular, they reflect on local content policies and its effect on the African and Latin American mining sectors as well as investment opportunities.

As Peter mentions during the podcast, resource nationalism has occurred for several reasons, one of them being that in the late 1990's and early 2000's many African countries adopted liberal economic policies which favoured investor over state interests in the wake of the post-1991 Washington Consensus. This sometimes led to the creation of unbalanced mining agreements. More recently, there has been significant pushback against this investor-centric approach.  This counter-narrative has manifested itself in the form of resource nationalistic measures by which governments have attempted to rebalance the terms of legacy mining agreements.

A further driver which underpins resource nationalism policies is economic populism. This phenomenon has manifested in several administrations in both Latin America and Africa.

One mechanism that states use to enforce resource nationalism policies is to implement strict local content requirements. These policies mandate the mining company to source a certain percentage of their required goods and services from local providers. These policies however often lack guidance and clear objectives, thus stifling competition, foreign direct investment and impacting trade.

Unbalanced mining agreements between mining companies and the state can be addressed without reverting to resource nationalism policies. Through the conclusion of equitable agreements between the host nation and the mining company, resource nationalism can be avoided. However, this requires that the economic benefits that accrue to the state through equitable agreements is utilised in the interests of the nation as a whole, rather than a governing elite. An effective social compact between government, labour, and business can avoid some or all of the worst features of resource nationalism.

Resource nationalism can create an existential if not economic minefield for mining companies and investors. In many cases, it is a deterrent to investment and an impediment to the development of the mining sector in developing countries. Owing to the important role which mining will play in the green energy transition, it is critical that policies are developed and implemented which will support the efficient exploitation of mineral resources which are required to drive this transition.  To the extent that resource nationalism measures impede this, governments and mining companies should work together to find mutually acceptable solutions to ensure that the needs of all stakeholders are adequately addressed.

 To listen to the full podcast, click here