Local Content Policies, Free Paper Example

Published: 2022-04-28
Local Content Policies, Free Paper Example
Type of paper:  Literature review
Categories:  Economics
Pages: 4
Wordcount: 1045 words
9 min read

Mithamo (2017), opposes the enactment of local content by analyzing the impact of national content enactment in Nigeria and states that local content policies can adversely impact foreign direct investment which benefits developing nations. It was evident that lessened foreign direct investments would likewise prompt a decrease in financial profits for the host nation. He inspires nations to embrace economic approaches that are both adaptable and receptive to the need for remote speculators.

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Misallocation of Resources

Another argument against local content policies is on their ability to enhance welfare. There are higher chances for the non-oil companies to face restraints in resources the moment they shift to the oil sector. Regulations targeting the promotion of foreign direct investments are fruitful when linked to increasing trade exposure. Consequently, policies which promote the export of products can influence the outcome of local content regulations.Restrictions imposed by the GPA agreement poses a challenge to countries which have implemented local content policies. Consequently, oil and gas practices have been included in other areas like engineering, consulting, construction, distribution, and transport sectors. Therefore, putting a line between local services and products remains a challenge in the energy sector particularly in practices close to the alteration and production of the resource. Even though LCPs and other regulation tools may face limitations by foreign trade contracts, still there is room for the government to intervene in this sector.

According to Kolstad and Kinyondo, (2017), regions rich in resources usually expect and make progress toward local economies to gain profit through mineral activities, oil, and gas. The regions lack knowledge in exploiting extractive practices to improve the status of the economy, be it developing local firms and making way for employment opportunities or enhancing technology and skill building (Warner 2017). Local content is the procedure of creating financial wealth at the subnational and national level, as well as adhering to set public policy goals (Esteves, Coyne, and Moreno2013, p.1).

Nwapi and Andrews (2017), supports the application of local control policies by nations rich in resources, yet in an examination of Nigeria's national resources, laws actively scrutinize the way in which the local content policies have to get executed in Nigeria. Nwapi and Andrews give recommendations for the application of contracts to implement local content rules with financial specialists from outside, asserting that the sanctioning of blanket national laws without due respect to existing joint venture pacts and global settlements can make national, local content regulations unenforceable and impotent.

Institutional Framework

When PDPs act as market interventions in their sectors, they tend to be at risk of being captured by lobbies. Beneficiary firms lack motivations to be extra prolific hence they end up lobbying the government to preserve the profits indefinitely. Additionally, a good number of LCPs lack links with an explicitly economic cost, and thus get easily disguised.

Another argument against local content laws is by Rivers and Wigle (2011) as they evaluate local content and legislation on local content and state that in the transient, local content can bring about unintended hostile outcomes.For example, a rise in unemployment because of abrupt growth in the production cost caused by an increase in material cost which results from wastes from the local content rules.It got opposed that local content policies lead to reduced costs in the host nations, stop the growth of free enterprise, and enhance protectionism. Cottier and Espa(2017) experimentally portray that local content regulations adopted by developing nations to accomplish specific financial goals can end up being fiscally indefensible and could likewise prompt defective distribution of assets, and decreased proficiency.

Quantitative studies

Klueh, Pastor, and Segura (2009)carried out quantitative studies and documented the universal experience with the promotion of local content in deriving appropriate practices in the sector. They used case studies to devise modest systematic frameworks for justifying the collection of feasible sectors for promoting local content, with the aim of making operational one of the most developed principle before. Their research focused on specific inputs from the public that the government would need to offer to fund a market-driven course in the small and medium scale enterprise sectors.

Ihua, Ajayi, and Eloji (2009), documents verdicts from quantitative case-studies of small to medium-sized businesses whose goal was finding the insinuations of the plan on their actions. It got discovered that even though the local content policy has accomplished minimal victory in providing local firms with contracts and encouraging limited joint project arrangements; problems like inadequate finances, bulky prequalification needs, and ineffective supervision, continue hindering the policy value. Ihua, Ajayi, and Eloji stated that from the 1960s to the present day, the Nigerian oil and gas business had an essential role in the growth of the country's economy. The sector contributes close to eight percent of the total national income, and ninety-five percent of export revenue (p.163). Apparently, a considerable amount of this income goes to foreign contractors for procurement, engineering, and fabrication services; leading to assets flight and giving less to the local industries. The government came up with the policy of 'local Content' which advocated for the higher local involvement of small-medium scale enterprises in the sector and add value to the state.

Qualitative studies

Mutula and Brakel (2006) employed a qualitative approach by using in-depth interviews and focus group discussions on researching the e-readiness of SMEs in Botswana's information and technology sector compared to global trends. The study found out that SMEs in Botswana are yet to attain a practical measure of e-readiness just like others in unindustrialized countries, unlike the developed nations. Mutula and Brake offer a basis which can aid developing countries, in making informed technical investment decisions which may empower SMEs to enter the international electronic business environment.

Another qualitative study was carried out by Jegede et al., (2013), and evaluated the issues which hampered knowledge sharing and innovation in homegrown oil and gas industries in Nigeria. They had a goal in providing facts which would intensify sharing of knowledge amongst the natives in the firms and generate additional value that would foster the local content in the sector. From the study, it got discovered that innovation challenge centered on unskilled personnel, and high costs particularly in their departments of research and development, and the country's'poor economic state (p.1137). The primary initiators of innovation in the businesses also comprised of informat...

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