|Type of paper:||Literature review|
The local content policy is used in two primary areas which include private and public local content. In this area, the policies put in place depending on the industry as well as country of origin. The policies that regulate local content also depend on implementation as they are guided by industry laws and acts in the host country. Incorporation of local content policies is dependent of integration between the public and private sector. Host countries incorporate local content legislation to enhance participation of citizens in the oil gas sector. These policies are applied in both public and private industries through various strategies that are aimed at development of the local oil industrial sector. Since the oil business is volatile it cannot be handling by the public or private sector on its own and thus requires them to partner in the operations. The two subdivisions operate in partnerships to ensure the local industries are able to handle the industry without over reliance on foreign industries. Public-private partnerships are pointed out as the solution to the issue of capacity gaps that is faced in incorporation of local content policy in the host countries. There are various forms of local content policies used in both the private and public sectors as discussed below.
Domestic Sourcing Local Content Policy
Local content policy perspectives are highly dependent on the set goals and objectives. Among the perspectives incorporated is the domestic sourcing perspective. A study done by Gautier presents a discussion based on the in-country value-focused approach (Gautier et al., 2009 p.1179). The domestic sourcing approach is used by governments to promote the development of local industries through the provision of incentives and other strategies that help in the expansion of local businesses (Gautier et al., 2009 p.1175). Although the policy started with simple restriction, trade tariffs and direct investments it has been revised to include more protective measures that have assisted greatly especially in economic growth in developing nations (Gyimah-Boadi and Prempeh, 2012 p.95).
This policy is also based on the improvement of local productivity to facilitate economic growth. The local content policy also looks into the development of the local human resource pool by facilitation of strategies such as skill transfer and capabilities of the local workforce. Incorporation of the local content policy in industrial laws is a stipulation that leads to a growth of the economy including more extensive areas where it developed from the use of backward links in the trade to the inclusion of technology transfer from more developed countries (Hansen, Buur, Kjaer, and Therkildsen, 2016 p. 203). In the past, the local content policy was only involved in the input supply to the local industries. Due to the rapid growth in technological advancement countries have had to incorporate local control policy in other areas such as employment opportunities to enhance skill transfer and economic growth.
The local content policy has also been expanded to assist in supply domestic vectors through value addition as well as control of ownership thus backing up the domestic sourcing policy. The local content policies in place today help in increasing local employment opportunities in the oil sector thus promoting economic growth and higher living standards. The domestic sourcing policy as Hansen explains diverts attention from foreigners focusing on getting resources from local suppliers as incentives allow local companies to increase in capacity thus enhancing their ability to supply the required materials. The domestic sourcing local policy ensures that individuals consider local content before moving on to importation, therefore, working towards economic improvement.
Economic Local Content Policy
The economic form of local content policy is a type of policy that is applied to help increase productivity and income generation through the provision of support to the local industries. This policy focuses on improvement of efficiency in the oil sector and support of local industries thus facilitating economic growth in the country. This policy is applied in various countries where the government put restrictions to ensure that the local industries are protected from exploitation and ensuring foreign companies retain part of the profit they earn in the country. Since the policy is based on the transfer of pricing policies, it looks into contracts formulated between foreign companies and local firms as well as taxation charged on the foreign companies. The economic centered local content policies also focus on accountability and visibility in a bid to promote economic growth and prevent over-exploitation of natural resources by foreign companies. The policy primarily protects returns accrued from the exploitation of natural resources ensuring that the host country enjoys a higher part of the profits.
Accounting and accountability are a critical part when it comes to governance of the petroleum companies and the oil industry in general. The importance of accountability in this sector is that oil companies carry about 60% of the national economy thus requiring proper management (Balouga, 2012 p.1). Most developing countries have adopted the local content property implementing it entirely in the oil industry to build accountability. This policy has become a tool in enhancing accountability and building of stability in the industry. The system is essential as it ensures value addition by linking investors' profits to the economy to ensure profit retention through various practices such as trade restrictions and taxation (Gautier et al., 2009 p.1176).
The local content policy is used on various occasions to create equilibrium in the economy. The policy has greatly influenced growth and expansion especially in developing nations where similar foreign firms invest to compete in the oligopolistic market with local industries (Ovadia, 2012 p.399). The local companies in most developing countries are young and cannot handle large quantities of work primarily in the oil process and manufacture sector. Based on this fact, foreign companies find an opportunity to make direct investments thus gaining control of commodities considered as non-tradeable under normal circumstances (Idachaba, 2017 p.2). As a way to protect the host companies from exploitation, the local content policy is applied to ensure that foreign companies have to partner with the local companies. The local content strategy has helped greatly in protecting the country from unprofitable material erosion and also ensures they can gain required skills over time. As a result, the policy has facilitated knowledge transfer thus profiting the economy and enhancing the growth of local firms.
Incorporation of the local content policy in industrial laws is a stipulation that leads to a growth of the economy including more extensive areas where it developed from the use of backward links in the trade to the inclusion of technology transfer from more developed countries (Hansen, Buur, Kjaer, and Therkildsen, 2016 p. 203). In the past, the local content policy was only involved in the input supply to the local industries. Due to the rapid growth in technological advancement countries have had to incorporate local control policy in other areas such as employment opportunities to enhance skill transfer and economic growth. The local content policy has also been expanded to assist in supply domestic vectors through value addition as well as control of ownership. The local content policies in place today help in increasing local employment opportunities in the oil sector thus promoting economic growth and higher living standards.
Political local content policy
Political local content policy refers to the stipulations that are set by host countries to regulate the involvement of foreign companies in resource exploitation. The political perspective concerning local content policy looks at policies that can be put in place to promote resource extractions locally and provide various opportunities regarding employment and investments that support local industries. The political perspective also looks into other areas such as techniques that can endear the serving government to citizens thus facilitating re-election. Various countries have applied political linked local content policies in policy formulation where the elite class in politics uses such systems to promote their agendas and benefit the community at large. The country where domestic content policies are widely applied through the use of the political perspective is in Sierra Leon. Incorporation of local content policies is evident in the state as they are incorporated in national laws where the current government has set these policies to protect the citizens and also grow its popularity.
Sierra Leon is as one of the developing countries that have been steadily on the rise concerning growth and expansion of local industries. The legal stipulation put in place through the enactment of the native content procedure has significantly helped in the protection of local industries and job protection for the citizens. Although the policy focuses on the protection of local industries, Sierra Leon uses the policy to encourage investment from foreigners through partnerships. The country offers preferential treatment to foreigners who partner with the local companies. The policy states that in the selection of companies where foreign firms are involved; those that have sold equity ownership shares to local citizens are considered first (Idachaba, 2017 p.2). The foreign companies where locals have ownership shares, therefore, have higher chances of getting awarded especially when competitive bidding is involved.
Moreover, the local content policy in Sierra Leona states that 20% share ownership of all foreign companies registered to work in Sierra Leon must belong to Sierra Leon citizens (Ngoasong, 2014 p.475). The policy has significantly increased the protection of natural resources and ensuring that the Sierra Leon citizens have proper opportunities to develop themselves as well as their firms. The fact that local citizens and companies receive preferential treatment encourages investors to promote local industries through the formation of partnerships (Hansen, Buur, Kjaer, and Therkildsen, 2016 p.203). The local content policy in Sierra Leon has also been instrumental in encouraging citizen to get involved in the development and actively work towards the improvement of the economy as they are sure that most of the profits remain in the country. Local investors are also able to receive government incentive which has resulted in spontaneous growth in the economy and improved the living standards of citizens in the country.
The local content policy has also been applied in Sierra Leone to help boost the economy by offering support to local companies in the oil sector. The system implemented in Sierra Leon clearly states that local industries have leveraging power thus giving them dominance over the foreign companies in the oil sector (Sidique, Rahman, and Hook, 2015 p.429). The local content policy focuses on the increasing participation of citizens in the economy by offering preferential treatment that encourages local investors. The laws in Sierra Leon state that 20% of the management positions in any sector must be given to local people while the locals should also hold 50% of the intermediate positions (Gautier et al., 2009 p.1176). The laws in Sierra Leon also dictates that these positions have to be increased within five years to ensure Sierra Leon citizens must hold 60% of managerial positions and 80% of the intermediate jobs.
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