- Abstract of the “Local Content” concept
- Discussion of the current legal regime that requires participation of locals in the extractives resources activities in Africa (Case study of Tanzania and Botswana)
- Summary of the possible local benefactions from investors
Most African countries are rich in oil, gas and an array of other precious minerals. However, most of these African countries remain hosting states to investors with less involvement in the extractives resources activities.
Currently, most African countries have revised their laws to insert provisions that give locals an opportunity to participate in activities in the extractives resources industry. Some countries have gone further to review or into expressing their intention to review their agreements with investors. For example, recently, Botswana have expressly declared to want more local benefits before it signs another diamond deal with De Beers. The current deal expires in 2020 and Botswana wants more diamond cut and polished in the country before they leave its borders.
Our Breakthrough Attorneys experts from the Extractive Resources Law Department have prepared this comprehensive summary which aims to discuss the current legal regime and participation of nationals and governments of hosting states in extractive resources activities conducted within such particular hosting country.
2. 0 Discussion on the local content demanding regime that requires participation of locals in the extractive resources activities in other parts of Africa (Case study of Tanzania and Botswana)
- Local content requirements in Tanzania;
Africa at large is endowed with significant hydrocarbons wealth. For instance, in Tanzania there is a significant natural gas discoveries and minerals extraction at a commercial rate. Hence the country has taken steps in directing and overseeing extractives resources activities to make sure that there is effective participation of locals.The Ministry of Energy and Minerals of Tanzania released the Petroleum (Local Content) Regulations, 2017 through Government Notice No. 197 published on 5th May, 2017 and the Mining (Local Content) Regulations, 2018 through the Government Notice No. 3 published on 10th January, 2018.
The Petroleum (Local Content) Regulations, 2017 and the Mining (Local Content) Regulations, 2018 (hereinafter referred to as “Local Content Regulations”) are both the implementation of the Natural Resources (Permanent Sovereignty) Bill, 2017 which provides for participation of Tanzanians and the Government of Tanzania.
Local Content Regulations aim at developing local skills, extractives resources technology transfer, and use of Tanzanians manpower and Tanzanians manufacturing. Practically, Local Content Regulations aim at building a local workforce that is skilled and building a competitive supplier base in the extractives resources industry.
The local content requirement in oil and gas sector in Tanzania is set through Regulation 8 of the Petroleum (Local Content) Regulations, 2017 which is wholly reproduced as follows:-
“8. A person conducting petroleum activity shall ensure that:
(a) a qualified Tanzanian citizen is given priority in employment and training in any matter relating to the petroleum activity;
(b) preference is given to goods and services provided, manufactured or locally available in Tanzania in accordance with the provisions of the Act and these Regulations; and
(c) a Tanzanian citizen is given priority in any matter relating to the technology transfer, research, development and innovation in any petroleum related activities.”
For more insight on the Local Content Regulations in oil and gas sector please see our article.
While the local content requirement in the mining sector in Tanzania is set through Regulation 7 of the Mining (Local Content) Regulations, 2018 which has been amended by the Mining (Local Content) (Amendments) Regulations, 2019 produced as follows:-
“7. A contractor, subcontractor, licensee, the Corporation or other allied entity carrying out a mining activity shall ensure that local content is a component of the mining activities engaged in by that contractor, subcontractor, and licensee, the Corporation or other allied entity.”
Local Content Regulations encourage local employment and the use of local goods and services by investors in a given hosting country. Local Content Regulations in Tanzania, as in much of Africa, take the form of targets for local participation and various reporting mechanisms. Local Content Regulations basically focus on economic empowerment of locals.
For more insight on the current status of the local content regulation in Tanzania, please visit our website and read our article.
However, Local Content Regulations, require capable and effective institutional oversight on the part of government for its practical effectiveness. It is crucial for the empowered government agencies to have strategic directions that will put the local content requirements into practice. In Tanzania, there is Ministry of Energy, Ministry of Minerals, Energy and Water Utilities Regulatory Authority (EWURA), Petroleum Upstream Regulatory Authority (PURA), Tanzania Petroleum Development Corporation (TPDC) and State Mining Corporation (STAMICO).
- Local content requirements in Botswana;
Local content in extractives resources sector in Botswana is regulated by multiple principal mechanisms.The Mines and Minerals Act, 1999 requires that minerals permits to exploit industrial minerals to be granted to Botswana citizens, or groups of only Botswana citizens, exclusively. However, it gives the Minister of Minerals, Energy and Water Resources the discretion to otherwise issue permits if he determines that “it is in the public interest that a minerals permit to exploit industrial minerals should be granted to such person; or the permit applied for is in respect of industrial minerals required for specific works and the applicant has given an undertaking that the minerals concerned will not be sold or otherwise disposed of for profit” (Art. 53).
The Mines and Minerals Act, 1999 under Article 12.2 requires holders of mineral concessions to employ Botswana citizens to the “maximum extent possible consistent with safety, efficiency and economy”.
On the other hand, Article 59.2 of the Competition Act, 2009 requires for proposed mergers of any private business in Botswana are to be evaluated, in part, based upon: whether the proposed merger is likely to promote exports or employment and whether the proposed merger would promote citizen empowerment initiatives or citizen owned enterprises.
The President of Botswana Mr. Mokgweetsi Masisi was quoted by the media saying that he is looking for a new long-term diamond deal with De Beers when the sides’ current 10-year deal expires in 2020 which will include provisions for more stones to be cut and polished domestically.
3. 0 Possible local benefactions to hosting states from investors
Local content policies are becoming a priority in many extractives resources rich developing countries. Local content policies aim at ensuring that extractives resources industry supports local economic development by focusing on job creation, technology transfer, skills development and development of other sectors in a hosting country. This is a global practice, ref.
Local content policies have a potential to stimulate the overall social-economic growth of a hosting country. A very basic example is when processing of extractives resources are done in a hosting state. This way, a hosting country will have an opportunity to provide local human resource while investors will have a chance to procure services from local service providers.
Hence, hosting states benefit from local content because it supports:-
- creating and stimulating employment opportunities;
- increasing skilled workforce;
- developing international competitiveness in local suppliers; and
- protecting country’s key strategic industries.
With technological complexity and high skills demand of the extractives resources industry, investors may face a challenge of working with locals who lack the required skills. However, in such a situation investors have to consider the capacity of developing them, transfer their advanced technology and work in joint venture with locals where necessary.
Local content requirements puts an obligation for investors to involve locals in extractives resources industry and at the same time it leaves a room for investors jump in where locals do not have the capacity to participate at the standard requirements.
To hosting states;
Although local content requirements differ from one country to another. It is very essential for a hosting state to have local content requirements that are practicable or adaptable easily and an institution that supervises enforcement of the local content requirements. It would thus be fruitful, for a hosting nation to have minimal varying policies and laws from other countries, since most of the investors are global companies/entities and may have it easy if policies are only marginally different to other countries. This uniformity, or near-uniformity, may drive more investment and subsequently, FDI into a hosting state.
Our Breakthrough Attorneys extractive industry team offers a competitive crude oil, gas and natural resources practice with experienced lawyers in general consulting, processing licenses, ownership rights, contracts, compliance and related matters.
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