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A Survey of the Literature on Local Content Policies in the Oil and Gas Industry in East Africa
Although oil and gas exploration has been going on in East Africa for decades, until
recently exploration activities grew more slowly compared to other regions in Africa.
Today, there has been a series of oil and gas discoveries in several East African
countries, including Kenya, Madagascar, Mozambique, Tanzania and Uganda. Debate
is however mounting over what effect the new oil and gas discoveries would have on
East Africa, given the trajectory of older oil-producing countries in Africa, particularly
Angola, Nigeria and Sudan. The challenge for East Africa is, therefore, how to maximize
the potential benefits from the resources to avoid the under-developmental path that
these other countries followed.
There is general consensus that lack of specialized skills is a major obstacle to Africa’s
realization of its resource potentials. One instrument currently being adopted by most
oil and gas resource-rich countries (both in and outside Africa) to deal with the skills
problem and to enhance linkages between the oil and gas sector and other sectors
of the economy is the formulation of local content policies (LCPs). Typically, LCPs
require companies to give preferential treatment to nationals of the country in which
they operate in matters of employment and in the procurement of goods and services.
It is believed that this would result in technology transfer and facilitate the ability
of the country to take charge of its own development. But LCPs come with certain
tradeoffs: Their potential incompatibility with international trade agreements threatens
their sustenance; they can create unrealistic expectations capable of discouraging
investment; and they are easily prone to corruption.