Local Content Policy: A Strategic Way Towards Economic Development of Mozambique

 

Introduction

Africa has been experiencing massive discoveries of natural resources, especially oil and gas. Governments have been making efforts to create policies through which they can retain the maximum of benefits from the exploitation of these resources. As per Rodrik , geography and openness to trade are not enough for a county to achieve economic growth, “the quality of institutions is key”. In this context, among many other policies and institutional arrangements, Local Content Policy (LCP) became a promising option to foster economic growth and development of the states.

LCP is an important instrument for the promotion and development of the national industry for the supply of goods and services and also for the promotion and development of national human capital. A well-formulated LCP allows the population, from those with production factors to the national human capital, to benefit from oil and natural gas exploration projects. A good LCP includes national citizens in hydrocarbon production activities and makes them truly feel part of the country’s economic development process.

In 2010, Mozambique made its largest discovery of natural gas reserves in the Rovuma Basin, Northern Mozambique. This discovery placed the country among the world’s leaders in terms of natural gas reserves, increasing its visibility internationally. The Mozambican government has been creating legal instruments to regulate gas exploration activities and has been acquiring foreign investments for the development of the sector. However, the country does not yet have a specific LCP for the oil and gas sector and as a consequence, there is still no mechanism for developing projects to promote local content in this sector.

This paper presents the important measures that should be taken into account in the creation of a LCP for Mozambique, taking into account the economic and social realities of the country. These measures include, in general, aspects such as: operating rules, goods and services acquisition, role of stakeholders involved, implementation and monitoring strategy. These measures were designed based on the experiences of African countries such as Nigeria, Ghana and Angola. These are countries with some experience in the oil and gas sector and have managed to take significant steps towards promoting and developing national industry and human capital through their LCPs.

 

Background

Mozambique is located in the east coast of Southern Africa on the Indian Ocean and has a total area of 801,590 km2. Despite being among the poorest countries in the world, Mozambique has a privileged geographic location that gives it many comparative advantages in terms of natural resources. One of Africa’s largest hydroelectric power plants is in Mozambique and is a source of energy for countries such as South Africa, Zimbabwe and Zambia. The land and all natural resources that exist in it belong to the Mozambican State, which guarantees rights of use and exploitation to the citizens as well as local and foreign investors.

Mozambique’s comparative advantages have expanded following the discovery of natural gas reserves in the Rovuma Basin (North of Mozambique). This gave the country greater international visibility, raised hopes of reducing the country’s energy insecurity condition as well as raised expectations of economic development.

In 1981, Mozambique began to make efforts to create an institutional and legal framework for the exploration of energy resources in the country. The National Hydrocarbons Company was created, a state-owned enterprise that functions as the mechanism through which the State takes part, together with other private companies, in exploration activities and commercial hydrocarbon projects. In 2004 the National Petroleum Institute was created, a state entity that acts as a regulatory authority for the administration and promotion of petroleum production projects.

In the subsequent years, laws and decree-laws were enacted, these instruments regulated procedures of: production, importation, loading, storage, handling, distribution, sale, transportation and exportation of petroleum products; specific contractual regime for the natural gas exploration in the Rovuma Basin.

However, Mozambique does not have a specific LCP for the oil and gas sector which would be an important instrument to combine existing legal instruments and introduce rules and procedures that include the promotion of local content in oil and gas production activities as well as operational guidelines, agency considerations and monitoring processes for the projects in this sector.

Therefore, it is the government’s task to create a feasible LCP and an investment plan that would make it possible for the country to achieve the condition of energy security in the hydrocarbon sector.

 

Mozambique’s Potential in the Hydrocarbon sector

Mozambique is a promising country in terms of the existence of hydrocarbon resources. Since the 1900s, natural gas exploration has taken place in the southern part of the country, specifically in the province of Inhambane. There are two natural gas exploration fields (Pande and Temane Fields), with a capacity of around 2.6 trillion cubic feet (tcf). The production works are being run by the South African company SASOL.

Mozambique’s largest natural gas reserve, the Rovuma Basin reserve, is located in the north part of the country, with a capacity of about 100 tcf. This reserve places Mozambique at the top of the list of leading countries in terms of Natural Gas reserves. Two international companies are currently conducting natural gas exploration work in that region: Anadarko (USA) and ENI (Italy). In the Rovuma Basin, the production is expected to start by mid-2022. The production of natural gas from the Rovuma basin alone is expected to generate about $39 billion dollars for the country’s economy and help the country eliminate extreme poverty by 2035.

Mozambique may expand and anticipate the benefits of exploring these natural gas reserves if the country is committed to the creation and implementation of a LCP that reflects the national interests and is oriented towards solving the country’s main concerns. The promotion of local content for the provision of products and services, the involvement of local communities, the creation of a fund to finance local small and medium-sized enterprises, the creation of polytechnic centers for training of the youth in important areas of the energy sector are some examples of measures that can be included in a LCP that benefits the population and the country immediately.

With a very well designed and robust LCP, Mozambique can reduce unemployment rates, increase the number of polytechnic centers of technical and vocational education, increase the provisional capacity and quality standards of national enterprises. Therefore, I present in the following points, some important measures that must be considered when designing Mozambique’s LCP.

 

Policy Purpose

In this article, I present a template of some important measures that can be included in Mozambique’s LCP. A LCP for Mozambique will serve to articulate the general principles that regulate the rights and duties with regard to the exploration of energy sources, particularly oil and gas within the Mozambican territory. It will also equip the legal framework with the actual economic situation of the country in a way that guarantees transparency of the process of oil and gas exploration, the participation of the Mozambican citizens through the inclusion of local enterprises in the various stages of the process of oil and gas exploration and establish a cooperative relationship between the Multinational Enterprises (MNEs) and the national small and medium enterprises.

The Mozambican LCP has to be developed as a way to: ensure effective guidance of oil and gas exploration and production activities; to ensure the retention of dividends from these activities for the execution of projects that contribute significantly to the economic development of the country and to guarantee a resource utilization that takes into account the preservation of the environment.

 

Policy Scope and application

This policy applies to the following: –

a) All the activities that are a part of the exploration and production of oil and gas in the Rovuma Basin,

b) Recruiting and contracting processes for the above-mentioned activities,

c) Contracting of third-party companies for the supply of products and services.

 

Policy Statement

Mozambique’s potential in the hydrocarbon sector is a promise of the country’s economic development. This leads the government to place it as one of the main strategies of the energy sector through the promotion of these potentialities for the attraction of investments and development of a local supply chain allowing them to become internationally competitive.

 

Operating Rules

Labor Force

a) The MNEs must guarantee the employment and skill training for Mozambicans and allow their participation in the management of oil and gas operations.

b) The MNEs must guarantee hygienic and security conditions for their employees according to the Mozambican legislation and the international practices.

c) Labor force recruitment for the MNEs must be published in the national newspapers, television channels and internet, presenting the requirements and publishment of the results.

d) Whenever the MNEs find necessary to employ foreign labor force, it must be previously informed to the Mozambican government through the Ministry of Labor.

 

Goods and Services acquisition

a) The MNEs must give preference to the national enterprises for the supply of goods and services whenever they meet international quality standards.

b) Public procurement for goods and services supply must be done in national newspapers, television channels and internet, presenting requirements and publishment of results.

 

Community Involvement

A joint institution should be created to ensure the involvement of local communities in oil and gas production projects. Such an institution should be autonomous and capable of putting pressure on the MNEs, that exploit the resources, in order to comply with the Mozambican legislation requiring the prior consultation of the local populations and the design of projects for population resettlement. The institution should also ensure that the communities are resettled and guarantee that better conditions are in place and basic services such as health, education and security are guaranteed to communities.

 

Stakeholders Involved and Agency considerations

Government of Mozambique

Procuring from local to medium enterprises and employing local people is proved to be a measure that brings social and economic benefits to the local communities. Investing in local small and medium enterprises can stimulate the investment and enhance the quality of local goods and services.

With this end in mind, the Mozambican government establishes the procedures that will guide the production activities in the oil and gas sector with regard to the procurement of local enterprises and personnel. In this line, the Mozambican government, along with all other government agencies in the national and subnational level will:

a) Create conditions for a stable business environment. This includes practical measures such as reducing the complexity of the start-up process and providing facilities for foreign direct investment.

b) Create social and economic infrastructures that facilitate the participation of local enterprises. This also includes the creation of a local development fund that will help in the investment for local citizens’ initiatives.

c) Create local and regional development plans.

d) Support technical and vocational training which will enhance the skills of the local labor force and make them internationally competitive. Thus, Mozambican Government, in coordination with the MNEs, will create local polytechnic institutes and skill training programs to ensure that national labor force is included gradually in the oil and gas sector.

e) Facilitate regional mobility of labor across the country.

f) Ensure compliance with the principles of accountability and transparency in the implementation of projects aimed at the development of local content in the hydrocarbon sector.

For the proper effects, the government of Mozambique is represented by the following government entities: Ministry of Natural Resources, Ministry of Energy, Ministry of Coordination for Environmental Action, Ministry of State Administration, National Petroleum Institute and National Hydrocarbons Company.

 

Multinational Enterprises (MNEs)

MNEs operating in hydrocarbon production should prioritize national products and services as a way to contribute to the development of Mozambican local content. In situations where certain national companies do not meet international quality standards, it should be the task of multinational enterprises to collaborate with the Mozambican government in the development of such enterprises.

MNEs must provide demand for labor and also collaborate with the government in the creation of polytechnic centers for technical and vocational education for the national young workforce as well as in the creation of research centers in the fields of petroleum and gas exploration. Through industry cooperation, international experience of multinational enterprises would be important actors for the development of national companies in terms of product quality and technical services and procedures. Multinational enterprises must also guarantee standards of safety, social and environmental management of the areas that are covered by their operations.

 

Civil Society Organizations (CSOs)

CSOs must act as a bridge between the local small and medium enterprises and the multinational companies. Specialized non-governmental organizations can organize capacity building projects and monitoring projects between the multinational and national enterprises.

In the community level, CSOs can also collaborate with the government and the multinational enterprises in population resettlement and community awareness about the goods and benefits of the hydrocarbon industry. CSOs can be a channel to give voice for the local communities to express their queries and concerns.

In addition to the entities mentioned above, it would be important to create a joint body whose main task would be to control, monitor and ensure compliance with LCP procedures. This body would have the obligation to render accounts through concrete data on the results achieved in the implementation of the policy.

 

Monitoring Process

Ovadia, argues that Mozambican regulation for the oil and gas production does not include “targets or measurement of local content”. The adoption of a specific measurement for the achievements in the development of local content is extremely important to quantify the achievements, identify the bottlenecks and determine new targets.

Nigeria is a country that shows best practices in this issue. The Nigerian government created the Nigerian Content Development and Monitoring Board (NCDMB) to monitor and ensure the compliance of the Nigerian Content Act. Although it is difficult to measure the developments achieved with the Nigerian Local Content Act (LCA), there are very good stories mainly in terms of job creation (around 30,000 new jobs).

The technical assistance of international bodies such as the World Bank and specialized agencies may be of great importance for the training of government officials in matters of monitoring programs in this sector. Therefore, it is necessary that the government and the joint entities also have interactions with specialized international agencies for the exchange of technical procedures.

 

Investment Feasibility plan

In order for the promotion of local content to be effective, it is necessary for the government, together with the multinational companies, to set up a special fund for the promotion of small and medium enterprises willing to enter in the sector. This also requires, again, the creation of a joint entity for management and sustainable implementation, similar to that of Nigeria. This entity would also be responsible for the design of an investment plan both for the development of local companies and for the creation of the training and research centers.

 

Conclusion

Mozambique is very rich in terms of natural resources. However, it needs inclusive policies and sufficient investments to enable it to make a sustainable exploitation of these resources. Among the natural resources that the country has, oil and natural gas are among the most promising. This work showed the importance of designing a LCP that reflects the interests of the country and that serves as stimulus for economic and social development. Mozambique needs a specific LCP for the oil and gas exploration industry so that it can retain the maximum benefits from this sector.

The measures presented in this paper, if followed in the light of the importance of the energy sector for the country, can make it possible to take important steps towards reducing extreme poverty and the levels of unemployment among the young population. It is necessary, therefore, that the interaction between the government of Mozambique and multinational companies as well as all other important stakeholders develops in order to achieve good results.

 

References

Ayonmike, Chinere; Benjamin Okeke (2015) The Nigerian Local Content Act and its Implications on Technical and Vocational Education and Training (TVET) and the Nation’s Economy.

International Journal of Education Learning and Development. Vol. 3, No 1, pp 26-35. Available at: https://pdfs.semanticscholar.org/1d37/4c9b6650744c0a7679217313c5df0c94fecb.pdf

Cuvilas, C. ; R. Jirjis, Lucas C. (2010) Energy Situation in Mozambique: A Review. In: Renewable and Sustainable Energy Reviews. Elsiever. 14 (2010), pp 2139-2146. Available at: https://www.researchgate.net/publication/223269420_Energy_situation_in_Mozambique_A_review

Esteves, Ana Maria, (et all). (2012) Local Content in the Oil, Gas and Mining Sectors: Enhancing the Benefits at the Subnational Level. Policy Framework. Revenue Watch Institute. Available at: https://resourcegovernance.org/sites/default/files/SubnationalLocalContentDRAFT.pdf

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Nwapi, Chilenye (2016) A Survey of the Literature on Local Content Policies in the Oil and Gas Industry in East Africa. University of Calgary – School of Public Policy. Volume 9, Issue 16. Available at: https://www.policyschool.ca/wp-content/uploads/2016/05/local-content-east-africa-nwapi.pdf

Ovadia, J. (2015) The Role of Local Content Policies in Natural Resources-Based Development. Osterreichiche Entwicklungspolitik 2015. Pp 37-46. Available at: http://www.oefse.at/fileadmin/content/Downloads/Publikationen/Oepol/Artikel2015/Teil1_03_Ovadia.pdf

Rodik, D. (2003) What do We Learn From Countries Narratives. In: In Search of Prosperity: Analytic Narratives on Economic Growth. Dani Rodrik (Editor). Princeton University Press, pp 1-19. Available at: http://assets.press.princeton.edu/chapters/s7518.pdf

SPTEC Advisory (2013) Mozambique: The Emergence of a Giant in Natural Gas. 2012 Country Review. January 2013. Available at: http://www.sptec-advisory.com/SPTEC_Advisory-Mozambique-The_Emergence_of_a_giant_in_Natural_Gas.pdf

University of Southern Queensland (2016) Instructions for Writing a Policy. Available at: http://policy.usq.edu.au/documents/13705PL

Volta River Authority (2012) Local Content Policy Document. Available at: http://www.vra.com/resources/others/lcpd.pdf

 

Elisa Salaúde , the author, is a student of O.P. Jindal Global University

Featured image source: Mozambique Mining Post Blog

 

 

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