Isabelle Ramdoo, 19 January 2016 ECDPM, Astana

1. Approaches and lessons learnt
Isabelle Ramdoo
ECDPM
19 January 2016
Astana
Local content policies in
the mining sector

2. • No agreed definition for ‘local’ and ‘content’
• Interpretation is therefore broad and flexible
• All resource-rich countries have, at some point, implemented local
content policies. 90% of resource-rich countries have some forms
of local content policies, and in general rules-based (hard policies)
• As their economies and industries evolved, their approaches to
local content evolved as well. Countries get more ‘creative’ but
measures don’t disappear
• Case studies on different approaches to local content show there is
no blue print. Certain conditions must be there for policies to
succeed and local content policies must be time bound and
monitored to ensure they meet their objectives
1 Introduction
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3. a. Government-led initiatives
2. Different types of measures…
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Regulatory requirements Incentives
Mandatory:
Based on quantitative
requirements (numerical targets
in volume or value) or
Qualitative requirements (such as
reporting, information sharing,
contract unbundling etc).
Government acts as a facilitator
and provides incentives, in the
form of financial support (loans on
favourable terms) or tax rebates,
provided companies meet certain
local content objectives
Best efforts:
Requires ‘preference’ to be given,
but without specifying target or
timeline
Horizontal: applies not only to
mining sector but to economy in
general (clusters; corridors; R&D
efforts; training)
Monitoring mechanism: more or
less stringent and compulsory
Specific to the mining sector:
some facilities may be provided on
the proviso that the company
‘buys local’ (e.g. Australia); or
invest locally (Finland)

4. Examples of requirements
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5. • Initiatives taken by companies to support local supply chains or
to employ local labour: Eg. South Africa (Zimele); Brazil
(Innove); Mozambique (Mozal)
• Often framed in ‘CSR’ policies, but are in fact, increasingly linked
to their core business.
• Good examples in Brazil, South Africa, Chile, Australia where
mining companies undertake to facilitate procurement for local
companies, for example, by unbundling contracts, publishing
tenders, giving more time for SMEs, helping SMEs to meet all the
criteria to supply the mine. Also good examples regarding
training and capacity building (where mining companies enter
into partnerships with research institutions) to help local people
take up jobs in the mine, at various levels of competencies.
b. Industry-led initiatives
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6. • In our case studies we also found that in cases where mining
activities interact with indigenous communities (Canada,
Australia, Peru, Brazil), specific agreements with those
communities led to very specific support to local content – mainly
suppliers development and workforce.
• The nature and context of these agreements are very specific, but
they give good insights on the alignment of interest between local
communities and mining companies. This is seen as an ‘inclusive
approach’, where the local communities negotiate directly with the
mining industry. These types of partnerships have delivered
positive results in many cases.
• Success when: Partnership based on trust, common goals are set
(sustainability of the regions beyond the mine); monitoring
mechanism is rigorous and process is adaptable;
C. Initiatives led by local communities
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7. CASE STUDIES
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8. 3 groups of countries, based on some similarities (with many
differences) in:
(i) Their economic structures (relative importance of the mining
sector; advanced v/s developing v/s LDCs; maturity of the mining
industry)
(i) Their priorities and policy orientations (is the priority revenue
generation? employment? Business development? Global
positioning?)
(i) Their policy choice : mainly regulatory? Incentives? Mix of both?
Partnerships with mining industries? driven by communities?
INTRODUCTION
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9. ADVANCED ECONOMIES
The case of Finland, Australia and Canada
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10. Australia and Canada: Mining industry is key (but due to diversified
economy, does not reflect highly in GDP).
Finland: Industry declined and almost disappeared. Return on the mining
industry recently
All three countries are advanced economies, with very competitive
industries, but also excellent and world class suppliers of equipment
and services, technology advanced economies; etc.
Their ‘local’ companies are internationalised and are at the forefront
of innovation, R&D and technology leadership worldwide;
Their industries developed at a time where there were little international
restrictions to grant preferences, subsidies and protection
They are well equipped with mining-related skills, competencies and
capabilities;
(I) THE CONTEXT
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11. 1. Maintain and support the competitiveness of national suppliers
2. Maintain technological leadership (Finland has an investment
programme of a budget of €30 million to provide financial support to
achieve this objective)
1. Position themselves as ‘global’ hubs (e.g. Australia’s Mining
Equipment, Technology and Services – METS) and ‘solution’
providers when complex and specific technical expertise is required
(Finland expressly mentions this)
2. Internationalise their companies, to access markets to develop
those services in other resource-rich countries (Australia and Canada
are very active in Africa)
1. Local employment and procurement remain a priority but more
‘localised’, to respond to context-specific needs – indigenous
population – dealt with at State level
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(II) POLICY ORIENTATION AND PRIORITIES

12. 1. Incentives-based approach:
Australia: Industry Participation National Framework guiding overall
objectives: strong emphasis on technologies, partnerships in global
supply chains, innovation and market access. Funds provided to facilitate
linkages among companies and increase SME participation in supply
chains (a Buy Australia at Home and Abroad Act was even passed
between 2011-2014 to support this). An institutional structure was
created to link suppliers to major projects;
Finland: A €30 million investment programme to provide financing and
loan guarantees to companies to encourage suppliers development;
Tekes (agency for innovation) finances investment in education and R&D
to support skills and capabilities devt;
Canada: Incentives given to boost R&D and regional economies. Special
tax incentives and support programmes given for innovation in SMEs.
Some provinces provide incentives so companies relocate their R&D or
create clusters efforts to create spillovers
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(III) WHAT APPROACHES?

13. 2. Regulatory approach: mix of hard and soft policies
All 3 countries have regulatory frameworks with clear objectives:
Australia: Jobs Act 2013 – sets out obligations for large projects
where companies should give local suppliers ‘full, fair and
reasonable’ opportunities to bid for tenders; where mining
companies should support local suppliers by providing them with
training; information about opportunities and integrate them in their
supply chains. This is taken further in State Agreements, in
particular where strong indigenous populations are present.
Frameworks can be very specific and quite ‘hard’, although
numerical targets are not fixed. The reporting mechanism makes
them almost compulsory.
Same in Canada, the Benefits Agreements go very far in setting
priorities and commitments for First Nations with strong LCRs that
bind companies to certain obligations, in particular regarding
employment and business development.
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14. DEVELOPING ECONOMIES
The Case of Brazil, Peru, South Africa,
Ghana, Papua New Guinea
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15. All five countries: Mining industry is key GDP contributor
(sometimes the most important one like in Peru, Ghana, PNG) ;
countries export essentially untransformed raw materials (although SA
and Brazil have strong suppliers networks); Mining is a mature
industry;
All five countries are developing economies but with still numerous
challenges: unemployment is high and rising; perception is that the
mining sector did not contribute enough (resource curse argument);
business climate still stiff; skills and capabilities challenges; countries
highly dependent on exports of minerals and therefore vulnerable to
price shocks.
Governments have taken political decisions to diversify economic
structures, notably by leveraging the mining sector for better
economic outcomes
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(I) THE CONTEXT

16. Five very different countries, but some common denominators:
1. Focus is on linkages development both upstream and downstream
(in Peru and Brazil less strong than in South Africa, Ghana) and
industrial development and economic diversification;
1. Focus is clearly on employment and higher levels of local
procurement to develop local supply chains, with a particular
attention to SMEs (e.g. part of industrial plan for Bigger Brazil; New
Growth Path in South Africa etc). Other key issues include ownership,
transfer of technology, training etc.
1. Focus is to address historical problems – essentially in South Africa,
but to a lesser extent in Ghana (where the objective is to develop and
use ‘Ghanaian’ expertise as opposed to ‘foreign’ expertise). In Peru,
Brazil, PNG this is linked to the localisation of the mine (indigenous
population)
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(II) POLICY ORIENTATIONS

17. Essentially placed in regulations, with a mix of numerical targets
and best efforts + partnerships.
South Africa: stands out as being the most complex and regulated
one;
Ghana: recently reviewed its mining law. Introduced numerical
targets
Peru: No numerical targets. Rely on best efforts of companies
Brazil: No specific requirements for suppliers or contractors.
However, it has developed very good partnerships with its mining
industries, to support capabilities, SME development and skills
development, so local companies can participate in procurement bids.
PNG: LCRs embedded in Benefit Sharing Arrangements at the project
level, between mines and communities
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(II) WHAT APPROACHES?

18. South Africa: a ‘scorecard’ has been developed that specifically
target historically disadvantaged population: very specific targets
have been set as follows to be achieved within a specific timeframes
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Element Target (in 5 years)
Ownership (equity participation) 26%
Procurement and enterprise development: Capital goods
Services
Consumables
40%
70%
50%
Employment: Top management
Senior management
Middle management
Junior management
Core skills
Women
40%
40%
40%
40%
40%
10%
Human resource development expenditure as a % of total payroll 5%

19. The case of Ghana
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Element Requirement
Employment requirements
Unskilled labour Reserved for Ghanaians
Skilled labour 10% skilled labour may be expat in first 2 years. Then all skilled
labour to be Ghanaians (during exploration phase)
For mining operations: maximum 10% foreign labour in first 3
years. After this period, maximum of 6% foreign labour
Quota for expatriate
employment
Working permit and permission will not be granted unless no
Ghanaians can perform the job. Exceptions made when specialised
technology needs to be used or Ghanaians not fully trained.
Procurement requirements
Specific categories of
procurement
reserved for local
suppliers
A list of 8 products have been identified in the short term. The list is
expected to be expanded overtime (based on a thorough analysis)
Preference when
assessing bids
Tenders with highest level of Ghanaian participation in terms of
ownership and management must be selected when bids are within
2% of each other on price.
Reporting requirements
Obligation to provide
procurement plans
Companies must provide procurement plans to report on progress
on use of local content. Financial fines in case of non-compliance

20. LESS DEVELOPED COUNTRIES
The Case of Mozambique and Liberia
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21. Mozambique and Liberia are LDCs: among the poorest countries in the
world; both post conflict countries that suffered decades of civil war. For
this reason, although mining is not a ‘new’ activity, at large scale level,
big investments are fairly recent.
Mining endowments are HUGE and the investment that may flow in (if
commodity prices pick up) will be enormous – beyond anything those
countries have managed so far. At the same time, making them highly
dependent – c.f. price slumps = economy slumps
Recent policy reforms: In Mozambique, new law in place since 2014
(first one was in 2002); in Liberia, Mineral law of 2000
Mining expected to be the main economic driver for the next
decades (commodity price?!?!?!) (other economic sectors are nascent or
informal), so political attention and expectation are very high.
(I) THE CONTEXT
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22. As LDCs: focus is to get as much revenues as possible. They see
mining as (i) a financial asset (fiscal and investment); (ii) as an
economic assets – jobs, economic opportunities for local businesses;
(iii) as a means to support community development (In Liberia: the
concessionaire ‘shall provide free primary and secondary education’
and ‘pay the cost of education facilities’ if they have substantial
operations in a region);
So far, Mozambique and Liberia put a lot of emphasis on attracting
investment : fiscal considerations etc. A lot of announcements on
local content, but they have not gone far in putting these strongly in
legal frameworks.
Mozambique recent legal reviews have strengthened LCRs, but
remain quite to the best efforts of companies.
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(II) POLICY ORIENTATION

23. Mozambique: 2014 Mining Law:
 Preference for local sourcing to Mozambican companies; all
opportunities must be published; Foreign service providers must
‘associate with Mozambican entities’. No numerical targets.
 Employment: Priority to be given to Mozambicans; foreign labour
only if competencies are not available in Mozambique. No
numerical targets. All job vacancies should be published;
 Equity participation: Participation of Mozambicans in the share
capital between 5 – 20% of equity capital. Listing of companies on
stock exchange to facilitate this;
 State participation: State will have a free carry participation of
at least 5% of the share capital.
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(III) WHAT APPROACHES?

24. Liberia: Detailed Mineral Development agreements, which require:
 Education (basic + scholarships); training of staff and in
particular area of expertise (administrative and management);
 Employment: unskilled labour exclusively reserved for nationals;
For ‘skilled, technical, administrative and managerial positions’
preference to Liberians; Senior management is up to companies.
In some DAs, there are numerical targets to be achieved within a
certain timeframe
 Technology transfer policy: during technical operations, up to
2 geologists, engineer etc to participate in technical aspects
 Local procurement: First preference, based on equality of
quality, delivery schedule and price to Liberian providers. In some
DAs, investors must ask their contractors and sub-contractors to
also work with local suppliers;
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25. Big challenges still to be addressed:
Complementary institutional support to build skills and suppliers
capacity still lacking. Levels of basic education is very low; ripple
effect on skills and professional capabilities; health (Ebola crisis put
Liberia to a stop for almost 1 year)
Business environment is very stiff and complicated, which drives up
the cost of doing business
Lack of ‘private sector’: in Mozambique and Liberia, most private
operators are small and informal. Large operators are foreign
companies. Lack of support to SMEs (finance is a big issue)
The lack of infrastructure is a major impediment for suppliers’
development;
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26. LOCAL CONTENT AND INTERNATIONAL
REGULATORY FRAMEWORKS
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27. One of the reasons why countries have adapted their approach to
local content, moving away from quantitative restrictions over time,
is because most of the quantitative measures are no longer permitted
by the WTO.
Countries, members of WTO, have certain obligations (like national
treatment). For instances, the following measures are prohibited:
 Quotas related to local sourcing (as per TRIMs Agreement);
 Preference for local substitutes to stimulate domestic industries
(NT);
 Some employment requirements (e.g. local employment targets,
maximum number of expatriates; national participation in
management) are prohibited if a country has taken commitments
under the services agreement (GATS) to liberalise a sector.
Some flexibilities for developing countries.
THE CONTEXT
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28. • In addition to WTO commitments, countries who enter into free
trade agreements (FTAs) or who sign bilateral investment
treaties (BITs) may sometimes further reduce their policy space.
• BITs in particular, increasingly prohibit performance
requirements and most forms of local content requirements,
meaning that countries can no longer use those policies to
develop their local industries or to increase labour force
participation in the mining sector
• The cost of disputes, in particular under BITs, can be very high
in the case of breach of commitments. Investors can take
countries to dispute and seek financial compensation for
damages caused.
• No flexibilities under FTAs and BITs.
FTAs and BITs
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29. CONCLUSIONS
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30. 1. What is your policy objective? What sort of local content are
you trying to maximise? Employment? Procurement? Equity
participation? Maintain competitive edge?
2. Why are LCPs needed in the first place? What sort of market or
policy failure are you trying to fix?
3. What would be the political and economic considerations in
the absence of LCPs? Depends on the level of expectations that
the mining sector has created in a country
4. What is realistically achievable and in what time frame? This
will depend on (i) levels of economic development and maturity of
the mining industry; (ii) the quality and scale of resource
endowments; (iii) the levels of capabilities in countries; (iv) the
business environment etc.
Key considerations in choosing the approach
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31. ECDPM Page 31
5. What types of opportunity costs are you willing and
prepared to accept?
6. Who takes the initiatives? Government? Private sector?
Communities?
7. International factors: global demand; commodity price cycle;
commitments (WTO, FTAs and BITs tend to reduce the policy
space of countries to put in place local content policies.

32. To conclude:
• There is no blue print as to the type of approach that works
best;
• Countries usually adopt a mixed approach, by putting in place
regulatory frameworks and by giving incentives.
• Certain conditions must be fulfilled for local content policies
to work. For example, in the case of employment, capacity
gaps needs to be filled, local labour must have the requisite
skills and training.
• Otherwise, the risk is that measures will hurt the functioning
of the mining industry;
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33. • Similarly for local procurement: local companies must operate in a
conducive business environment and be competitive in price,
quality and delivery.
• Experience have shown that putting in place local content policies
is a long term process, that requires constant adjustment.
Measures need to be time-bound and implementation as well as
impact must be carefully monitored, so as not to affect the
competitiveness of the industry.
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34. Thank you
www.ecdpm.org
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