Simply defined, local content is what a country or community expects from participating in the success of an investment, typically a large-scale economic project (manufacturing, construction, mining, and infrastructure) backed by foreign investors. The principle of “you need to leave something for me if you are coming to take what is mine” is relevant – nothing wrong with that! The principle is not followed if local content development becomes just an administrative process to tick the boxes. It is problematic if the investor’s attitude is that “I don’t care whether he will be able to continue with what I am leaving for him as long as the others see that I have shared a few pieces of the cake”.
In many countries, unfortunately, local content development is done just to be compliant. The majority of companies go through the motions of complying with regulations superficially at the minimum level due to the social and political pressure. This explains the lack of proper monitoring and evaluation during project implementation as well as post-project impact assessment. Too often the capacity to guarantee the sustainability of these initiatives is seriously lacking. Companies often fail to acquire sufficient market knowledge or they don’t promote the independence of the supply chain activities (procurement, buying, sourcing etc.). It is important to emphasise that a local content strategy (LCS) is not part of corporate social responsibility, but much more than that. Properly implemented, LCS should be a key indicator of the long-term sustainability of any given business in the specific country or community where it is based.
Many companies will blame the lack of capacity from local small and medium enterprises as the reason not to implement a local content initiative. The question is: how could local communities have sufficient capacity if they never had opportunities to supply anybody in the past? And even if the local enterprises are not fully ready yet for the highest standards, what would be the sense of preparing them to supply services other than towards those with highest value and biggest demand? Clearly it is a primary responsibility of the investor to support enterprise development initiatives that deliver the biggest long-term value for both the company and impacted communities.
There are always opportunities for communities to contribute meaningfully and, from perhaps a humble base-line, developing gradually towards more sophisticated enterprises and jobs. Depending on the procurement/sourcing criteria, the local community will have competitive advantages in, for example, delivery time, the range of available products and services, and pricing compared to businesses operating from provincial or national centres. Often there’s good potential to implement an efficient just in time system, ceteris paribus, taking advantage of the close proximity to the project. For the potential to be realised, there’s a need for intensive human capacity and enterprise development. This should be the joint responsibility of project promoters, local government and community leaders. These entities need to work together closely to ensure the necessary capacity gets created.
This collaboration to boost community enterprises should be organised carefully. Development efforts should be run by independent management teams composed of elected community members supported by competent advisors whose main job is to transfer their management skills over time.
Potential products and services that can be provided by emerging community enterprises are many: catering, laundry, office security, carpentry, housing construction and maintenance, cleaning and other household services. Sales of such services can generate significant new net revenue into communities. For example, if an enterprise development project supports a pool of small businesses that direct and indirectly employ 200-500 people at US$120/p.a./employee, the project’s net financial contribution to the local economy varies between US$288,000 to $1,000,000. This is just from the production and sales of a few items. If the full list of above mentioned services was used as a benchmark, the annual revenue potential would grow by 3 to 6 times. The positive impact of such growth in the local community would be huge.
The development of community enterprises to their full potential is the sustainable solution to many of the challenges faced by countries in Africa. It is an opportunity especially for those countries that have been “endowed” with abundant mineral resources. By ensuring the economic vibrancy of local communities, they can actually fulfill the double promise of foreign investment: to diversify the national economy while attracting large scale investment and foreign investment. This will lead to increases in the tax base, formal jobs, and economic development as domestic savings will grow.
Hélder Buvana is the Head of Operations – Lusophone at AMSCO BV, a human capital development organisation