By Kiana Wilburg
The Extractive Industries Transparency Initiative (EITI) typically focuses on the taxes and revenues paid by natural resources companies to the government. But that’s not all. EITI also reviews the extent to which citizens are able to benefit from those resources either through training from oil and gas companies, the use of local goods and services or the transfer of technology to the nation. This is normally referred to as local content.
In their report, EITI-implementing countries such as Guyana are expected to report on local content. According to EITI, this reporting is expected to include descriptions of the country’s local content policy and commitments by companies to same, figures on local content (such as employment, procurement, and purchase of goods and nationality of company owners),and commentary on the implementation of local content policies.
EITI said that Chad, Cote d’Ivoire, Democratic Republic of Congo, Ethiopia, Ghana, Guinea, Kazakhstan, Liberia, Madagascar, Malawi, Mali, Mauritania, Mongolia, Mozambique, Nigeria, Philippines, Senegal, Tanzania, Timor-Leste, Togo and Zambia, are prime examples of countries which provide comprehensive reporting on local content.
The transparency watchdog said that when it comes to data, the aforementioned countries report, for example, on employment figures, by distinguishing between foreign and local employees.
EITI said, “Reports from Cote d’Ivoire, Mauritania, Senegal and Togo calculate the share of national employees in the sector and provide details on the nature of contracts for each of the employees. For the Philippines, it discloses details on indigenous people employed as well as other employment and income-generating opportunities related to forestry activities beyond direct employment, as well as training.”
“As for Kazakhstan, this country has collected extensive data on local content in purchases of goods, works and services in the extractive sector. With respect to Mali, it has unilaterally disclosed payments made by goods and service providers in the mining sector. In the case of Timor-Leste, this country requests that the operators of two active oil fields to report on their local commitments, which includes company expenditures on training and employment of locals, and the amount of local goods and services procured.”
Further to this, EITI said that some countries have gone beyond reporting and also include some analysis of the data and comments on the level in the EITI Reports which are subsequently submitted.
“These examples demonstrate the extensive potential for EITI to highlight local content issues and gaps in implementation of local content policies in countries where this is a priority area,” the global transparency body said.
It added, “Ghana’s latest EITI Report for example, includes a description of the local content provisions. Companies were also requested to report on local versus foreign employment and procurement. The report comments that the provisions have been complied with and highlights the challenges related to implementing the provisions.”
“Even in the Philippines 2015-16 EITI Report, it comments on the level of locally sourced workers for companies as well as on the indirect contribution of the extractive sector to the economy beyond revenues.”
IMPORTANCE OF LOCAL CONTENT
EITI notes that countries have adopted different definitions or approaches to local content, through requirements in laws or individual contracts, or as a policy. It said that the policies and provisions are generally aimed at supporting more jobs for the local population, boosting the economy, facilitating technology transfer and building skills among the local workforce.
EITI said that these are often directed at increasing local employment and training for local staff, providing subcontracting or service provision opportunities for extractive projects to national companies, or sourcing of local products used in extractive operations.
But while there are benefits from encouraging added value to the economy from oil, gas and mining activities, EITI noted that there are also significant challenges related to implementing local content policies.
It said, “Experiences with local content policies appear mixed. In some cases, local content is not necessarily the most efficient way to boost local economic activities. Local industry and workforce do not necessarily have the experience or knowledge to perform technical jobs needed, and can lack capacity to deliver non-technical services and goods.”
The Transparency watchdog continued, “Depending on the size of the project compared to the local economy, local communities can become overly dependent on the opportunities provided by a single project, with implications for longer-term development. Lastly, there are corruption risks related to local content, in particular in procurement, as experiences show that it has tended to benefit political elites, if not managed transparently.”
EITI added, “Despite the importance of transparency when it comes to implementing local content strategies, there is limited data available to fully allow stakeholders to understand how impact of local content in the extractive sector can be improved.”
EITI stressed that increased transparency in local content could incentivize companies to hire and buy services and goods locally. For companies, EITI said that it could also help them maintain a social licence to operate and help provide a more comprehensive picture of their contribution to the economy.
The international body said that some relevant data have been made available through reporting frameworks such as the Global Reporting Initiative (GRI), although the level of detail varies across countries and rarely provides data by project.
“For instance, data related to local procurement is usually provided by the supplier to the mining company and ideally submitted to the sector regulator, but is not necessarily publicly available.”
EITI said that there are also ongoing efforts to improve local content transparency, such as the Mining Local Procurement Reporting Mechanism established by the Mining Shared Value Initiative of Engineers Without Borders Canada, which provides a reporting framework for companies on local procurement.
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