Local Content

7. Risks of local content legislation

Local content requirements can present risks if they do not balance domestic political and economic concerns with the need to develop competitive industries that can meet the needs of mining operations. Local content policies should not be introduced without adequate consultation, as it is challenging to amend or revise policies once they have been introduced. 

Other potential risk areas include: 

  • The failure to bring national capacity up to speed in time to support demand from both national content legislation and extractives companies.

  • Inadequate government structures for monitoring compliance with local content policy and regulations. 

  • Regulations that are not carefully drafted in consultation with a broad range of stakeholders or are not well understood by those responsible for implementation.

  • Delays postponing the receipt of government tax revenues. 

  • Low labour productivity, which becomes locked in” as a way of doing business, impacting a country's international competitiveness.

  • Capital investments which do not materialise or investors who are cautious about using local content.

  • Domestic "infant" industries that do not reach the same level of competitiveness as foreign suppliers 

  • Local content criteria that are enshrined in the law but disconnected from the current reality. 

  • Local content laws which may provide opportunities for corruption if not effectively monitored.

See here for additional detail on the challenges of creating and sustaining economic linkages in the extractives sector.