Give life to local content dream by coming up with policy framework

Local content simply means how much goods and services local enterprises and individuals supply into the economy.

It is local economic inputs versus imported inputs. It directionally adds value to the economy through reduced imports and increased exports.

It safeguards against “export” of our jobs. It grows the GDP while improving balance of payments. Local content invariably increases national wealth.

When Deputy President William Ruto opened the annual oil and gas convention last week, he emphasised prioritising of local content not only in the oil and gas industry but across all economic sectors.

The chairman of the Senate Energy Committee, Gideon Moi, had a similar message when he closed the conference.

A panelist at the forum, Patrick Obath, correctly captured what is needed to effectively launch and entrench local content. He said that in countries where local content has visibly succeeded, it has been driven by vision and inspiration from top leadership.

Another panelist from Nigeria, Denzil Kentebe, emphasised that for local content to take off and flourish, the government must “bring down all barriers.”

My take on what the two experts meant is that local content has to be a “national project” inspired and driven from the top.

And much is already happening in Kenya, albeit mostly disjointed and likely to produce feeble and delayed outcomes. President Uhuru Kenyatta on Madaraka Day announced a requirement for all public procurement to consist of minimum 40 per cent local content.

The Energy ministry has Bills and draft regulations on energy sector local content. The ministry of Mining has provisions for local content in their Mining Bill.

The ministry of Industrialisation is currently strategising increased capacity for locally manufactured goods. Surprisingly, the Senate has also drafted their version of a national Local Content and Participation Bill 2015.

The missing link in all the above efforts is a cross-cutting national policy framework that guides how the country shall navigate through the local content arena to achieve optimised early results nationally.

It is this policy framework that should convey the message of national commitment and urgency on the subject. This way, all ministries and the private sector can read from the same script.

It is from the national policy guidelines that various ministries can prepare specific regulations to implement local content in their specific areas.

The national policy framework has the effect of harmonising implementation of local content across all sectors to minimise regulatory discrepancies, duplications and inequities among various sectors.

There is a number of cross-cutting capacity building enabling initiatives that can be broadly addressed in the policy document.

Such include affordable credit and guarantees to local enterprises; human skills development; quality and certification of goods and services; and strategy for fiscal interventions. The policy framework can also serve as the reference for aspiring local and foreign investors.

It would essentially link all the ministries by providing a uniform platform on which specific sector local content thrives.

It is easy for Kenyans to “demand” local content. But capacity to deliver the required quantity and quality of local content must be developed first and quickly.

There is a general consensus that the most critical barrier to local content development is absence of affordable credit to finance local enterprises. And this is where the policy guidelines become important.

China has expanded its local content and export capacity chiefly through State-backed credit institutions. We see it with virtually every Chinese contract in Kenya.

In the 1960s and 1970s, Kenya had similar credit institutions that nurtured local content enterprises. We had institutions like Industrial Development Bank and the Industrial and Commercial Development Corporation which specifically funded local industrial and commercial enterprises.

How can we partner with international development partners to create similar vehicles for local content development? I know the IMF will say that this is an archaic approach that does not respect open market standards.

But if it is working for China, it can for Kenya. In respect of local content, China is today our main competitor.

The government should initiate a well branded national “local content project” and see it to successful implementation.

It should not surprise us that such a project may end up providing a wider capture of sustainable jobs than many other ongoing projects. But it shall definitely require courageous decisions to bring down a number of known barriers.

Yes, the oil and gas sector in Kenya is undergoing a downturn from reduced global oil prices and may take a cycle of at least five years before we can notice a rebound.

This is an opportunity to build basic capacity, so that when the turnaround happens we do not have to start from scratch in respect of local content capacity.

However, the next big thing that is about to happen in the sector is commercialisation of already discovered oil in Uganda and Kenya. It is targeted that by 2020/21 oil shall be exported via one of our coastal towns.

To meet the target export date, construction of crude production facilities and export pipeline must essentially start by 2017.

This then is the local content opportunity for engineering, construction, civil, and logistics contractors that we should prepare for.

Mr Wachira is director Petroleum Focus Consultants. Email: [email protected]