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Ideas & Debate

Proposed local content law will only create regulatory confusion

Oil exploration
Oil exploration in northern Kenya. FILE PHOTO | NMG  

The Local Content Bill 2018 initiated by the Senate essentially covers local content in two extractive sectors - mining, oil and gas. Already the Mining Act exists and regulates local content in the mining sector.

The Upstream Petroleum Bill 2018 is about to be signed into law, and this has provisions for oil and gas local content regulation. If passed into law, the senate sponsored Bill is bound to create legal and regulatory duplication and confusion.

It is not a common legislative practice for Parliament to initiate and prescribe what essentially is a “sector” law unless there is failure by the sector to initiate the same. Specifically, on the subject of local content I believe the Mining Act and the Upstream Petroleum Bill sufficiently cover the local content requirements in their respective areas.

This notwithstanding, I believe the country should have in place an overarching “national local content policy” that guides local content across all economic sectors. This is where inputs from both the Senate and National Assembly can be useful because of the wider impacts of the policy on the entire economy. Specific sector local content laws shall be guided by this policy.

It is understood that the Ministry of Industrialisation shall originate and domicile the national local content policy, and I believe the ministry is already working on it. It is hoped that the policy will be widely debated across all economic sectors, after which it can be launched as a “national project” inspired and driven from the top

The national policy should define the national aspirations and objectives underpinning local content. It should provide broad guidelines to permit uniformity and consistency across all sectors, while aligning local content objectives to existing government policies and development plans.

Local content is essentially about “local” economic participation and value addition. It leads to increased growth of local productive capacity; more job and incomes opportunities; enhanced skills; and technology transfer.

It reduces imported content of materials, equipment, services and skills, while increasing the country’s capacity to export the same. It is a strong tool for improving balance of trade. Increased local content invariably multiplies national wealth.

All these aspects apply to the extractive sectors as much as they apply to manufacturing, agriculture, and indeed other socio-economic sectors where imports of materials and services are commonplace and where opportunities for exports exist.

Local content is usually surrounded by controversies and conflicts as particular economic players try to avoid local content to up their economic advantages. In countries where local content policies are effective, economies have sustainably thrived, made possible by top leadership commitment and follow through...

As a country, we need to acknowledge that local content is a continuous process to be realized over reasonable timelines, requiring that we set realistic targets with regular monitoring and enforcement. This will allow planned incorporation of local content, while avoiding disruption of investments, businesses, and consumer supply chains.

The government (national and county) have to accept their shared responsibilities for local content capacity development especially in areas of skills and enterprise development, and also fiscal incentives and protection where necessary.

In respect of partnerships and joint ventures with foreign investors and suppliers, the policy should emphasize local value addition and not simply “shareholding” participation by locals. They should demonstrate increased local productive capacity, jobs and skills through local domiciliation of their activities.

Going back to my original concern about the local content legislative duplication in the extractive sectors, I would urge the relevant Senate committee and the Cabinet Secretary in charge of petroleum and mining to openly discuss the implications of the senate Local Content Bill 2018. I have no doubt that they will see great sense in dropping the Senate sponsored bill , leaving the sector laws to regulate local content in their respective areas. .

However, I would urge Parliament to take a broad and strong interest in the development and implementation of the national local content policy across all economic sectors, with the Ministry of Industrialisation providing coordination.

The local content policy is indeed a critical economic enabler for Kenya.

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