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Local Content Policies: From mining investment to sustainable development

Posted by Isabelle Ramdoo, Senior Associate and Development Economist

Local Content Policies: From mining investment to sustainable development

IGF has released its Guidance for Governments on local content policies to leverage mining investment for sustainable development. Our new toolkit provides a detailed step-by-step approach to how countries can move away from commodity dependency and diversify their economic base.

In recent years, a number of resource-rich countries have embraced a fundamental shift in the way they design their policies for the management of their mineral resources, aiming to finally reap the benefits of their mineral wealth. In particular, countries are implementing reforms aimed at fostering broader and deeper linkages with the mining sector, to ensure more jobs are created and more value is added and retained domestically from raw materials.

This contrasts sharply with the “revenue-first” approach pursued for many years. While revenue optimization is necessary to ensure a country gets its fair share of revenues from mineral resources, it is not sufficient to create transformative economic solutions, particularly if there are no matching investments in other productive sectors.

The pursuit of a strategic focus on linkages is perhaps the most important long-term pragmatic approach to creating broader economic spillovers. If harnessed appropriately, it is a powerful springboard to stimulating investment in supply chain development and domestic industries, and to connecting the mining sector with the rest of the economy.

Local content matters, but countries must get it right

Ninety per cent of resource-rich countries use some type of local content policy. As governments review or revise their mining and investment codes and contracts, they increasingly include obligations for mining companies to do such things as increase local employment, purchase more local inputs, add more value to raw materials domestically, share their infrastructure and build the capacity of domestic mining firms. Those are not policies of developing countries alone. Developed countries are also concerned with the local socioeconomic footprint of mining operations and are taking measures to promote their own local industries to supply these mining operations.

That said, local content policies are not a silver bullet; in practice, results are decidedly mixed. The many cautionary tales underscore the risks associated with ill-designed and poorly-implemented policies, and the critical importance of ensuring the existence of pre-requisites such as skilled labour and capable mining sector suppliers.

But there are also a number of success stories, which have led to significant positive outcomes and have helped countries create more wealth. At Vale’s Voisey’s Bay nickel mine in Canada, for example, 55 per cent of the total workforce is Innu and Inuit peoples, 90 per cent of whom are from adjacent communities. This outcome is in part the result of the government’s requirement for company-community agreements and its sustained support for skills training. Another example would be how Botswana’s government negotiated an agreement with De Beers to sell specified amounts of rough diamonds locally, creating a successful downstream sector in cutting and polishing. Australia’s requirements for firms to submit industry participation plans, coupled with efforts to boost supplier capacity and legal requirements for companies to negotiate agreements with Indigenous landowners, also fostered a powerful mining supply sector.

How do we get there?

It is impossible to offer useful blanket guidance on local content policies. No two situations are alike; each country has its unique tapestry of resource endowments, geography, economy, history, infrastructure, institutions and so on. Governments need to know the strengths and weaknesses of the various policy options available to them, based on evidence of what has or has not worked in practice and under which circumstances.

Similarly, even though each context is unique, there are cross-cutting issues that apply across all the policy options. Our guidance document surveys three of them: the need to ensure goals are achieved in a gender-equitable manner; the importance of governments making sure that their local content policies do not contravene their obligations under trade and investment laws; and the importance of understanding how technological advances will affect the future of the mine and the effectiveness of local content policies.

How will our guidance document make a difference?

The guidance will be the basis of IGF capacity-building training and workshops to member countries upon request. Our programs are tailored to the specific demands of our member governments. We will work with our network of experts to support our member countries through national and regional training programs on how to use the guidance document.

We may also conduct in-country technical assistance, upon request, to support governments in their mining policy reviews.

You can access the guidance document online. IGF will also host a series of webinars in September and will release information shortly.