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By Karen Abrams
The ongoing demands to push the government of Guyana to enact local content legislation to ensure that companies owned by local Guyanese get a chance to participate in the great wealth anticipated to be generated by the oil industry has created an interesting series of conversations among several stakeholder groups in Guyana. The barons of industry in Guyana, represented by the two major local business organisations GCCI and PSC seem to be the leaders of the push for protective legislation and as a matter of managing their common economic interests, their vocal push is understandable, although their demands have quieted significantly more recently.
There are many business groups however, which have been historically left out of the economic equation in Guyana and for many reasons. These reasons include, being too small, lack of access to financing, nonmembership in the traditional networks of businessmen who share information, opportunities and resources with each other, some would say political or racial isolation, gender discrimination or even geographical isolation which offer a distinct disadvantage to business people based in interior communities. Some would proffer that as we address the question of oil revenues benefiting local companies, there must be a recognition of the many other groups of Guyanese who have been begging for a bit of local economic content in Guyana for decades.
Guyana’s leaders have been given a historic opportunity to ensure that any local content legislation enacted, explicitly addresses the issues related to those historically left out of the economic equation in Guyana or we’ll simply be writing policy to ensure that oil wealth remains among a group of economic elites in Guyana. It is also important to note that while it is critical that local companies be given a fair chance to compete on a level playing field and in a supportive business environment where taxes and duties are low, and where all business people have equal access to opportunity, it is also important that local businesses ensure that they hire the best talent and acquire the relevant expertise to be able to compete at the highest level under this new dispensation. Local content outcomes are not achieved quickly and this will be especially true in Guyana where the operating environment has a weak or limited industrial base, where skills and technical capacity are not aligned to the industrial sector and where a business enabling environment is yet to be fully realised. While early progress is possible at the lower end of a supply chain, opportunities of greater economic value will take time to develop.
It is broadly accepted that procuring from local small-to-medium enterprises (SMEs) and employing locally can bring significant social and economic benefits to communities. In addition to creating business for suppliers, local procurement can stimulate economic activity and attract further investment, both through suppliers engaging other suppliers for inputs and through the multiplier effects of employees of local businesses spending some of their wages in their communities. Other benefits can include: improving the quality of life for employees and business owners and operators (through increased income and education/skills), dissemination of new technologies and innovation to other market participants, and attraction of investment in social infrastructure (SEAF, 2007; Esteves and Barclay, 2011).
One approach to local business inclusion is the use of regulatory mechanisms that mandate the purchase or use by oil companies of goods and/or services of domestic origin or from domestic sources, allowing for a price premium for domestic suppliers when evaluating tenders (‘price preferencing’), reserve a proportion of contract value or a whole contract for execution by domestic enterprises (‘reservation’), or make access to specific fiscal incentives subject to compliance with specified local content requirements. These requirements may be contained in a local procurement plan. Its implementation may be overseen by national or subnational government regulatory agencies. It is common for companies to be required to regularly report on progress against a predetermined plan.
It is also important to consider that there are a number of local content-related triggers leading to adverse consequences. For instance, setting inappropriate key performance indicators and targets for local content can encourage perverse behaviour. One example of this is ‘fronting’ where companies are established with the prescribed local ownership or address, but the decision-making and benefits are held by individuals other than those who are not targeted beneficiaries of the local procurement policy (Esteves and Barclay, 2011). The impact on the local economy is also restricted when goods supplied to resources companies are merely imported, repackaged and resold by local firms (WBCSD, 2012).
Local company leaders must also have a clear understanding of the business culture of foreign companies whose leaders are often well aware of the great risks associated with their foray into developing countries and who engage the best talent, conduct exhaustive analyses and whose values are aligned with their core objectives. Local companies are also competing in an environment where the best available local talent will be snapped up by foreign companies, therefore they must be prepared to review their local HR policies, compensation and training packages to be locally and regionally competitive.
Helping historically under-represented groups to benefit from the local content policy lies in the emergence of partnerships between industry, governments, support institutions and development agencies to establish supplier linkage programs, with a view to enabling SMEs to access financing and skills development programs, technical mentoring and support for the development of business management skills (Deloitte, 2004; Jenkins et al., 2007; Nelson, 2007; Ruffing, 2006; UNCTAD, 2001). Linkage programs also focus heavily on institutional strengthening activities to encourage an enabling environment for SME development. One particular focus has been in assisting women to establish their own small businesses by providing them with access to legal, business and financial systems, thereby reducing the gender gap that prevents many women from participating in economic life (ODI, 2005; Wise and Shtylla, 2007). Similar programs can be designed for Indigenous groups and small businesses.
While there is an urgent need for the creation and passage of a local content policy, it must be good policy and that means it must be inclusive and created after a strategic analysis which would ensure that abuses are minimised and that all groups of Guyana’s citizens benefit meaningfully from Guyana’s Oil & Gas Industry.