22, September, 2016
BRIEF

Boosting the benefits from extractive industries through local content policies

This brief is based on research into the oil and gas Local Content policies of Latin America countries, and identifies some key policies that are more likely to be successful in promoting economic diversification.

The adoption of Local Content (LC) policies is one of the best known strategies for diversifying production and maximizing the benefits from the extractive sector in countries that are rich in natural resources. Strategies include mechanisms such as job creation and technology transfer.

However, evidence shows that the best results   come from those strategies which focus on strengthening the industrial base and on creating the conditions for national industries to provide services. These compare favorably with strategies focused on short-term proposals such as job creation. In addition, the existence of a favorable business environment and well-designed legal frameworks are key  elements in boosting local content.

 

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Key Lessons:

  • Local Content strategies have the potential to be more successful if they are backed by sector-specific legal frameworks guaranteeing their measurement, implementation and monitoring. More specific Legal frameworks of Local Content tend to result in better development outcomes.
  • In addition to employment generation and capacity building, when designing and adopting a local content policy, it is advisable to focus on long-term goals that prioritise productive diversification and the strengthening of domestic industry.
  • Capacity building programs aimed at the extractive sector providers are likely to generate positive returns and enhance competitiveness and productivity of domestic industries.
  • A Local Content strategy must be accompanied by a friendly business environment. Local content strategies are most successful when they are accompanied by favorable industry conditions and a collaborative relationship between the government and the corporate sector.

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