Local content and value addition strategy is one of the methods resource-rich countries are adopting to increase the benefits from resource extraction to their economies, beyond securing optimal rents (royalties, taxes, shares, and other revenues). The goal is to promote linkages with other sectors of the economy through four main pillars: local employment opportunities, in-country spending and procurement of local goods and services, technology and skills transfer, and local participation through equity and management. Value addition promotes further opportunities for processing of the extracted resource. The theory is simple and laudable; the challenge is in the practice. Is Ghana getting it right?
The results are mixed. In the mining sector, Ghana, long Africa’s second largest producer of gold, operated on a scale sufficient to increase the development of the local supply chain. The fact that it has not is more a failure of strategic development policy than the lack of opportunities. Local content has also suffered from quality and standards shortfalls of local companies, poor competitiveness, limited access to finance for start-ups, and unreliable power. Current efforts may not be enough to create significant backward linkages. Can Ghana increase the opportunities for value addition in its gold and diamond industries?
In the oil and gas sector, the range of government actions to promote local content has been more satisfactory, though it may be too early to tell. However, there remains a lot to be done. Ghana may be doing well in employment of local workers, but less so with service contracts, procurement of local goods, and local equity and management, and is definitely falling short in technology transfer. The problems lie in the limited capacity and high costs of local companies, insufficient financial support, inadequate standards of certification, and inability of contractors to meet high industry standards. The prospects depend on how the industry, local businesses, and state institutions work together to overcome the obstacles facing local content opportunities.
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Credit: The African Center for Economic Transformation