Ghana’s Local Content Policy: The Prospects, The Games And The Intrigues
By Gilbert Boyefio
Local Content Has Currently Taken Center Stage In Many African Countries Well-endowed With Natural Resources And With A Desire To Improve Upon The Management Of These Resources To Contribute To Their Socio-economic Development.
In Ghana, the country’s Petroleum Local Content and Local Participation regulation, which was passed in November 2013 but became operational in February 2014, is highly considered as the catalyst to the country’s economic development.
The law stipulates among other things that Ghanaians should be prioritized in terms of employment in the petroleum industry, and should benefit from the country’s resources. The law is expected to ensure that Ghana’s natural resources benefit Ghanaians, while also allowing foreign oil companies to reap fair returns on their investment.
The purpose of these regulations is to promote the maximization of value-addition and job creation through the use of local expertise, goods and services, businesses and financing in the petroleum industry value chain and their retention in the country; develop local capacities in the petroleum industry value chain through education, skills transfer and expertise development, transfer of technology and know-how and active research and development programmes; achieve the minimum local employment level and in-country spend for the provision of the goods and services in the petroleum industry value chain.
It is also to increase the capability and international competitiveness of domestic businesses; create petroleum and related supportive industries that will sustain economic development; achieve and maintain a degree of control for Ghanaians over development initiatives for local stakeholders; provide for a robust and transparent monitoring and reporting system to ensure delivery of local content policy objectives; provide for the submission of the local content plan and related sub-plans by contractors, subcontractors, licensees and any other allied entity involved in the petroleum industry including the provision of goods and services; the transfer to the Corporation or the Commission and Ghanaians of advanced technology and skills related to petroleum activities; a recruitment and training programme and supervision, coordination, implementation and monitoring of local content.
However, for local content to be successful and achieve its goals largely depends on addressing the financial, human-resource, and technological challenges faced by local businesses in the oil and gas sector.
Though most of the International Oil Companies (IOCs) for instance profess support for the local content law, they are undoubtedly reluctant to give contracts to many of the local SMEs sadly due to their lack of capacity and skills. The locals therefore find themselves constantly competing with the dominance of international suppliers.
To address this lack of capacity issue, the Government of Ghana with the Jubilee partners established the Enterprise Development Centre to train and build the managerial capacity of SMEs with interest in operating in the oil and gas industry. This move was intended to enable more Ghanaian businesses to play active roles in the country’s oil and gas industry thereby reducing the dominance of foreigners.
Also, a part of that picture is PYXERA GLOBAL, operators of Ghana Supply Chain Development. This is a five year $4.8million dollars grant program funded by USAID with a very simple objective of increasing the competitiveness of Ghanaian SMEs basically in the oil and gas sector.
Though both the EDC and the Ghana Supply Chain Development programs have recorded some modest successes, it is obvious that the most prudent thing for government to do through the petroleum commission, is to look at ways to bring the two organizations together to collaborate since they have common objectives of building the capacity of the local SMEs to make them competitive.
Unfortunately the opposite is true.
Currently the two programs are duplicating each other’s effort thereby denying more SMEs the opportunity to be trained and build their capacity.
“The way I see it our program and that of the EDC and any other similar program out there to develop SMEs in the sector is to achieve the same goal but with a slight different approaches. But even more importantly, we are all serving the same group of SMEs. So what you find is that an SME takes our program, that of the EDC and any other program and benefits; whereas a better way would be for all the programs to sit down together, share work plan, share our visions for the coming period and divide the work plan so there would be no duplication and nobody would be left out. And I think with that, what we would have done is to take our money and hopefully that of the EDC and put it into a pool to be used together more effectively for the program to go further and also benefit more SMEs,” Ken McGhee, Chief Party of Ghana Supply Chain Development, admitted.
However, a source close to the EDC indicates that they are not interested in any collaboration with Ghana Supply Chain Development. Our source explained that their stand was informed by the fact that Ghana Supply Chain Development has been duplicating their efforts deliberately, adding that “The moment we organize a particular event with a particular group of SMEs they also invite them for a similar program. They spy on us. When they open bidding for the EDC contract we competed with them for the work and won, and since then they have been eyeing our work.”
But McGhees insisted that “On our part, we are ever ready to collaborate with the EDC to share resources, ideas and even services. We gain nothing by working alone and in the dark and that has never been our way. We look for ways to work more transparently and in a more collaborative effort.”
Access to funding
Unfortunately, access to capital by SMEs is a huge issue neither the Ghana Supply Chain Development program nor that of the EDC addresses.
According to Dr. Juliet Twumasi-Anokye, the Coordinator of Local Content at the Petroleum Commission during a stakeholder’s interaction program organized by the Commission at the EDC training centre at Takoradi recently, “I can assure you that if you talk to hundred SMEs, ninety nine of them will tell you that lack of funding is their major problem. I am sure if we go round this room the theme on everyone’s mind is how to get funding.”
For McGhee, “In fact, there are not too many donor programs that are willing to put monies directly in the hands of the SME, for reasons best known to them. That is not an effective way to run a program.”
However, the Petroleum Commission is currently embarking on a series of engagement with the financial sector to address the numerous funding issues affecting SMEs in Ghana. This is an effort which is highly supported by players in the industry.
In contributing their widow’s might to the funding issue, both the EDC and the Ghana Supply Chain Development have programs that bring banks and SMEs together in an effort to do business.
Though the Petroleum Local Content and Local Participation Law frowns at fronting, there are those who believe the law is defeatist in itself.
A requirement in the law provides that “A non-indigenous Ghanaian company which intends to provide goods or services to a contractor, a subcontractor, licensee, the Corporation or other allied entity within the country shall incorporate a joint venture company with an indigenous Ghanaian company and afford that indigenous Ghanaian company an equity participation of at least ten percent”.
The law goes further to stipulate the following offences and penalties for offenders; a citizen who acts as a front or connives with a foreign citizen or company to deceive the Commission as representing an indigenous Ghanaian company to achieve the local content requirement under these Regulations, commits an offence and is liable on summary conviction to a fine of not less than one hundred thousand penalty units and not more than two hundred and fifty thousand penalty units or to a term of imprisonment of not less than one year and not more than two years or to both.
A person who connives with a citizen or an indigenous Ghanaian company to deceive the Commission as representing an indigenous Ghanaian company to achieve the local content requirement under these Regulations commits an offence and is liable on summary conviction to a fine of not less than one hundred thousand penalty units and not more than two hundred and fifty thousand penalty units or to a term of imprisonment of not less than one year and not more than two years or to both.
A penalty unit is GHS12.00, which is approximately $4.00. Meaning in monetary term an offender is liable to a summary conviction to a fine of not less than four hundred thousand dollars and not more than one million dollars.
However, for J. J. Osei Tutu Amofa, HANISA Group, this provision in the law will rather go to promote the same thing it is rather trying to prevent.
“How many of our local companies really have the capital to gainfully partner the international oil companies, or any of the multinationals as is being demanded by the law? This is where you have faceless entities who are foreigners hiding behind Ghanaians and registering companies in their names and doing business with it. This provision will rather encourage fronting in the industry,” he added.
He argued that so far as government is not ready to give sovereign guarantee to the people of Ghana, the International Oil Companies will continue to have a strangle hold on the industry and the local businesses will continue to feed from the scraps that falls from their table.
“Yes I think government support is certainly needed. If you think of it, it is in government interest to deal with this problem because how can you really make local content effective if SMEs cannot get funding to go after contracts,” he queried.