Local content is the phrase on many people’s minds after a list was put out by the Department of Public Information that claimed to show all the Guyanese companies and individuals working for ExxonMobil.

To better understand this list, we need to define local content, explain the context around it, and look to other oil producing countries to see what has been done wrong and right in this area.

According to the Natural Resource Governance Institute, local content policies are a way of extending the benefits of oil and gas extraction throughout an economy, by requiring or incentivizing companies to use local products and hire local employees and companies.

Local content rules can be important because they help local workers and companies become involved in the industry. Tax revenues, royalties, and profit sharing all contribute money into the government budget and represent by far the largest benefit to the country. However, local content is a way for people and businesses to benefit directly from a new industry.

It already seems clear that the local economy is benefiting. According to recent reports, those direct employment opportunities have so-far included 585 jobs for Guyanese as part of the Exxon-led project, which is a little more than half the total jobs on the project so far.
It is important to distinguish between jobs and opportunities directly for the oil company and those with the companies that are contractors and subcontractors. This is where a lot of the confusion around the DPI-released Exxon list comes from.

As Exxon has since clarified, the document released did not just list the local companies that Exxon has hired and worked with, it also lists companies that Exxon’s top suppliers have worked with – hence the list of 227 companies.

This is common with large international companies, who typically entrust some of their work to a handful of reliable contractors. When thinking about local content, it’s important to think not just about the oil company, but about those contractors, since they will be hiring employees, spending money, and handing out subcontracts as a direct result of their work for Exxon.

That distinction shows how broad the impacts of local content can be. For example, if you are the owner of a small bakery in Georgetown, Exxon would not be asking you to cater for the hundreds of workers on its oil rigs any time soon—the requirements of health/food safety codes and transportation and logistics are just too big.

But the larger catering company that Exxon does hire might hire your bakery as a subcontractor, helping them supply big orders. This networks of contractors and subcontractors helps distribute the rewards of fossil fuel extraction. And as we can see from the DPI list, this is already occurring in Guyana.

Local content policies can also have longer term goals in mind. Guyana doesn’t have much experience with oil and gas and we don’t have many people who are trained as petroleum geologists, rig engineers, or helicopter pilots…yet.

As the International Monetary Fund (IMF) emphasizes in its guidelines for resource management, good local content rules will encourage companies to train Guyanese in these fields and will guarantee a market for Guyanese companies that want to build up these kinds of capabilities. That’s why training programs like Exxon and DAI’s jointly-run Centre for Local Business Development are so important.

However, as the IMF also warns against, we have to be careful not to push too far. Local content rules can be a double-edged sword. Some countries like Brazil and Nigeria are often cited as examples of what not to do.

Brazil made it difficult and expensive for companies to do business because the local content rules were so strict, that meant companies had to hire Brazilians and Brazilian companies for almost every job, even if there weren’t any with the necessary special skills.
This resulted in many new projects being put off indefinitely and Brazil recently had to relax its rules to try and bring back investment.

It’s easy to see how that could be even more dangerous in a small country like Guyana, where there just aren’t many companies that have experience with, for example, deep-water sonar equipment or laying underwater pipeline.

Nigeria provides a similar example where local content rules are time-consuming, overly complex, and don’t match local capabilities, so some companies just see the fines for violating local content rules as an inevitable cost of doing business and it makes the country less attractive to investment.

That’s a trap Guyana should try to avoid.
In the meantime, Guyana should continue to build training programs to get people ready for critical jobs. The simple reality is that it takes years to become a trained helicopter pilot or petroleum engineer. Our local content policy should fit what we and our companies are capable of now, and allow time for Guyana to develop key skills that are most relevant to this new industry.