AS the new government aims to make its own mark on our nation’s nascent oil industry, local content requirements have become front and centre. Vice President Bharrat Jagdeo, last week, made clear his party’s desire to see legislation passed dictating the use of Guyanese companies in the oil and gas sector.

Historically, local content requirements have been attempted to be used by governments to build the domestic economy and increase local participation in the oil and gas industry. It is naturally in a country’s best interest to get the highest value possible from any resources, and local content policies are one tool used to protect jobs and optimize local businesses. These policies can take many forms—from more flexible contract provisions laying out the steps companies should take to hire and train locals to strict minimum rules that govern what percentage of suppliers and contractors must be hired locally. But we should heed lessons from countries that were overly proscriptive with local content targets, to the detriment of investment.

It’s important to note that local content is only a small contributor to the wealth a country gains from oil. While fossil fuel development does create employment opportunities, the largest benefits to Guyana will come from revenues from the sale of the oil and profit sharing. That’s one reason that, like many issues in the industry, local content rules have to be balanced carefully to avoid delaying development too much or making it less cost-effective, since Guyana will pay that price through diminished future revenues.

Excessively onerous local content requirements can present a number of challenges for the host country hoping to attract continuous investment. Smaller and developing countries often don’t have the local expertise needed to meet the needs of the energy industry which tend to be both highly technical and very specialized. Many roles in the industry, like deep sea robotics operations and underwater seismic analysis can be performed by only a handful of companies in the world. And to reach necessary targets, options many times are to pull semi-skilled and skilled personnel from other sectors which can harm those sectors.

Even for more basic services, without the appropriate capacity building – which takes time — hard-to-meet local content requirements can force workers and businesses that are not experienced in a field or with certain types of projects to be hired. That can lead to safety hazards in an industry where operating in dangerous offshore conditions is standard.

Some countries have also found that local content can become intertwined with corruption. Smaller markets are inevitably less likely to have multiple companies with experience in industrial operations, which can create a de-facto closed bidding process where only a small group of select companies are eligible to receive contracts. Instead of a system that is based on a meritocracy that rewards the best-prepared and most capable companies, there could be a troubling opportunity for cronyism and industry monopolization.

But certain measures like training and education for companies and workers can help local companies compete without placing limits on development. Government and industry-funded projects like the Centre for Local Business Development are helping to satisfy these challenges.

While the industry is still growing, Guyana is already making significant progress in building local capacity under its existing local content policies. More than half of the Stabroek Consortium’s total workforce is Guyanese as of August and Exxon has said it has spent more than GY$14 billion with over 600 Guyanese vendors for goods and services ranging from food services to engineering.

The companies drilling in the Stabroek Block have also provided over 100,000 hours of training to Guyanese staff in the first half of 2020, mostly in technical fields to increase capabilities of the Guyanese labour force in the future. That included sending Guyanese to Canada, Singapore and elsewhere for specialized training.

This process represents positive long-term progress for Guyana, but any new requirements must be considered carefully to avoid hindering development and delaying or reducing Guyana’s eventual revenues.

Our oil industry is young and immature, and the sector is still building labour expertise, business capabilities, and offshore experience. A cautious approach will allow Guyana to develop its local industry without the risk of derailing development.