Understanding Energy – Guyana Draft Local Content Policy entering an important phase
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PRESIDENT Irfaan Ali’s administration delivered on one of its central campaign promises when it released the much-anticipated draft of its Local Content Policy last week.

While the Local Content Policy aims to increase the involvement of Guyanese workers and businesses in the development process, the ultimate goal of the policy “is to ensure that its oil wealth is used in a manner that allows for the sustainable development of other industries,” according to the president. To achieve this goal, Guyana must be careful to implement policies that are tailored to domestic needs so as to avoid the pitfalls of reduced revenues, delayed development and exclusion of small and medium-sized businesses.

In general, local content policies focus on increasing the participation of local companies and workers in the industry and encouraging local partnerships with international companies. The draft of Guyana’s Local Content Policy has a number of points that would prove highly beneficial to Guyanese. Banking reforms that increase access to financing will positively impact local businesses and allow for necessary growth in the country. A new training and development fund will also help Guyanese to gain the skills and knowledge needed to engage further in the growing oil and gas industry as well as other industries that will emerge as the country develops. Finally, proposed intellectual property protection are critical to encourage additional international investment that will benefit all Guyanese.

The productive stakeholder meeting organised by the government at the Arthur Chung Conference Centre showed, however, that other parts of the draft Local Content Policy will require careful consideration to ensure they have the intended effect.

As every country develops and grows, it is important that policies, across sectors, are tailored to fit the needs of the individual country. This is why Vice President Jagdeo highlighted the need for an analysis of Guyana’s current capacity. It’s also why policies and targets that come from countries like Ghana, Nigeria and Brazil could make Guyana vulnerable if lessons aren’t learned from their implementation elsewhere.

Local content policies have the power to support the development of specialisation and expertise in many sectors, but overly strict standards or quotas have sometimes led to major delays or prevented local companies in technical fields from developing safely over time. Production delays reduce revenues for the country, and expertise takes time to develop. Guyana is already on a good path with local content, and sustainable standards are necessary to keep the momentum going.

If targets don’t reflect realities on the ground, they can do more harm than good. Nigeria, for example, has 200 million more people than Guyana and decades of experience with oil and gas, but it has struggled to meet targets that are almost identical to those proposed for Guyana. Some of these concerns—such as a requirement to use locally-produced steel even though it’s not available—came up at the government’s stakeholder meeting last week, and President Ali and Vice President Jagdeo expressed willingness to make sure targets were appropriate for the current capacity of Guyana’s economy.

With respect to the Local Content Plan, stakeholders will also need to carefully consider the most effective role for the government in the sector. The draft includes a plan for a government-run database that will require all companies to register and would only permit hiring of contractors and workers from these lists. This fits the local content goal, but details of the policy will be crucial. Similar systems have created a perception of corruption in other countries if small and medium- sized companies are shut out in favour of larger companies that have close ties with government officials.

Guyana is off to a good start by holding a public discussion of the draft local policy, and it’s important to make sure that the final version is designed to give all businesses flexibility to meet local content goals.

Finally, while local content policies and targets should be tailored to fit the needs of the individual country, there are important reasons to make sure that compliance and safety certification standards in the draft policy are linked to international standards. Without international accreditation, specialised Guyanese companies could be shut out from neighboring countries like Suriname or Brazil. This would limit expansion opportunities and the possibility of Guyana becoming a regional hub for oil and gas expertise.

The government of Guyana has provided an opportunity for stakeholders to foster strong and sustainable development by providing thoughtful and tailored comments to the draft local content policy. Ultimately, it is the government’s responsibility to avoid the pitfalls that other countries have encountered and put forward a final policy that is fit to its capabilities and development goals, has realistic standards, avoids the appearance of corruption, and pushes Guyana toward the goal of a sustainable, diversified economy.

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