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Measuring the Capabilities of Firms to Deliver Local Content in Resource Rich Countries

About the Project

Natural Resource-led Development in New Producing Countries

Our project seeks to understand how natural resource extraction can drive inclusive economic growth in new producing countries. We are engaged in a multiyear, multidisciplinary study with four objectives:

  • Understand the human geography of new producing countries.
  • Assess the magnitude of new discoveries and estimate direct fiscal impact.
  • Understand how industry can be localized to create economic growth.
  • Estimate spillovers and welfare impacts to society.

We recognize that policymaking in new producing countries is a complex process, and our project also seeks to understand the interactions of actors’ interests that drive energy sector policies.

Our initial focus is on four countries – Kenya, Mozambique, Tanzania and Uganda – that expect to develop significant oil and gas reserves in the next 5-7 years. Through natural resource development, these countries hope to achieve middle-income economic status by 2030-2040. This project is conducted through close collaboration with leading think tanks and NGOs in Africa.

Key Points

The term ‘Local Content Policy’ is a catch-all for ensuring that resource owners capture more value from developments than the fiscal revenues alone. KAPSARC has explained the benefits of a dynamic perspective when evaluating firms’ capabilities – their entrepreneurial capacity – and proposed a tool for assessing firms in this paradigm. Here, we present an analysis based on the descriptive statistics gathered from applying the framework outlined in the previous two papers

Uganda is on the cusp of developing its oil industry following major discoveries around Lake Albert in the northwest region of the country. It has provided a useful case study for developing insights that can be more generally applied in resource rich economies seeking to maximize the value extracted from their endowments. KAPSARC conducted a study of Ugandan firms, their capabilities and potential to serve the oil and gas industry as suppliers. The specific findings were:

Ugandan firms demonstrate relatively good performance in some important dimensions, including absorptive capacity and innovation. However, this is curbed by low levels of linkages with the academic and industrial sectors, limited exports and poor interaction with the financial sector

The firms surveyed show an entrepreneurial behavior, which is encouraging for public policies promoting the private sector. Moreover, almost all the firms are privately owned.

International standards, important in oil and gas operations, are not widely used. Plugging this gap is an opportunity that can be addressed by local content policies.

The oil and gas industry is new in Uganda, yet 29 percent of the firms surveyed are already suppliers to the sector. The contribution to their sales represents only a small percentage. This low level of sales among a relatively high number of suppliers indicates a potentially positive impact on the local supply chain if appropriate local content policies are designed.

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