LOCALISATION VS. LOCAL CONTENT
The old paradigm of simply doing the bare minimum to comply with local content (legislation) in order to win key road construction contracts is no longer sufficient to achieve long-term operational stability in Africa. Increasingly multinationals realise that they need more than regulatory approval; in fact what is needed is a socio-economic licence to operate in Africa.
Localisation is a strategy to obtain such a license. Unlike local content, is a powerful enabling tool for community growth that goes way beyond the initial first phase of the project life cycle. Whereas local content laws require foreign companies to use a certain amount of local labour and materials – localisation can go much further. World-class, business savvy organisations like Colas are already doing this in Africa.
At the Bitumen Exchange we looked at ways international conglomerates can build up community goodwill by focusing on capacity building in their employees and regional supply chains. These are not new practices, but were identified by our network as key drivers of change not only in Africa, but other emerging markets around the world. They form a key component of The Road and Infrastructure Congress, being held next year in Nairobi.
1. Socio-economic development. This is typically measured with indicators, such as GDP, literacy, access to water and local employment rates. Accordingly, those organisations that have won major Engineering procurement and construction contracts can look to undertake socio-economic development plans, such as focusing efforts on training through schools or supporting other infrastructure such as sanitation. These skills development increases the prospects of work, thereby improving the quality of life of workers not just roads. These investments can lay a foundation for further economic success and future investments in the region.
2. Localised supplier development. By creating competitive local suppliers of bitumen and asphalt, or simply enhancing existing capabilities of sub-contractors tasked with road maintenance and rehabilitation, there is a real need to build up a local network of partners. This focus will primarily increase the performance of the local supply chain through the development of suppliers.
3. Ownership and local management oversight. This is aimed at increasing a company or operation’s amount of local control. This can not be overly prescribed like some South African laws, but can provide cheaper running costs (a reduced need for expatriates), and has been proven in other industries such as oil and gas to support local knowledge transfer effectively. Once again this has been shown to lead to greater development of in-country capabilities, and economic growth.
4. Enterprise upliftment. This focuses on individual organisations, many working on smaller projects and helping them develop basic capabilities. Many road construction projects are not hundred of kilometres long in Africa, and are typically too small for major players. Yet they can provide a key opportunity for African development. Major EPCs and international finance can have a disproportionate impact (that is positive), by helping these local enterprises overcome the low barriers to entry, with low complexity. This type of work is more outward-focused compared to supplier development, and can go beyond smaller contracts – such as providing a small line of credit for local catering or security during the construction phase.
The Bitumen Exchange acknowledges that none of these elements are particular direct or novel, rather they are interdependent and linkages between these efforts – for instance enterprise upliftment may see a rise in localised supplier development (as we move further away from metros and on rural roads in particular). Better investment in schools in turn may enable local management control.
It is clear from those who you speak to on the ground, that a better localised supply chain has the benefit of improved lead times for key road projects and reduced downtime resulting from broken supply chains.
The Bitumen Exchange 3Wins Model Concept (™) talked about too few bankable deals. Increasingly engagement with local communities at an early stage is something that investors look for before deploying capital to a project. Community consultation, can therefore be key to securing investment as it mitigates risk for investors.
All these points and more will be discussed at the forthcoming Road and Infrastructure Congress, being held next year on the 13-15 February in Nairobi. We hope to see you there with 300 road and infrastructure executives taking part.
Best,
The Bitumen Exchange team