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Jun 06

Local Content: Building Skills… to Compete. The First Step of a Long Road

After Cyclones, Conflict and Covid, Recovering Mozambique Prepares Next 5-year Strategy Gas exploration starts this year, but there are still loose ends as to what the national strategy should contemplate in terms of Local Content. Companies, Civil Society and Economists present disagreed ideas, at a time when people are complaining about the delay in approving a legal instrument that aggregates strategies.

The discovery of mineral resources in Mozambique has created enormous expectations both for the local business community, which sees investment opportunities up close, and for the general population, which longs for improvements in the quality of life. We are talking, for example, about 20 billion barrels of natural gas in the Rovuma basin with the potential to add $85 billion to the Mozambican economy over the next two decades, according to government estimates.

With this volume of revenue, thousands of companies, mostly SMEs, began to dream about the large window of opportunity that opens up, and the topic gained relevance, the discussion opened up, but the said window remains closed, for several years now.

Of course, the emergence of the Local Content concept associated with the mega projects, or the promotion of localized capacity to integrate national people and companies in the large natural gas projects is positive, but the debate has not gone beyond this, because the legal framework that will establish a local content policy is still not closed and defined.

And the reality, too, has changed little. Despite the efforts and specific programs that almost all oil companies involved in gas exploration have already directed so that Mozambican companies can compete to be their suppliers, the truth is that the vast majority of national SMEs do not meet the organizational, accounting and delivery guarantee conditions that would allow them to even fill the specifications of the tenders opened by the multinationals, which follow, as is known, international standards.

Most of the national SMEs are not prepared to work with the mega projects. Is this their problem or the problem of foreign investors?

However, that doesn’t mean that national companies and businessmen stop claiming a place at the table of the petrodollars banquet. “First, the resources are ours, and it doesn’t make sense for Mozambicans to have a bad time in their own country, while the resources are being extracted and benefiting foreign companies. This creates discontent anywhere in the world,” warns Feito Tudo Male, president of the Association of Small and Medium Enterprises (APME). Faced with what it considers “an injustice”, the private sector suggests that the multinationals that explore natural gas should be the ones to organize the national SMEs “at zero cost”, and then hire them and pay for the services they may provide. “What we have today is that the Mozambican private sector had no experience to deal with this new reality, and we cannot be held hostage by the fact that we have no experience. These multinationals know how to involve the communities and local companies in this business.

Our advice, as an association, is to involve Mozambican SMEs in the megaprojects. We will select companies with organized accounting and minimally structured. And the multinationals will enable them in the model of their requirements to create a standard and a value chain, which will make the most of the Local Content component,” he explains.

Missing legislation

On the other hand, the business class feels that the Government is not creating facilities and exemplifies this with the fact that, “being in Mozambique, the multinationals launch tenders in English, a way of excluding us. Why, here in the country, is it in English that the specifications are filled out? If that’s the way it has to be, it’s good that they bring us a translator,” asks APME ironically, which also demands that such tenders be launched earlier, contrary to what we are currently seeing. “The time that the tender takes is short, because it does not allow the operators to legalize their condition regarding obtaining bank guarantees to finance themselves with the bank, not to mention that of the advance payments to obtain the raw material. All this takes time, but the demands of the tenders have to be answered in just one month,” protests Feito Tudo Male, assuring that the execution of the object of a public tender “does not reveal disorganization of SMEs,” since they, he says, “are endowed with the capacity to supply goods and services to multinationals.

However he recognizes that “multinationals require qualified, certified labor, and we don’t have that capacity yet,” but he believes that “not much specialization will be required for specific services, such as providing a notepad, toilet paper, masks, gloves, gardening, cleaning, and catering services.” Hope for better days for SMEs may lie in the passage of the Local Content Act, but change should not start in legislation. “We also need, as companies, to have governance capacity, management, organized accounting. Those are some of the requirements. The Law will be an incentive because, psychologically, we will be relieved to have a space to be able to defend ourselves and demand our rights. We encourage companies to organize themselves so that these opportunities, when they come, will not find us totally unprepared, emphasized the president of AMPE.

Change starts at the base

The economist Elcídio Bachita understands the positioning of the APME but counters: “the demand of the PME doesn’t make sense, because if I want to reach a certain objective I should make an investment to reach it and not demand that the entity to which I intend to render services creates conditions for that to happen”, defends.

To face this, in the economist’s opinion, “the SMEs must invest in the training and professional qualification of their technicians so that they can compete with foreign companies, because the multinationals themselves will not accept doing this. Training implies costs for multinationals and where will this money come from? It doesn’t make sense that multinationals pay external consultants to train local companies,” he argues.

As for the issue of public tenders launched in English, another complaint from the SMEs, Elcídio Bachita agrees that the Government should seek solutions with the multinationals. “The private sector has no way of obliging or convincing the multinationals to have to launch tenders or specifications in Portuguese. This is because the contracts for the exploration of areas that have natural resources are signed in English between the Government and the multinationals. This is a problem that the Government should really solve,” he argues, agreeing that, “if handled in Portuguese, these processes could promote greater participation by the national private sector. Still, he calls for nationals to invest in the global language as well. “The private sector must invest in the training of its staff, bearing in mind that English is the most widely spoken language in the world.”

Bachita also understands that when the private sector appears to ask for more time to execute the object of a public tender, launched by multinationals, it is revealing some lack of understanding of how the whole dynamic of large projects works because, he explains, “it makes no sense to launch a public tender today for its implementation or execution to happen a year later. Multinationals work with goals. If you launch a tender today you expect that, on average, within three or four months work will already be underway and not after six months or a year. This shows that our companies are not qualified to provide services to multinational companies. And this is a great weakness.

About the Local Content Law that is still “in the drawer”, the economist expresses “little optimism” about its usefulness, even if it is approved, judging by the level of unpreparedness of national SMEs. “The Government should work in partnership with the private sector in order to raise its awareness, to improve the quality of service provision and also, in the medium and long term, to invest heavily in the quality of training of our technicians. Only with this investment, already made today, will we be able to draw greater benefits from the natural resource exploration projects in Mozambique”, he asserts.

Mutual Distrust

The Local Content Bill was approved by the Economic Council in August 2019 and is still awaiting analysis, review, and approval by the Council of Ministers to be subsequently forwarded to Parliament. The Center for Democracy and Development (CDD) recognizes the importance of the legal instrument for greater involvement of the national business community in megaprojects and knows why the Local Content Law takes time to get off the paper.

“One of the main challenges for the advancement of the Law is the balance between the interest of multinational companies and the interest of the State. There is, in a way, some reluctance by international companies to advance more quickly with this instrument,” revealed Américo Maluana, a researcher at the Center for Democracy and Development.

The researcher argues his view with the fact that, for example, after five years and in a scenario where there was already a green light for the Local Content Bill to move forward to Parliament, “there was no clear explanation that would allow us to understand the reasons for this instrument not moving forward quickly, even taking into account its strategic importance.

Another aspect pointed out is the fact that the private sector did not go along with the final product of the bill that was presented to them. “The national business community, represented by the CTA, positioned themselves in a critical way in relation to the instrument in the sense that they, as the private sector, did not see eye to eye with what was approved. This shows that there is a very deep debate that should be deepened around these issues, because from the moment that we are discussing a law that should allow the participation of the private sector in the projects, and the private sector does not see itself in it, it means that we are taking a qualitative step that is not what we would expect”, Américo Maluana points out.

Thus, the CDD suggests that more players from the national business class and civil society be involved in order to have a frank debate with more contributions so that the approval of the Local Content Law is useful for our context.

The “sins” of the Executive

The Center for Public Integrity (CIP) also feels that Mozambican Small and Medium Enterprises are being excluded from megaprojects because they do not achieve the dynamics and development that was expected with the discovery of mineral resources. This fact is, according to CIP, “aggravated by the inexistence of specific legislation that obliges multinationals to be more inclusive.”

“The blame, in the first instance, lies with the government, because it is part of the duties of the Executive to create incentives for the development of the private sector, and one of those (incentives) is not to make a direct investment in those companies or to give money, but to create an enabling environment for them to operate and make profits. Now, if there is no legislation that guarantees a favorable environment for SMEs to operate, it’s the Government’s fault and nobody else’s,” points out Rui Mate, a researcher at CIP.

Before rushing to approve the Local Content Law, CIP suggests that “there should be a definition of national strategy of what we want with the development of the extractive sector, and how the multinationals have included national companies. By doing this, it is already easier to have a legal instrument that makes it possible to regulate these guidelines.”

The researcher from the Center for Public Integrity also warns “about the possibility of multinationals making public tenders complex just to exclude companies.” And once again, he highlights, “the Government is called upon to curb this phenomenon.In multinational public tenders, there are numerous requirements that many companies cannot meet. This should be studied by the Government in order to verify to what extent the required criteria make sense because some may be simply to exclude,” he concludes.

Source: Oil & Gas / 360mozambique.com