Analysing the potential impact of Ghana’s emerging local content laws

There has been a lot of talk about whether Ghana optimally benefits from the exploitation of its natural resources. The recent oil discovery heightened this debate, with many pointing to Norway as the model Ghana should emulate. The Extractive Industries Transparency Initiative and disturbances in Nigeria’s oilrich Niger Delta have also contributed to interest in the subject. Indeed, when Nigeria passed a local content law after over 50 years of exploiting its hydrocarbons resources, it was obvious the terrain had changed. As such, it did not come as a surprise when Ghana followed suit by passing legislative instrument (LI) 2204 to promote local content in the sector.

Going Local

There appear to be two main push factors for local content. The first is civil society, originally championed in the mining sector by various NGOs spearheaded by the Wassa Association of Communities Affected by Mining. Secondly, businesses appear to see value in local content for its potential to foster business continuity. Indeed, local content may have the ability to mitigate risks associated with confrontation with indigenous people. The success of SEPLAT (the Nigerian upstream oil and gas company) may be instructive as it reduced attacks on onshore installations after enhancing local content – at a time when many international companies had moved away from onshore activities to explore offshore resources.

Beyond Oil

Ghana’s local content drive is not limited to oil and gas resources, with some sectors’ efforts predating LI 2204. The Public Procurement Act has, over the past 10 years, contained provisions promoting local content, including a margin of preference provision. The new Ghana Investment Promotions Act has also introduced 30% mandatory Ghanaian equity in the retail trade sector, giving existing entities a three-year transition period to comply.

In making recommendations for tax exemptions for investors, the Ghana Investment Promotion Centre usually gives weight to local content. For example, in the downstream petroleum sector, Ghanaian equity is required in the distribution, transportation, storage and marketing of petroleum products. Other sectors appear to be taking a cue from the general push for local content – case in point, the alcohol producer Diageo and Ghana’s largest cement producer GHACEM have both made public statements about their increased reliance on local raw materials.

Is Law Enough?

The effectiveness of a local legal framework is a debatable subject. In the upstream petroleum sector, the floating production, storage and offloading (FPSO) for the Jubilee oil fields was expected to be built in Ghana and bring immense local content benefits; however, it ended up being built in Singapore. With LI 2204 in force, the next FPSO (dubbed the TEN projects) was again expected in Ghana, but efforts were poorly coordinated and failed to realise the full benefits of the local content drive.

Even in the well-developed downstream sector, oil marketing companies say it is difficult to find Ghanaian partners capable of meeting the country’s local equity requirements. There are also complaints about some sub-standard local supplies, which may give international oil companies a legal loophole.

Coordinated Efforts

Improved coordination of government efforts may be necessary. The government is expected to sign the Economic Partnership Agreement, although some local businesses fear it will have clauses opening government procurement and professional services up to competition from Europe. This would, in their view, adversely affect local content. Clearly, the government must coordinate its efforts in order to not undermine its own policies.

Local business must also raise its standards and help ensure that local content does not increase the cost of doing business. The government needs to develop strategies to leverage the advantages of local content and create the necessary multiplier effect.

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The Report: Ghana 2014

Legal Framework chapter from The Report: Ghana 2014

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