Neema Lugangira (in photo above) is the Head of Policy at the Southern Agricultural Growth Corridor of Tanzania. She is the Former Ag. Director for Local Content in Investments, National Economic Empowerment Council in the Prime Minister’s Office in Tanzania.
Prior to joining the Prime Minister’s office, she was the Senior Supplies Officer (Local Content) at the Ministry of Energy and Minerals. She also worked as a Senior Supply Chain Consultant (Local Content) at the famed Norwegian Oil Company Statoil. She caught up with Earthfinds’ Sam Jumbwike and shared why East African Countries must amplify the Local Content Agenda if they are to benefit from their resources.
Tanzania is famed for being strict when it comes to Local Content policies, how did you manage to move ahead of the other East African Countries on this path?
I initiated the local content agenda in Tanzania about 5 years ago. It was part of my MBA thesis where I focused on how to increase Local Participation in the Oil and Gas sector. As a result of that, my research was found to be of great importance and it was recommended that it should be published into a book and I published it in 2014. It was distributed so that it could add to the Local Content development knowledge agenda.
After doing my research and returning to Tanzania, I got an opportunity to work at Statoil, a Norwegian Oil Company where I was responsible for Local Content. But while there, since I was continuing to push for Tanzania to have a local content policy, the Government of Tanzania through the Ministry of Energy and Minerals decided that we should start drafting the policy and I was given the opportunity to lead that process.
So I found myself in an interesting dilemma whereby on one side, I was working for an Oil Company, getting an extremely good salary, but then on the other side, government was asking me to lead the process of drafting a policy with no pay. But I could not participate in that process whilst being an employee of Statoil because that would be conflict of interest.
So I had to make a tough decision and I decided to resign from Statoil so that I could participate in the process. So I participated in that entire process; I instituted all the discussions in drafting the local content policy in Tanzania.
As a result, in December 2014, the Ministry of Energy and Minerals asked me to join them internally to help develop Local Content. I did that for almost a year, but in the course of our work, I was appointed to join the Prime Minister’s Office to start up the Local Content Department which I successfully did up to June 2016.
Most local businesses in East Africa do not have the capacity to compete for big contracts. And at the same time lack the skills to run some of the created jobs, how best can we exploit the foreign investments in our countries?
The only way we can participate meaningfully is on the procurement. When you are to look at our governments budgets, 60-70% is on procurement in all countries. Even with the companies and other organizations, almost 60-70% of the expenditure is on procurement. Either it is procurement of goods or procurement of services. That means that procurement is a very important strategic part and the best way nationals can participate meaningfully and benefit.
But most of the time procurement is neglected and most of our focus is on the jobs yet if the majority of us had businesses that are engaged in the oil and gas sector, we would hire people and automatically solve the unemployment problem through the participation of more Small and Medium Businesses. One of the ways of retaining money in an economy is through local employment.
So when we look at that supply chain, we cannot say that there are no opportunities for locally owned businesses to participate, there are many. Locally owned businesses participate in things like cleaning services, security, catering, printing, tour and travel.
But the only problem is that there are no mechanisms to ensure that that happens. So as a country, once you go through your entire analysis when you are developing your regulations, you can capture that for this type of service, it must be from a locally owned business.
Wouldn’t that tantamount to protectionism is prohibited?
All developing countries are members of the World Trade Organization, and in WTO agreements, protectionism is prohibited. Many countries that come up with strict local content policies are issued with threats of being reported to the WTO, but one thing that people should know is that Local Content has been accepted for LDCs for a certain period of time.
So if you are a Least Developing Country you are accommodated under the UN requirements, you can enact local content protectionism policies for a certain period with the aim of developing your local industry to be competitive.
It should have an agenda that may be you want to develop the skills set to be competitive or the business set to be competitive. And protectionism is not just in African Countries; the United States of America has protectionism too.
They have the Maritime Act which says that any ship that is not registered with the US cannot sail within the waters of the US, which is pure protectionism. Canada too, has some sort of protectionism with their indigenous operations; even India came up with some sort of protectionism for their energy sector.
How Beneficial will it be to the Nationals?
This will help to spur development in that the locals. They will be willing to invest because there are opportunities. The investors don’t do all the work, they sub contract along their supply chain.
So if Chinese Company is sub contracting to a German Company and the German Company sub contracts Finnish Company and the Finnish Company sub contracts Danish Company then you find that the Local Companies are participating in just collecting rubbish or distributing the paper and those other things which are not value adding.
So you wouldn’t wish to find yourself in a place where you are reporting to your citizens that such and such an amount has been contributed to your economy yet it is not true in reality.
What is Tanzania’s story so far?
In Tanzania, we have a lot of natural gas which was found offshore. You cannot export gas in its natural form, it needs to be liquefied at an LNG plant, put in tanks and then shipped. There are different types of LNG, You can have a floating LNG where you have a massive ship in the middle of the ocean and everything is done offshore. The ship comes fully equipped and it does everything required to do in the ocean without any attachment to the land.
The main advantage of a floating LNG is that it is very quick and it reduces a lot of time and costs for the investors. But the biggest risk is that there will be an extremely limited local participation. It will be almost impossible for the locals to play a role in the middle of the ocean because they don’t have the capacity, expertise, experience and even the required certifications. So basically the ship would come fitted with all the required equipment, do everything and leave.
Now for Tanzania, the Government decided specifically that it wanted an onshore LNG. That option of an offshore LNG was ruled out for Tanzania. That decision was taken to ensure that there is Local Participation and that there is benefit for the country.
And of course when you have natural gas, you have to look at your domestic gas market. For Tanzania, it is specifically stated that 10% of the gas has to be dedicated to the domestic market, whether at any given moment the domestic market is using the 10% or not, it doesn’t matter.
A country needs to state the minimum because if you don’t do that, there is a big likelihood that the investors will export everything and you will be left with nothing. For example Tanzania is saying it wants 10% of the gas but at the moment Tanzania is utilizing only 1%, so you will find that the Investor would prefer to take the 99% and leave you the 1% that you can consume.
You have to be strict in making sure that the 10% allocation remains even if it is not going to be used, it can be reserved. So Tanzania has the National Natural Gas Utilization Master Plan, and it gives a lot of direction on how gas is to be exploited.