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- Backward Linkages (Supplying Extractives)
- Assessing Demand and Capacity
Assessing Demand and Capacity
At a Glance
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Procuring the goods and services required for extractive operations from local sources can lower an extractive company’s costs and risks, while bolstering the domestic economy.
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Targets for local procurement should be based on a clear understanding of current and potential demand from extractive industry companies, as well as the current capabilities of local businesses to meet this demand.
- One-on-one consultations, multi-stakeholder dialogues, and analysis of business registration data are useful ways of assessing capacities and potential.
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Understanding which goods and services will yield the most benefits in terms of employment, learning opportunities, in-country value addition, and horizontal linkages is an important first step for policy makers.
Case Studies
- Extractives Industry Local Content Early Gap Analysis (Adam Smith International)
- How to Successfully Access the Mining Supply Chain (Saskatchewan Ministry of the Economy)
- Local Content Case Studies (International Petroleum Industry Environmental Conservation Association)
- Planning for the Future and Promoting National Content: A Survey to Foster Opportunities for Ugandans in the Oil and Gas Sector (CNOOC Uganda, Total E&P Uganda, Tullow Uganda Operations Pty Ltd)
Key Resources
- Mining Local Procurement Reporting Mechanism (Mining Shared Value, Deutsche Gesellschaft fur Technische Zusammenarbeit (GmbH))
- Guide to Getting Started on Local Procurement (International Finance Corporation)
- A Practical Guide to Increasing Mining Local Procurement in West Africa (World Bank, Kaiser Economic Development Partners)
- A Local Content Decision Tree for Emerging Producers (Valérie Marcel, Ekpen Omonbude, Anthony Paul, Roger Tissot)
Topic Briefing
Policy makers hoping to increase local procurement would do well to set targets, and an action plan for meeting them. Targets should be based on a clear understanding of the current and potential demand for goods and services from the extractive companies that are operating in the country, as well as the current capabilities of local businesses to meet this demand. Local business capacity is evaluated by the ability to offer goods or services in the volume and to the quality specifications and standards required by extractive industry companies.
Activities that can be useful in assessing current levels of demand and local capacity include:
- One-on-one consultations with extractive industry companies and local businesses to determine current levels of demand and supply. These consultations may be facilitated by a chamber of mines or a chamber of commerce where local businesses actively participate in such institutions.
- Multi-stakeholder dialogues to verify and discuss where opportunities exist, now and in the future.[1]
- Analysis of business registration data and similar information that might clarify the types of goods and services available.
Assessing the local reality helps policy makers identify which goods and services to realistically and/or strategically target for supplying to an extractive industry project. One important consideration is feasibility: will a particular good or service be relatively easy to source locally, or will it require time and support to be available on competitive terms?
An important point to consider when conducting firm-level analysis is the difference between a gap in quality and a gap in quantity/capacity. Each requires a different intervention to fill the gap. This concept is outlined in Figure 1.[2]
Figure 1: Quality-quantity gap matrix, reprinted from IPIECA, Local Content: Case Studies (London: IPIECA, 2016), 4.
Value creation for the local economy is another important consideration: which goods and services will generate the most benefits in terms of employment, learning opportunities, in-country value addition, horizontal linkages, and so on? The IPIECA guide features useful visualizations (such as figure 2) of how potential goods and services can line up along these dimensions, including a study on local procurement for oil and gas in Uganda.
Figure 2: Mapping of selected industries according to local benefits and feasibility, reprinted from IPIECA, Local Content: Case Studies (London: IPIECA, 2016), 5.