Enabling Environment for Supplying Extractives

At a Glance
  • Local purchasing by extractive companies is greatly influenced by broader policy environments and host country infrastructure.
  • Policy and regulatory induced distortions to the establishment of competitive local supply networks include: long wait times to register a business; import duties exemptions, or other types of fiscal and non-fiscal measures that disadvantage local suppliers; laws that hinder access to talented labor pools; and lack of investment in education and skills upgrading.
  • The World Bank’s Ease of Doing Business Index ranks countries’ performance in this area.
  • Access to, as well as the quality of infrastructure also play a significant role in the development of a local supply industry.

Key Resources

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Topic Briefing

Beyond efforts to build and strengthen local business capacity, and interventions to connect extractive companies and local businesses, policymakers can explore how the broader policy environment and host country infrastructure supports local purchasing by extractive companies.

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As a starting point, a government could identify policy or regulatory induced distortions to establishing a competitive local supply industry, including long wait times to register a business, import duties exemptions or other type of fiscal and non-fiscal measures that create an undue disadvantage for local suppliers, laws that hinder access to a talented labor pool both within and outside the country, and a lack of investment in education and skills upgrading opportunities. These potential deterrents are the object of the World Bank’s Ease of doing business index which ranks countries’ performance in this area.

In addition to policy coherence and efforts to strengthen local businesses chances to participate on an equal footing with foreign companies, access to and quality of infrastructure has a significant effect on the development of a local supply industry. For example, if electricity is unreliable and/or expensive, this results in increased production times and costs for businesses. Local suppliers will be forced to pass these additional costs through to their buyers, thus affecting their competitiveness. Infrastructure needs vary across businesses. But they often include reliable access to water and electricity, ICT, and transport.