WHY LOCAL CONTENT AND CSR MATTER

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WHY LOCAL CONTENT AND CSR MATTER

by Jaysen Francis

Local Content has become a relatively “new” buzzword in the sphere of productive development policy (PDP). The term is used mainly in the oil and gas industry to refer to the commitment of governments and multinationals to build the capacity and capability of nationals and local SMEs. By definition, Local Content supports the long-term development of the sector and drives sustainable economic growth within countries. The political economy in most developing countries is driven by the state which has primary responsibility to promote local participation in production and trade – and as in the case of the petroleum industry – to ensure fair contribution by multinational operators.

Traditionally, multinationals – both within and outside of the sector – have treated with social investment and community level projects as their contribution to local content, but today, much of that has changed as the concepts of local content and social responsibility aim to become increasingly divergent. Local content is seen to be directly focused on stimulating economic development; and the role of multinational operators in stimulating such development is critical to economic growth and stability; while corporate social responsibility (CSR) is determined to be more localized and lower-impacting.

Oil and Gas producing countries over the last decades have developed and implemented Local Content Policies (LCP’s) and with those, clearer definitions and requirements for compliance. External factors have also informed how policy makers are dealing with LCP and creating distinctions from CSR. Often, internal and external pressures from agencies and activist organizations force companies to be more responsible in their operations. Policy generation in this area reinforces the fact that “local content matters” not only as a means of deriving more revenue and taxes out of oil and gas companies but also as a means of creating a competitive environment where SMEs can flourish.

At the community or localized levels, corporate social responsibility is no less important. Corporate Social Responsibility or CSR also matters. Beyond compliance and

adherence to policy, businesses (including energy company operators), are aware of the correlation between a healthy and stable community and a productive work force. A significant contributor to economic stability and social equity, are the socio-economic interventions made by businesses through sponsorships and investments in SMEs and community projects and persons.

Right here in Trinidad and Tobago, SMEs represent over 90% of businesses, and are a major source of employment, contribute to export earnings and play salient roles in the provision of goods and services, employment creation and wealth creation. SMEs are determined to serve as an important factor in the enhancement of better living standards and contribution to the GDP of both developed and developing countries. Notably, although globalization has signaled huge new opportunities for SMEs, it has also signaled severe challenges in petroleum economies as only a small number of these SMEs are able to play into the energy sector.

I make reference to the 2004 Publication of Local Content Strategy for the Energy Sector in Trinidad and Tobago and which includes ownership, control, decision-making and preferential access to financing by citizens of Trinidad and Tobago. Our LCP framework also recognises three pillars each of which emphasises development of capabilities across the petroleum industry value chain: (i) local capability development, (ii) education and training and (iii) diversification and new business creation. Multinationals are required to comply with these policies to support local development.

It is noteworthy that apart from compliance with the government’s local content policies, many multinationals create their own local content concepts and strategies. A cursory look at the websites of many multinationals show that energy majors are implementing local content in some form or the other. (See Table 1). These corporate policies and strategies are usually complemented by the companies’ CSR policies which follow along a spectrum from compliance with LCP definitions and intent, towards voluntary actions by corporations which also contribute significantly to building local capacity and capability. In fact, when critically analyzed, both local content and CSR appear to belong to the same ideological families functioning as facilitators of shared value between companies, countries and local communities.

The difference between local content and corporate social responsibility is sometimes blurred so much so that last year during the Trinidad & Tobago’s government’s “Spotlight on Energy” conference, the Honourable Franklyn Khan, Minister of Energy found it necessary to remind representatives of the energy sector that “Local content is not CSR.”

It is not surprising that this merging of concepts exists since they both can create a real impact in strengthening communities and the wider society. In this way, LCP and CSR might be seen to be complimentary, often overlapping in the shared objective of generating sustainability. So one might say that the debate about CSR and LCP is really premised on approaches to sustainability.

What the Energy Minister’s statement signaled, is that there is some degree of confusion in how both constructs were being applied in the sector and that this confusion existed partly because local content and CSR share similar outcomes. In Trinidad and Tobago, on a national scale, local content helps to drive sustainable employment, develop local skills and effect technology transfer while creating wealth in the industry. CSR however, is more localized to the communities in which the multinationals are hosted. Regardless of the similarities, governments and framers of LCP, seek to make a distinction that has largely to do with scale and degree of impact. We can safely conclude then that both LC and CSR matter, more so in developing economies like Trinidad and Tobago.

When effectively implemented, local content presents a positive approach and potential solution for creating local employment and participation. The strength in its potential lies in the fact that it stems from core business and can support the development of local businesses and SME participation in and beyond the sector. Simultaneously it has the potential to treat with social issues particularly in the area of training and development for capacity building. A key differentiator however, is that while local content comes from a position of creating economic value, notionally, CSR makes no assumption of profit except that which is gained from the benefits or building and sustaining relationships for ease of doing business and enhancing company reputation and image.

To conclude, LCPs like CSR present a great way to build local capabilities and capacity. It is therefore imperative that governments and companies collaborate fully so that locals and local communities can access real opportunities to develop the skills and knowledge to allow business and society to experience mutual advantage. The success of LCPs are of course premised on multinationals taking a long-term view of their business operations and their footprint within local communities.