Suppliers want action over local content policy breach

Dar es Salaam. Tanzanian suppliers seeking contracts in the mining, oil and gas sub-sectors have called for urgent government intervention to stop what they describe as blatant violation of local content requirements.

They claim that multinational companies involved in multibillion-shilling projects are taking advantage of laxity in enforcement of local content regulations to lock out locals from lucrative business in the exploitation of national resources.

“We call for immediate government intervention in this area to ensure that the good intentions of enacting the local content law are not defeated by dishonest contractors. We need a deliberate plan to support and empower local suppliers,” appealed a supplier who asked not to be named due to the sensitivity of the matter.

Tanzania, like many other African countries with vast natural wealth, has formulated local content policies to create jobs and business opportunities for its citizens in the extractive industry.

The policies were also developed as a way of ensuring additional economic benefits for local communities from foreign investment by multinationals.

But a decade after enactment of the local content law and its regulations, some players think Tanzanians have yet to benefit, while the country itself has gained “very little” from the arrangement in general.

Some local suppliers have accused foreign companies of subcontracting briefcase companies to avoid pairing with otherwise capable local companies.

“The government must intervene and start monitoring foreign firms that have unjustifiably locked capable local firms out of lucrative deals. The rules are being breached with impunity,” another contractor said.

Energy minister January Makamba admitted in a recent interview that his office has been receiving complaints and intervening in many disputes brought by local suppliers against foreign firms.

“Among the interventions I undertake almost every day in my office is the resolution of disputes over claims of underhand dealings aimed at locking out local companies. Sometimes you find that the complaints are valid, sometimes they aren’t,” he said.

Mr Makamba added that he has also handled cases of foreign subcontractors who dubiously partner with local firms in exchange for “peanuts” to meet local content requirements.

“On paper, you find that such a company has fulfilled all the local content requirements, but if you go deeper, you will discover that the company is actually operating alone.

“So, even our own people are also a challenge. Many such cases have reached my office. People have come here claiming that a certain company has rejected their bid and partnered with a phantom firm. So, we intervene and seek to establish the truth,” he says.

Foreign firms executing mega projects and consultancies in the mining, oil and gas sub-sectors are accused of taking advantage of poor oversight to sideline locals.

The minister said apart from protecting local suppliers, Tanzania needs to seriously invest in capacity building to enable local suppliers to compete effectively by meeting internationally certified standards.

Experts’ opinion

Experts say Tanzania should go back to the drawing board on how best to implement the local content law, and ensure the protection of local suppliers.

“The first thing to do is to look at the practicability of the requirements of local content rules in the context of our country. When you set high standards, and yet you don’t have adequate capacity, then it’s going to be a huge challenge,” said Mr Silas Olan’g, Natural Resource Governance Institute (NRGI) Africa director.

He said failure by local suppliers to meet standards has created a loophole which some foreign investors and local rent seekers are taking advantage of.

“The fronting of briefcase companies could be one of the signs that local suppliers cannot meet supply standards set in our own laws,” Mr Olan’g said.

He called for a review of the enforcement of the local content policy.

“We need to invest in empowering our people to meet the required standards.”

Prof Abel Kinyondo, who has conducted extensive research on local content requirements, said Tanzania needs to seriously look at the issue of supply standards if it is to maximise benefits.

“Even our own laws demand that we have standards. If we want our people to be considered, they have to meet standards that are acceptable to these oil and gas or mining companies.”

“So, we need a strategy, as a country, to ensure that we can supply whatever is needed. However, when I look around, I don’t think we have workable practical standards, and that is where we are failing,” he said.

Prof Kinyondo added that failure to set workable supply standards will lead to corruption.

“This is a situation where people stop being productive, and start to use their connections to land tenders and become rich. So, if you say you want to get into joint ventures, it is highly likely that well-connected individuals will establish phantom companies to get into those ventures,” he said.

Local syndicate

Local suppliers claim that some of them have been locked out on the pretext of lacking expertise for some of the jobs, but the same work ends up going to people who are not experts themselves.

“What we need is a clear government position on the implementation of local content regulations. The current regulations are not exhaustive ,and have numerous loopholes,” one supplier noted.

There is a general feeling that big projects are taken up by foreign companies because they are privy to all the necessary information from the outset at the expense of locals.

Foreign firms are also reluctant to use the statutory registry of local experts.

“Instead, they chose their preferred expertise, thus creating unfair competition,” the supplier said.

“Our laws are very clear that companies that are supposed to take up jobs through the local content arrangement must be registered locally, and pay the requisite taxes instead of leaving foreigners to monopolise contracts or subcontracting them.”

Multinational companies are also said to enjoy the support of current and retired government officials.