Magazine article African Business

Does the WTO Respond to Africa's Ambitions?

Magazine article African Business

Does the WTO Respond to Africa's Ambitions?

Article excerpt

In recent years, resource-rich economies in Africa have embraced a series of reforms to localise the production of goods and services procured by the extractive sector, with a view to creating domestic jobs and business opportunities. This was an economic and political response to offset the "paradox of plenty" and to better leverage their assets for broader economic transformation. Among the key measures taken, local content policies (LCPs) have been particularly popular.

It is too early to assess the impact of LCPs, although experience has shown that such policies can work, under certain conditions.

First, it depends on a country's level of economic development at the time of mineral exploitation. Advanced economies like Australia and Norway have actively supported local suppliers, technological development and innovation, but had existing industrial capabilities on which local suppliers could count.

Secondly, the level and quality of resource endowments matters. Countries with significant resources, like Nigeria or Angola, have scope and scale capacity to create a critical mass of suppliers.

Third, and perhaps more importantly, local companies must have the capacity to deliver on quality, price and time in order not to affect the competitiveness of the mining companies.

Finally, LCPs were successful when they were temporary and performance-based, otherwise they may create inefficiencies and rent seeking behaviours.

From a trade perspective, LCPs may contravene commitments made at the bilateral or multilateral level. Existing WTO rules are quite clear: some forms of LCPs are prohibited, others are disciplined or allowed. The WTO's Agreement on Trade-Related Investment Measures (TRIMs) prohibits quotas imposed on companies to purchase goods from local suppliers discriminating against foreign suppliers. …

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