Local content and linkage development in African energy transitions: lessons from oil and gas

Abstract

Expectations of development and jobs associated with the shift to Renewable Energy (RE) are significant in lower-income African countries. As a result, local content policies (LCPs) are currently spreading from the petroleum sector into solar and wind. As with oil and gas, the purpose of LCPs in RE is to prevent the formation of enclaves dominated by foreign multinational corporations with limited involvement of domestic firms, few economic linkages to other sectors, and few local jobs. Due to their novelty, the outcomes of such interventions in RE are still uncertain and under-researched. Based on a combination of research undertaken by the authors and reviews of the relevant literature on local content experiences in the petroleum sector and nascent experiences in RE, this paper explores how LCPs can produce the predicted ‘virtuous circles’ from RE investment in lower income countries. Outcomes are likely to differ according to context as well as policy. Therefore, we argue that, while lower-income African countries can benefit from LCPs in RE, experiences from oil and gas suggest that their effectiveness will vary depending on the character of their resource and the associated scale of operations, the pre-existing competencies and maturity of the sector in the country concerned, and the design and enforcement of LCPs, which in turn are affected by the country’s broader political-economy dynamics. A second argument is that countries should weigh the costs of pursuing linkage development, which are often passed on to host-country governments, against what they can realistically achieve.