Resources Policy 74 (2021) 102312

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Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

Building mining’s economic linkages: A critical review of local content

policy theory
Fitsum S. Weldegiorgis a, *, Evelyn Dietsche b, Daniel M. Franks a
a
Sustainable Minerals Institute, The University of Queensland, Brisbane, 4072, Queensland, Australia
b
Swisspeace, Associated Institute of the University of Basel, Switzerland

A R T I C L E I N F O A B S T R A C T

Keywords: The quest for mining activities to deliver an enhanced positive impact on the host economy continues to
Supply chain dominate the debate on the pros and cons of mining investments in resource-rich developing countries. Following
Local procurement years of focusing on fiscal policies as the means for achieving positive impact, local content policies (LCPs) have
Economic transformation
resurfaced as another paradigm to enable linkage of the mining sector with the host economy. Synthesising the
Industrial development
Africa
literature, this paper critically analyses whether the current conceptualisation of building linkages by deploying
LCPs is effective in leveraging mining for the transformation of the host economy. Picking up on earlier critiques
of local content policies, it argues that such conceptualisation falls short, because it focuses too narrowly on
building mining supply chains as an end-goal rather than a pathway for achieving a transformed economy that
delivers a broad-based and inclusive socio-economic development. Narrowly defined LCPs remain, in effect,
mining centric creating a local economic system that is tailored to suit and become dependent on the mining
industry. In consequence, the linked upstream supply chain industry remains exposed to volatility and short-term
gains, undermining economic transformation. Identifying gaps in research, theorisation, and implementation,
this paper offers observations and insights for rethinking theoretical approaches to linkage building, and it
underlines the need for future research to develop an alternative theory for conceptualising linkages between
mining and other economic sectors.

1. Introduction Setting aside the ‘blessing’ or ‘curse’ argument about industrial

As a capital-intensive economic activity, industrial mining has been
subjected to extensive and continued scrutiny of its contribution to host
economies, in particular its contribution to economic growth. There is
extensive literature contending that mining, through market and insti­
tutional failure, causes a negative impact on growth and can be a ‘curse’
on resource-rich economies (Auty, 1993; Badeeb et al., 2017; Sachs &
Warner, 1995, 2001). An equally extensive body of research counters
the curse rhetoric, pointing to a positive relationship between mining
and economic growth (Alexeev and Conrad, 2009; Smith, 2015).
Whichever side of the argument one sits, it is hard to make sweeping
conclusions as context and data quality greatly influence research
findings. Cust and Poelhekke (2015), for example, used subnational data
and found that mining activities have positive local economic impacts
because of increased demand for local inputs. Yet, they qualify that the
magnitude of this impact is small in developing countries, because
markets of local goods and services are limited.
mining, the key message from the ongoing debate is that many resource-
rich countries have performed poorly while others have done well to
leverage economic benefit from mineral extraction. Although not
explicit at times, the most recent literature on this topic has moved
beyond the more simplistic mining and economic growth framing to
measure contribution in terms of a broader impact on human develop­
ment. Various conditions including the type of resources exploited,
socio-political institutions in place, and sector linkages with the rest of
the economy have been found to determine the success or failure of an
economy’s resource dependence (Lederman and Maloney, 2007; Papy­
rakis, 2017; Van der Ploeg, 2011). The literature has also documented
the wide experiences of resource-rich developing countries and high­
lighted issues such as elite rent-seeking, corruption, and conflict as
contributors to the lack of mining’s human development impact in some
countries (Auty, 2001; Chuhan-Pole et al., 2017; Collier, 2010; Van der
Ploeg, 2011; Venables, 2016).
This paper sits within a broad research project that interrogates the

* Corresponding author. Sustainable Minerals Institute, The University of Queensland | Brisbane, Level 4, Sir James Foots Building (47A), QLD, 4072, Australia.
E-mail address: f.weldegiorgis@uq.edu.au (F.S. Weldegiorgis).

https://doi.org/10.1016/j.resourpol.2021.102312
Received 28 April 2021; Received in revised form 16 August 2021; Accepted 16 August 2021
Available online 20 August 2021
0301-4207/© 2021 Elsevier Ltd. All rights reserved.
F.S. Weldegiorgis et al.
current conceptualisation of mining’s economic linkages and linkage
building instruments. It contributes to the discussion in three ways.
First, it examines how the quest for linkages has evolved over time.
Second, building on early concerns raised about the narrow con­
ceptualisation of LCPs, it presents a critical analysis of these policies and
the narrative that LCPs offer a fit-for-purpose instrument to building
linkages. Third, it calls a case for rethinking and advancing theory
development on how ‘linkage building’ is framed to serve as a pathway
to achieve economic transformation. The remainder of the paper is
structured as follows. Section Two spells out the basics of the “mining
enclaves” problem and describes the evolving scholarly debate on how
to maximise mining’s positive economic impact on host economies by
means of building linkages. Section Three discusses fiscal and local
content policies, the most common and widely advocated instruments
employed to build linkages. Sections Four, Five, Six, and Seven provide a
critical thematic analysis of LCPs as promising linkage building in­
struments. Section Eight concludes by offering insights into the theo­
retical framework of the broader research project within which this
paper sits.
2. Mining investment and the enclave problem
In the 1980s and early 1990s, and following periods of political
turmoil and conflicts, the governments of many Resource-rich African
Countries (RRACs)1 typically focused on attracting Foreign Direct In­
vestment (FDI) into their mining sectors (Besada and Martin, 2014). This
was largely influenced by the World Bank’s major report ‘Strategy for
African Mining’, which considered Africa’s developmental aspirations
hinging on private sector and export-led large-scale mining operations
(Hilson, 2019; World Bank, 1992). RRACs’ governments adopted this
strategy given fiscal pressures they faced in the context of low com­
modity prices at the time, and poor physical and institutional infra­
structure. Over 1990–2000s, about 30 Sub-Saharan African countries
(SSA) pursued this strategy pinned on offering important fiscal and
regulatory incentives to attract mining investment (Besada et al., 2015;
Campbell, 2009; Hilson, 2019). These incentives include low royalty
rates; attractive loss carry-forward stipulations; tax relief or exemptions
for the early years of investment offering attractive terms of depreciation
and early recovery of investments; waivers on import duties and taxes on
all capital equipment and supplies; abandoning Additional Profits Tax
(ATP); and stabilising tax terms to safeguard these against future
changes.
The mining strategy succeeded in attracting FDI flows into RRACs to
resume production from former state-owned mining companies and the
development of new mines on the back of existing and new geological
knowledge. For example, generous incentives offered by Ghana’s
revised mining policies inspired significant FDI flows of over US$2
billion into the mining sector throughout the 1990s and around US$3
billion of investments in the gold sector during 2005–2009 (Awudi,
2002; Bloch and Owusu, 2012). This led to increased gold exports, ac­
counting for 43% of total exports in 2009. However, the export success
has not been matched by significant increase in fiscal returns, at least in
1
No clear definition of RRACs exists. Based on 2005-10 averages, the Inter­
national Monetary Fund (IMF) defines a country to be ‘resource-rich’, when
exports of non-renewable natural resources such as oil, gas and minerals ac­
count for more than 25 percent of the value of the country’s total exports or
resource revenue exceeds 20 percent of total revenue Lundgren et al. (2013).
This definition has limitations and is often contested as it focusses on export
commodities and fails to account for other resource riches that are mined,
processed, manufactured and used domestically. However, the broad catego­
risation provides a starting point and is used here with a caveat. Based on this,
the use of the term RRACs refers to non-oil resource-rich countries of Sub-
Saharan Africa including Botswana, Burkina Faso, Central African Republic,
D.R. Congo, Ghana, Guinea (Conakry), Mali, Namibia, Niger, Sierra Leone,
South Africa, Tanzania, Zambia, and Zimbabwe.
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Resources Policy 74 (2021) 102312
part due to fiscal regimes designed in a regressive manner offering
generous tax terms even when prices had started to rise. Lack of trans­
parency and flaws in tax administration have also contributed to poor
fiscal returns (Ali Nakyea and Amoh, 2018). For example, in 2008
Zambia generated just 8% of its total tax collection from mining, despite
the sector accounting for 15–18% of GDP and exporting over US$3
billion worth of copper per year (World Bank, 2011). The inflow of FDI
into the mining sector also stoked rent-seeking behaviour, tax planning
to evade tax payments, economic distortions due to the reallocation of
resources to activities benefiting from incentives, and
race-to-the-bottom competition between alternative investment loca­
tions seeking to attract the same foreign investors (Andersen et al.,
2018).
In addition, the investment inflows of the 1990s and 2000s into
RRACs that led to rising exports of minimally processed raw minerals
have not translated into the structural transformation of RRACs econo­
mies (Mudronova, 2018). In part, this can be explained with the problem
of “Dutch Disease”, which refers to a rise in mining and oil exports
resulting in the overvaluation of the exchange rate. This, in turn, un­
dermines the competitiveness of non-resource tradable sectors particu­
larly manufacturing and agriculture. The appreciation of the real
exchange rate causes a shift in capital and labour from these
non-resource tradable sectors to the non-tradable services sector, thus
causing a decline in production and employment and
de-industrialisation of the non-resource tradable sectors (Mikesell,
1997). This creates a concentration of capital investment and economic
activities around the resources sector. As a result, the host economy
becomes more dependent on resource extraction losing the intangible
capital (e.g., knowledge, trade linkages etc.) that may have existed in the
non-resources tradable sector. It has been observed that the national
economies of most RRACs have become more dependent on mining, and
more susceptible to global commodity price fluctuations (ICMM, 2016).
As the dependency of RRACs on mining has increased, these coun­
tries have found it more difficult to leverage mining for broad-based
economic development for reasons that are explained in the later sec­
tions of this paper. This has fed into the long-held observation that
resource extraction projects operate as enclaves – i.e., mining in­
vestments move in with pre-established supply chains and value chains,
operate in very isolated and hostile locations with minimal reliance or
contacts with other economic activities or actors, and extract raw ma­
terials for export adding little value to the host economy (Hansen, 2014;
Hirschman, 1958; Singer, 1950). Several studies have highlighted this
phenomenon based on evidence from mining and petroleum rich
developing countries such as Chile, Indonesia, Peru, Sierra Leone,
Nigeria, Venezuela, and Zambia (Emerson, 1982). More recently, Mor­
rissey (2011) has confirmed that these activities in RRACs have built few
linkages with domestic firms, with few spill-over opportunities in the
form of learning from foreign firms in areas like technology, production
processes, and management and marketing skills. Similarly, Mamo et al.
(2019), using a panel study of 3635 districts from 42 SSA countries for
the period 1992–2012, found mining’s enclave nature in RRACs with no
spill-over effect in living standards in other districts. These observations
entail that linkages do not get built automatically but must be pursued
proactively and with focus on those sectors to which the mining industry
can feasibly connect.
3. The quest for linkage building
Albert Hirschman (1981) is credited for his early detection of the
enclave problem and missing inter-sectoral linkages between the pri­
mary (including mining) and other sectors. He proposed three types of
linkages (production, consumption and fiscal) that can be potentially
targeted to address the enclave problem. Since then, a plethora of
research has dwelt on how to promote industrial development through
these and additional types of linkages. Some of the notable studies
include UNECA’s (2011) report Minerals and Africa’s Development;
F.S. Weldegiorgis et al.
UNIDO’s (Kaplinsky and Farooki, 2012) report Promoting Industrial
Diversification in Resource Intensive Economies (also see a review by
Hansen (2014)); and the empirical research outputs of the Making the
Most of Commodities Programme (MMCP) (Morris et al., 2011). The
possible linkage types often mentioned in these publications and the
avenues through which these are sought to be achieved are briefly
described below.
(i) Fiscal linkages – Revenue generated through mining tax and
other payments to governments.
(ii) Consumption (demand) linkages – The domestic spending of
earnings such as wages and profits from the mining industry and
businesses along the supply chain.
(iii) Infrastructure (spatial) linkages – Mainly physical infrastructure
developed by (and/or for) mining companies for own- or shared-
use or as part of social investment programs.
(iv) Production linkages which are further categorised as:
a. Backward (upstream) linkages – Local sourcing of production
inputs (goods, services, and labour) by mining companies,
b. Forward (downstream) linkages – Processing of mineral ores
in the host country to produce a processed or final product
thereby adding local value,
c. Horizontal or lateral (also known as knowledge and technol­
ogy linkages) – Use of the skills and capabilities of mining
workers and suppliers as well as institutional, administrative,
and socio-political capabilities that not only serve the mining
but also the non-mining sectors and the economy more
generally (also referred to as “intangible assets” or in some
cases “positive externalities”).
These linkages, as initially conceptualised by Hirschman and several
other observers, are modelled mainly around exporting minerals to
other countries or across regions within larger countries. However, and
as is the case in more developed and industrialised countries, there is
significant potential for linkages from the domestic use of minerals in
supporting the manufacturing, construction, and agricultural sectors in
RRACs. Franks (2020) introduced the concept of utilisation linkages, i.e.
the use or service that ultimately comes from the resource. He argued
that linkage theory that has been developed based on a model of export
minerals missed the important service role that minerals mined, pro­
cessed, and used domestically can play in linkage building and structural
transformation.
3.1. The fiscal policy debate
Fiscal linkages refer to the revenues generated from taxing mining
operations and levying other payments on the mining sector. Fiscal
policies refer both to the income and spending side of managing the
public budget and directing spending to meet political and social ob­
jectives. As such, fiscal linkages relate to other forms of linkages to the
extent that tax and other fiscal incentives and public spending are used
to encourage these other linkages, for example, by investing in skills
development or providing subsidized loans to enterprises.
There are several reasons why governments impose taxes and other
non-tax fiscal instruments on the mining sector. These include
compensation payments (royalty payment and various forms of licence
fees, tenders, permit sales or leases etc.) because states see themselves as
the custodians or owners of sub-soil resources. They also impose other
forms of tax, just as other economic sectors are taxed, e.g., in the forms
of corporate tax, profit tax, income tax, withholding tax, professional
tax, foreign transfer tax, customs duties and import tax. Finally, some
fiscal measures, in particular environmental taxes and levies, take ac­
count of the negative externalities that the extraction process bears.
The fiscal linkages premise contends that revenues collected from the
mining sector can stimulate and support economic and industrial
development. But this happens only if, first, there are such earnings and,
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Resources Policy 74 (2021) 102312
second, if then these are actually reinvested in public goods and services
that enhance productive capabilities such as infrastructure, public
health, and human capital development (Kolstad and Kinyondo, 2017).
In terms of empirical observations, however, this premise is not quite
straightforward.
One observation contains that many RRACs have been unable to
generate significant mining revenue windfalls despite attracting large-
scale mining investments. In Tanzania, for example, “two among the
five mines established in the period 1999–2005 have never paid
corporate tax”, and the three others started to pay only after 7–11 years
of operation (Lange and Kinyondo, 2016:1097). Similar findings asso­
ciate poor revenue windfall in other RRACs with generous fiscal in­
centives (Ali Nakyea and Amoh, 2018; Gajigo et al., 2012). As alluded to
above, part of the challenge has been that the fiscal regimes devised in
the 1990s and early 2000s only sought to generate desperately needed
foreign exchange. Thus, they have been regressive in that the govern­
ment’s share of revenue reduced as prices started to rise throughout the
2000s.
Introducing fiscal reforms from around the mid-2000s, some gov­
ernments have sought to tighten fiscal regimes and administration to
achieve higher revenue collections from the sector (Weijermars, 2015).
The World Bank supported this policy shift recognising the need to re­
dress the flaws of the previous regimes that “gave away generous tax
concessions” and caused “low tax-take” (World Bank, 2011:iii). Again,
Tanzania serves as an example with its revised 2010 and 2017 Mining
Acts, introducing amendments that demand a larger fiscal contribution
from large-scale mining, government equity stakes in future in­
vestments, as well as investment in processing facilities in the country
(Lange and Kinyondo, 2016; URT, 2018a). The challenge has been that
fiscal policy reforms have in many cases remained constrained by the
complexities of navigating the right taxation instruments and problems
of governance and transparency (Guj, 2018). Moreover, most RRACs
entered into deals with stabilisation agreements that locked them in for
the duration of the mines and made it impossible to impose less generous
terms. For example, Weldegiorgis and Parra (2019) reported that the
two major mining operations in Madagascar, Rio Tinto’s QMM and
Ambatovy, are administered by mining regimes with generous fiscal
policies that ensure no corporate tax payments to the country for the
lifespan of the mines.
Recent findings by Ericsson and Löf (2019) indicate that fiscal re­
forms have increased revenue receipts in countries such as the Demo­
cratic Republic of Congo (DRC) and Botswana in the last decade or so.
However, this signals an ambiguity as the findings show the importance
of the sector and dependence on it but not necessarily its contribution to
improvements in livelihoods. Empirical studies have long established
the limited impact of rising fiscal payments on living standards. For
example, Caselli and Michaels (2013) found no improvement in the
living standards in Brazil despite an increase in oil revenue windfall and
a corresponding increase in public spending on goods and services.
Similar findings have been observed in the case of Peru (Aragón and
Rud, 2013). These observations suggest that revenue windfalls do not
necessarily trickle down and positively impact household incomes.
Instead, they may be trapped in unproductive patronage/rent seeking
behaviour and embezzlement by municipality hierarchy. Poor man­
agement of mining revenues are also common in many RRACs whose
lack of clear legal processes and weak institutional frameworks laid a
suitable condition for corruption (Campbell, 2009). In conclusion, fiscal
linkages are not just about maximising revenue with well-designed fiscal
regime and administrative capacity to tax, but also about how and on
what the revenue is spent on and invested in (Hirschman, 1981).
As the debate on and around fiscal policy instruments for taxing the
mining sector continues, the past decade or so saw a growing scholarly
and policy interest in production linkages (Bastida, 2014; Bloch and
Owusu, 2012; Fessehaie, 2012; Morris et al., 2012; UNECA, 2011).
Upstream or backward linkages have generally been considered to hold
the greatest potential for direct and indirect linkage-building (Aragón
F.S. Weldegiorgis et al.
and Rud, 2013; Morris et al., 2012). The argument is that there is a
potential for mining companies to source inputs from the domestic
economy by means of restructuring their corporate procurement stra­
tegies to promote linkages with the local economy (Kaplinsky et al.,
2011). To harness such a potential, governments, practitioners, and
scholars have lately placed much emphasis on LCP instruments (Hanlin,
2011; Korinek and Ramdoo, 2017; Kragelund, 2020; Nickerson and
Geipel, 2019). The proceeding sections critically analyse LCPs as a
linkage building mechanism.
3.2. The local content policy debate
While there is no single definition, the term ‘local content’ generally
refers to the value added or retained in the national or local economy
when mining operations source inputs (goods, services, labour, capital
and intermediate products) from within the host country or even the
sub-national economy as opposed to sourcing from outside the country
(Ado, 2013). A growing number of African countries have adopted LCPs
as part of their mining law reforms by introducing mandatory local
content requirements (LCRs). Occasionally, these specify the magnitude,
content, ownership, and location of inputs that mining companies are
mandated to use (UNECA, 2013). Whereas, in other cases they contain
more general clauses on companies expected to make their best efforts to
source locally. Not least in response to respective legal, regulatory, or
contractual stipulations, many mining companies have developed and
are implementing their internal LCPs. These serve also as a
non-technical risk mitigation measure by maintaining constructive
engagement with host governments, communities, and economies
(Hansen, 2020).
The rationale behind targeting backward linkages and devising LPCs
rests on the argument that mining investment may be best leveraged to
improve living standards by targeting not (only) the fiscal revenue but
also the expenditure (costs) of mining companies. That is, governments
can seek to capture a larger share of these costs by encouraging or
forcing local sourcing of labour, goods and services (Aragón et al.,
2015). The narrative goes that households in RRACs are more likely to
benefit directly from the mining sector if, for example, the companies
demand and hire local labour, as opposed to these households waiting
for governments to spend mining fiscal revenues on provision of public
goods and services. This narrative is partly premised on the argument
that there is a great scope for governments to exploit and capture
domestically the large cost spending by companies. This spending is
estimated between 40 and 80 percent of the export value, compared to
the government revenues share which often only makes up a small
fraction of the export value of minerals (Dobbs et al., 2013). For
example, Anglo American’s tax and royalty payments to government
estimated at just 11 percent of total export value is much lower than its
64 percent spending on goods and services from suppliers (CCSI, 2016).
The challenge is that this argument rests on simply comparing the
monetary values between fiscal revenues and company spending.
Questions regarding the extent of the costs spent on procuring local
inputs, upskilling local workforce, and the multiplier effects thereof
would need to be considered. The next sections turn to this discussion in
more detail. The reality on the ground suggests that LCPs in many
RRACs have not generated significant amounts of locally sourced inputs
nor strengthened inter-sectoral linkages (Ellis and McMillan, 2020;
White, 2017). Some traces of progress are observed in terms of the
narrow objective of meeting local employment and skills targets and
local businesses partaking in the sector’s local procurement in South
Africa, Nigeria, and Ghana (Adedeji et al., 2016; Bloch and Owusu,
2012; Korinek and Ramdoo, 2017; Ovadia, 2016). At the same time,
employment is often in low and mid-lower level technical positions
given the poor skills characterising local workforce, and reported pro­
curement sourcing has not necessarily benefited local businesses or
added local value (ACET, 2017; UNECA, 2013). For example, of the $3
billion spending on goods and services by four mining companies in
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Resources Policy 74 (2021) 102312
Zambia, only 5% of goods were truly produced locally, with the rest
either just imported and passed through a locally registered fronting
company or procured from locally registered agents of foreign com­
panies (ICMM, 2014). According to Hilson (2019), foreign firms such as
Atlas Copco, Sandvik and Caterpillar have long controlled the market for
supply of equipment and services in SSA, and are supported through
their memberships with chambers of mines.
The policy and market failure challenges facing the successful
implementation of LCPs have again prompted a shift in the debate back
in favour of fiscal, public expenditure and broader public policies. Kol­
stad and Kinyondo (2017) argue that LCPs are costly due to the eco­
nomic incentives conceded (foregone taxes) to promote the use of local
inputs and the mammoth task of developing competitive local supplier
businesses. According to Warner (2011b), an estimated 40% mandatory
local content target may attract a concession in royalty payment from
25% to 20% and corporate tax rates from 30% to 25%. This prompted
the notion that countries might be better off maximising fiscal return
and channelling it toward industrial development (Kolstad and
Kinyondo, 2017). Nonetheless, host countries often strive to find a
balance between fiscal policies and LCPs while grappling with trade-offs
during negotiations with companies (Esteves et al., 2013). Indeed, the
more recent literature attempts to reconcile both the fiscal and local
content sides of the debate in search for a greater economic benefit
(Issabayev and Rizvanoghlu, 2019). There is, however, no detailed ev­
idence as to how such a balance can be determined to achieve a
maximum value for the host economy, not least because context-specific
situations vary greatly, and thus, so would the solutions. Therefore, the
debate for and against LCPs has often mirrored a contrasting debate for
and against fiscal policies.
4. LCPs in design
4.1. Policy scope and clarity
The first challenge regarding LCPs relates to the scope of the objec­
tives, which are often set too narrowly. In many RRACs, these objectives
are framed around ‘local value addition’ or ‘local content’, though
varying in terms of connotations and details across countries. For
example, Tanzania’s Mining Act 2010 uses the phrase ‘procurement’ and
not ‘content’, and ‘within the United Republic of Tanzania’ instead of
‘local’ (URT, 2010). Apart from mentioning the need for a statement of
plan for procurement of goods and services when applying for licence,
this Act does not provide much detail. Meanwhile, the new legislation in
the amendment Act and Regulation 2018 has more detailed provisions
on local content and beneficiation (URT, 2018b). This new legislation
defines local content as “the quantum or percentage of locally produced
materials, personnel, financing, goods and services rendered in the
mining industry value chain, and which can be measured in monetary
terms”. Accordingly, ‘local’ refers to inputs sourced across the nation of
Tanzania.
Botswana’s Mines and Minerals Act 1999 makes no mention of ‘local
content’, though it states that licence holders need to give preference to
materials and products made in Botswana; service agencies located in
Botswana and owned by Botswana citizens; and Botswana citizens for
employment (GOB, 1999). While the Act does not go into much detail in
this regard, it was supplemented by the Economic Diversification Drive
(EDD) Strategy 2011–2016 (GOB, 2011). This strategy’s medium and
long-term plan caters for development of Botswana’s priority sectors
through local content; technology development, adaptation, transfer,
and innovation; management know-how; development of small, micro,
medium enterprises (SMMEs); R&D; and entrepreneurship among others
with the aim of diversifying the economy. Its short-term plan focuses on
local procurement targeting quick wins and low hanging fruit.
These examples, among others, demonstrate that LCPs in practice
have largely targeted local (often meaning national) procurement of
goods and services and skills training of local workforce to enhance the
F.S. Weldegiorgis et al.
employability of nationals in the mining industry. This narrow con­
ceptualisation of local content as just a part of the upstream (backward)
linkages is also reflected in a study looking at Burkina Faso, Ethiopia,
Ghana, Namibia, Nigeria, Mozambique, South Africa, and Zambia
(ACET, 2017). Overall, it is often quite complex to distinguish and
monitor what constitutes ‘local’ and ‘content’ in practice, leading to
ambiguous and inconsistent policy interpretations. ‘Local’ may refer to
circumstances where a firm or business supplying goods and services is
nationally based and owned, nationally based but foreign owned (in full
or partial), or nationally owned but based overseas (Tordo et al., 2013).
It may also refer to situations where labour employed in the mining
industry is sourced from within the geographic surrounds of mine sites,
locally, regionally, or nationally.
The term ‘content’ often constitutes promotion of domestic pro­
curement of goods and services; employment and skills development for
locals; local transfer of technology; research and innovation (although
more common in mature mining industries); and value addition through
local processing of mining products (Korinek and Ramdoo, 2017). As
such, the definition of local content, in some cases, extends to the
sourcing of mineral products by local processing plants and the provi­
sion of infrastructure like schools, clinics, and roads by mining com­
panies (Tordo et al., 2013). However, it is the local procurement of
goods and services and employment that is usually targeted by LCPs. The
problem with such a narrow treatment of local content is that the
distinction between value added within and outside the mining industry
is often overlooked. Simply because there is increased local procurement
(value added within) does not necessarily mean an increase in economic
linkage (Kaplinsky et al., 2011). Such a narrow focus has largely failed to
lead to a diversified economy but a concentration around the mining
industry. Many RRACs have seen their mining export concentration
increased at the expense of other economic sectors particularly
manufacturing and agriculture (Hawkins, 2009). Value added within the
mining industry is likely to create mining specific businesses and skills
that are dependent on the industry, and thus, vulnerable to shocks.
Under such a narrow definition of local content, LCPs devised to
build linkages are premised on the assumption that ‘local ownership’ of
businesses supplying inputs to the mining industry will somehow result
in broadening and deepening the local economy’s productive capabil­
ities (Kaplinsky et al., 2011). Firstly, enforcement of localisation policy
does not necessarily lead to the development of local content. This is
partly due to a fronting behaviour which, according to Ovadia (2016),
means that local businesses or individuals merely act as a front for a
foreign company or a joint venture while control and ownership of
majority profit remains with the foreign company and the equity share
given to the local partner is written off as a cost of doing business. For
example, an assessment of local content in Tanzania, Mozambique and
Uganda revealed that “much of local inputs are provided by foreign
firms sometimes disguised as local firms due to connections with a local
figurehead” (Hansen et al., 2016:219). Similarly, Morris et al. (2011:9),
in their study of eight SSA countries, identified cases where inputs
portrayed as locally sourced were actually imported by a local trader,
leaving local content confined to the “importer’s margin and close to
zero”. Secondly, in forcing local ownership, countries may risk losing
mining investment if respective companies deem it impossible or, for
various reasons, are unable or unwilling to procure from locally owned
businesses.
Some of the issues mentioned above may be solved by reversing the
tendency to conflate local ownership with local content development
and emphasising the extent to which locally based suppliers add value to
the local economy. According to Sen (2020), this is demonstrated in the
Ugandan regulations which require supply firms (including
foreign-owned or subsidiary) to register in Uganda, regardless of
ownership or control. The respective regulations also require these firms
to use locally available inputs including labour as approved by the Pe­
troleum Authority of Uganda (ibid.). As Esteves et al. (2013) argue, local
ownership is not as important so long as a business contributes to
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Resources Policy 74 (2021) 102312
building economic capital at the national and/or sub-national level by
enhancing local industrial capacity, broadening economic development
opportunities, and employing and skilling local labour. Bloch and
Owusu (2012) also stress that national ownership should not necessarily
be equated with building linkages, as foreign-owned but locally-based
firms can add value to the local economy. Whether based on local
ownership or local registration, promoting local content and value
addition for the benefit of linkage building is a complex issue that re­
quires a carefully and clearly designed and enforced policies, which also
need to be monitored closely and corrected if necessary.
4.2. Target setting
LCP targets may include requirements for local sourcing of goods,
services and labour; local presence or ownership of equity; technology
and knowledge transfer; and local beneficiation through local process­
ing (Ovadia, 2016; Ramdoo, 2018). Countries differ in the types (pro­
curement, employment, training, or knowledge transfer related), terms
(quantitative and/or qualitative), and extent of the targets they set. For
example, Tanzania’s amended Mining Regulation 2018 states that a
mining company “shall give preference to goods […] produced or
available in Tanzania and services […] rendered by Tanzanian citizens
or local companies” (URT, 2018b). “Where goods required […] are not
available in Tanzania”, the foreign provider of such goods must allow a
local company to enter a joint venture with at least 25% share. Ghana’s
Mining Regulation 2012 specifies a 10% ceiling on expats in senior
positions for the first three years and 6% after, while setting procure­
ment targets of goods and services of Ghanaian content, a list of which is
to be provided by the Ghana Minerals Commission (GMC) (ROG, 2012).
Zambia’s Local Content Strategy 2018–2022 sets at least 35% of inputs
used by mining companies to be locally sourced, which applies only to
materials/services where the country has comparative advantage (Kra­
gelund, 2020).
These and other examples indicate that host countries have
increasingly been adopting stringent targets, but still LCR targets often
lack detail and clarity and are not comprehensive. Provisions for tech­
nology and knowledge transfers are either missing, e.g. in Ghana (ROG,
2012), or are just mentioned in passing without much detail or a strat­
egy. In RRACs where technology and knowledge gaps are significant,
more detailed and clearer policies aimed at promoting technology and
knowledge transfer through coordinated and linked-up skills training
and supplier development programs could improve local supplier
capability and competitiveness. Not only is policy clarity needed with
respect to the transfer of technology and knowledge, but also spelling
out the mostly implicit logic of how LCP measures add to innovation and
value to the local economy (UNCTAD, 2014). Where targets are stipu­
lated, specific compliance measures with associated penalties exist in
some cases (e.g., Tanzania and Ghana), but miss details in others like
Botswana (GOB, 2011; ROG, 2012; URT, 2018b). Overall, RRACs poorly
enforce and monitor the performances of mining companies in meeting
the set targets leading to inconsistent and exclusive policies (Kaplinsky
et al., 2011). Morris et al. (2011) found such inconsistencies in their
eight case countries as granting duty free for mining company imports
and exemptions for some companies who employ expatriates. These can
impede local content development and the implied linkage building.
4.3. LCPs versus trade and investment treaties
LCPs can be at odds with bilateral and multilateral treaties on trade
and investment at both the regional and international level. LCPs with
requirements prohibiting imports to promote the use of locally sourced
goods may be in contradiction with the Trade-Related Investment
Measures (TRIMs) and violate the General Agreement on Tariffs and
Trade (GATT) under World Trade Organisation rules (UNCTAD, 2007).
The General Agreement on Trade in Services (GATS) and Agreements on
TRIMs and Government Procurement (GPA) prohibit governments from
F.S. Weldegiorgis et al.
providing advantageous terms in favour of domestic suppliers and
discriminating against foreign suppliers of goods and services (Cimino
et al., 2014; Warner, 2011a). The Agreement on Subsidies and Coun­
tervailing Measures (SCM) prevents governments from providing in­
centives and subsidies that are aimed at encouraging local sourcing and
export performance (ibid.). LCPs that strictly require investors to process
and store investment data locally may conflict with international in­
vestment law (Olawuyi, 2019). According to Stone et al. (2015), data
localisation requirements prevent investors from using efficient data
transfer technology and may undermine their competitiveness and
expose them to compliance and operating costs.
Because they disagree with these obligations, resource-rich devel­
oping countries often do not adhere to these bilateral and multilateral
treaties (Cimino et al., 2014; UNCTAD, 2007). They consider such ob­
ligations detrimental to their bargaining power in FDIs and their
development aspirations and priorities to achieve industrialisation by
leveraging the mining industry (Olawuyi, 2019). Rodrik (2007a) sup­
ports this view with the argument that international trade treaties have a
‘market access’ objective that is not based on a level playing field and
without due consideration for promoting development at national level.
In effect, countries opt to disregard these obligations to protect infant
industries and maximise benefits from strategic sectors like mining
(Ado, 2013). Olawuyi (2019) cautions that, in the absence of institu­
tional resources and technological capabilities, misalignment between
LCRs and international treaties may undermine a country’s competi­
tiveness and disincentivise foreign investment.
5. LCPs: A supply side argument
One of the crucial aspects against which the success or otherwise of
mandatory LCPs or voluntary initiatives (by companies) can be assessed
is the extent to which local industrial base is competitive. This includes
infrastructure and the capacities of local businesses and human skills to
meet the demands of the mining industry for goods, services, and skilled
labour force. Infrastructure can be soft (education, ICT, R&D, business
environment, customs procedures including red-tape and other re­
strictions, services such as logistics and finance) and hard (roads, rail­
ways, ports, power, and water). These business conditions coupled with
the local absorptive capacity, and competitiveness in terms of skills,
technology and market are some of the key determinants of linkage
progress but too often overlooked when LCPs are developed and
implemented in most RRACs (Hufbauer and Schott, 2013a). According
to the findings of Morris et al. (2011), local suppliers identified skills and
technology shortage as the key bottlenecks for linkage building. How­
ever, there are few context-specific assessments that investigate the size
and the nature of the skills gap and the challenges and potential op­
portunities for addressing it (Dietsche, 2020).
Unfortunately, almost all RRACs are characterised by a weak in­
dustrial base and a private sector that is small and informal and marred
by low productivity (Calignano and Vaaland, 2018; Tordo et al., 2013).
According to Korinek and Ramdoo (2017), a needs assessment under­
taken in Mozambique deemed 99% of locally produced goods and ser­
vices as low quality, failing to meet the demands of an aluminium
smelting firm in the country. The McKinsey Global Institute (MGI) found
that only one-third of the countries in its database target specific value
pools such as basic materials and low-medium-high complexity equip­
ment, and at least half of these do not have local capabilities that match
the targets (Dobbs et al., 2013). In many of these countries, the poorly
developed local supplier industry is situated within an unfavourable
business environment and low levels of education, and hence unskilled
workforce (Owusu and Vaaland, 2016). Against such a weak industrial
base, imposing stringent LCR targets is problematic, not least because
they open opportunities for rent seeking by those able to capture or
access a chunk of the mandated local content as fronting or JV partners.
A prominent argument, therefore, exists against governments that
rush to impose LCRs with strict targets such as supplier development and
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Resources Policy 74 (2021) 102312
employment quotas but fail to address the issue of local capacity and
skills shortage (Tordo et al., 2013). Indeed, a study by Dietsche and
Esteves (2018) casts a doubt as to whether LCPs alone will be sufficient
to build the domestic capital needed to diversify and structurally
transform the host economy. For example, Angola’s LCP sets unrealistic
employment targets and compiles an ‘arbitrary’ and ‘non-transparent’
list of mandatory items to be procured locally (Teka, 2012). But such
targets are met by a weak industrial base and metallurgical sector with
unskilled human capital and lack of integration with industrial policies
(ibid.). Thus, there is a mismatch between the highly capital intensive
and technologically complex large-scale extractive projects and the
labour-intensive domestic market that suffers from capital scarcity and
poor technological capabilities (Emerson, 1982; Hansen, 2014; Kolstad
and Kinyondo, 2017).
To address the limitations in local capacity, LCPs in countries like
South Africa mandate mining companies to invest in developing local
SMEs and training the local workforce. The Mining Charter 2018 states
that up to 30% and 10% of the total procurement budget on mining
goods and services, respectively, may be offset against supplier and
enterprise development (ROZA, 2018). It also mandates companies to
“invest 5% of leviable amount [… annual payroll], excluding the stat­
utory skills development levy, on essential skills development activities
such as […] science, engineering, mathematics skills; artisans, intern­
ship, graduate training programs, apprenticeship etc.; and R&D in
exploration, mining, processing, beneficiation and technology effi­
ciency”. Another approach to developing local capacity is when mining
companies voluntarily initiate enterprise development by either
providing funds and business skills and mentorship or awarding con­
tracts to local businesses. For example, Anglo American’s Zimele En­
terprise Development and Empowerment Initiative in South Africa
provided start-up funds, supply chain development fund, direct
financing, and training and mentorship to local businesses (CCSI, 2016).
Elsewhere, Fortescue Metals in the Pilbara Western Australia awarded
contracts worth a total of A$1.95 billion over 2011-17 to Aboriginal
businesses as part of its Billion Opportunities program within its Land
Access Agreements (LAAs) and Indigenous Land Use Agreements
(ILUAs) with seven native title groups (Fortescue, 2017).
It appears that local supplier development might achieve some suc­
cess if companies are actively engaged through either their own initia­
tives or through partnerships with governments or landowners.
However, developing globally competitive local supplier businesses and
skills and building the trust of multinational mining corporations to
utilise those is a tall order and may come at a significant trade-off
(Hilson, 2019). Initiatives to develop local capacity may also not be
sufficient unless there is some level of local capacity pre-existing in
relevant technical areas, which was the case behind the successes of
Norway and Australia (Eggert, 2001; Heum, 2008). Indeed, Tordo et al.
(2013) reviewed LCPs in various countries and suggest that ‘assertive’
LCPs with mandatory requirements may be feasible in countries with
pre-existing basic capacities and skills, clear understanding of future
demand for local inputs, and an established resource sector. More
fundamentally, governments would need to have an inter-sectoral in­
dustrial base development strategy that may produce a competitive
supplier capacity and human capital.
Consorted and coherent industrial policies, as witnessed in the East
Asian successes, can play a key role if accompanied by government in­
terventions (Rodrik, 2007b). These can be through subsidies and in­
centives; higher-risk finances using development banks or venture
funds; funding R&D that is integrated with private sector activities;
coordination of public and private functions; and other support mech­
anisms. Two notable success factors may be emulated from the experi­
ences of Norway and Australia, which are establishing an (i) education
system with research programs in resource-relevant expertise, and (ii)
institutional structure with clear, competitive, and transparent func­
tional distinctions and responsibilities aimed at achieving industrial
development. As Esteves et al. (2013:15) put it, the impact of mandatory
F.S. Weldegiorgis et al.
policies or voluntary initiatives pivots on the “timely coordination of
complementary industrial, educational, technological and local content
policies”. This indicates that developing an industrial base is a long-term
endeavour that requires resources and well-designed policies.
6. LCPs: A demand side argument
An analysis of 23 mining, oil and gas companies with local pro­
curement initiatives reveals that companies increasingly seek close and
durable partnerships with local suppliers for mutual benefits (Esteves
et al., 2013). Newmont Ghana is often mentioned as an example with
LCP specifying various support and preferences provided to firms with
the highest local value added (Farole and Winkler, 2014). Despite some
efforts by companies, local suppliers are often unable to partake in
mining procurement opportunities (Hanlin, 2011). In addition to the
lack of an industrial base, this can also be explained by demand related
issues as follows.
6.1. Mining companies need to adhere to high level procurement
standards
LCPs are often designed and enforced without due consideration of
the complex operational structures, strategies, interests and market
conditions of the mining industry (Ayentimi et al., 2016). As such,
mandatory LCPs with stringent targets could have a detrimental
consequence on the host country if there is a mismatch between what
the company demands and the local capacity to supply. One of the
reasons for mining companies’ involvement in local content activities is
to respond to growing stakeholder expectations and secure access to
resources (Esteves et al., 2013). But their primary motive in involving
local suppliers is to enhance value chain efficiency by outsourcing
non-core functions thereby reducing costs, spreading risks, and
benefiting from specialization and access to skills (Hansen et al., 2016).
As such, they consider costs and benefits in relation to procuring inputs
locally, transacting in contracts with local suppliers, and aligning
country procurement activities with global mandates and policies; as
well as the risk of developing future competitors (Hansen, 2020).
When responding to LCPs, companies position their strategies based
on local responsiveness, global dimensions, and the associated costs and
benefits. In doing so, they aim for the right quantity and quality of
production inputs, at the right price and timely delivery (Warner,
2011c). Companies also account for the cost associated with any sup­
plier development needed and the compensation arrangements to
address risks of local sourcing or incentivise local contractors to meet
local content targets and achieve supplier development outcomes
(ibid.). Furthermore, companies have highly specialised global value
chains that need to meet increasingly stricter safety, social and envi­
ronmental standards. These high procurement standards stiffen the
entry barriers for local suppliers. Based on a cross-country comparative
study in Latin America, Herrera et al. (2016) found that a greater
specificity of local content framework with a focus on industry partici­
pation delivers a better outcome if accompanied by a business-friendly
environment, a collaborative relationship between the state and pri­
vate sector, and a long-term developmental vision.
6.2. Supplier contracts are handled in headquarters of mining companies
Some observers have argued that mining companies tend to engage
with international suppliers for their major local content activities, thus
overlooking potential local suppliers. The argument goes that head­
quarters of corporations and not the mines in individual countries often
handle critical and high value supplier contracts, usually selecting
globally competitive suppliers over local ones (Hansen, 2020). Accord­
ingly, large mining corporations often have an already established
supply chain globally that is based on a long-term trust and commit­
ment. It would thus be costly to break such an established chain in
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Resources Policy 74 (2021) 102312
favour of local suppliers. Hanlin and Hanlin (2012) claim that this has
been the case with major gold mining companies in East Africa, which
‘lock in’ with already established lead supplier firms thereby stifling any
opportunity for local suppliers to competitively provide goods and ser­
vices. Although there is not much evidence that adequately explains
such claims, it is crucial to understand how mining companies have
responded to growing local content requirements.
Existing international suppliers appear to disproportionately benefit
from mining procurement despite the availability of a competitive
supplier capacity, in South Africa, for example, (Hanlin, 2011). Ac­
cording to Hanlin, companies typically have pre-designed procurement
systems that are reliable and have a track record of delivery, and so they
are unwilling to risk engaging with new and unproven suppliers for
critical inputs throughout the design, construction, and operational
phases of the mine life cycle. The exception is when multinational
companies tend to outsource non-core competencies to low cost sup­
pliers in RRACs, which is in the low value-add range (Morris et al.,
2012). However, a study in the DRC found that corporate outsourcing
failed to stimulate broader industrialisation, and instead, enabled the
influx of foreign firm subsidiaries by causing the organisational frag­
mentation of domestic factors of production (Radley, 2020). As the
example of Zambia indicates, it is often claimed that foreign and not
local suppliers are indeed benefiting from mining procurement. But,
even if local suppliers are prioritised, it would be more of a local content
success and not necessarily an achievement of linkage building.
6.3. Demand shifts with technological innovation
The continued technological evolution of mining practices could
render mining companies increasingly demanding less of inputs in
RRACs. It is observed that companies are instead relying on high tech­
nology suppliers and skills that are only available in advanced econo­
mies (Cosbey et al., 2016). Moreover, technological innovation is
expected to give rise to automation and the subsequent decline in labour
demand (Moritz et al., 2017). Resolute Mining’s Syama mining project
in Mali is an example of a fully automated mine.2 LCPs could be futile if
governments fail to take note of such technological evolution and tailor
their approaches accordingly (Ramdoo, 2018). There is also a risk that
the low to medium level skills or even technically advanced local inputs
supplied by RRACs may be redundant with the increasingly automated
and technologically innovative mining operations (ACET, 2017). This
adds to the concern that it may not be prudent to invest heavily in
developing local businesses and skills with the aim of supplying inputs to
the mining sector. Instead, such investments may well be targeted at
promising sectors other than the mining industry to promote diversifi­
cation. Furthermore, according to Esteves et al. (2013), the mining
industry’s volatility to commodity price fluctuations and other exter­
nalities renders SMEs vulnerable with little opportunities for
diversification.
7. The institutions behind LCPs
The institutions and organisations that design, govern, manage,
enforce, evaluate, and monitor LCPs are as crucial as the status of the
local industrial base. North (1990:3) defines institutions as “the rules of
the game in a society or, more formally, the humanly devised constraints
that shape human interaction, [and] in consequence, structure in­
centives in human exchange, whether political, social, or economic”.
North makes an important distinction between the rules and the players
suggesting that institutions are the rules that “define the way the game is
played”, and organisations which are “groups of individuals … [formed
2
Balch, 2019. What a Mali mine teaches us about the future of work. htt
ps://www.raconteur.net/technology/automation/mining-automation-mali
/(accessed 21 April 2021).
F.S. Weldegiorgis et al.
as] political, economic, social and educational bodies [and] … bound by
some common purpose” are the players whose objective is to “win the
game” (p. 4–5). Institutions and organisations reinforce one another
because institutional frameworks influence and are influenced by how
organisations exist and evolve, in turn affecting the performance of
economies (ibid.). Premised on this definition, the institutional capac­
ities discussed in this paper relate to how political, economic, social, and
educational organisations interact and how this is influenced by and
influences the design and evolution of institutions.
The capacity to regulate, ensure policy coherence and coordination,
and curb elite rent-seeking are some of the key traits of strong organi­
sations that could determine the effectiveness of LCPs (Caramento,
2020). An extensive literature has shown the effect of strong organisa­
tions and institutions in channelling resource endowment for develop­
ment by encouraging investment, reallocating resources efficiently, and
raising income (Xu et al., 2018). Meanwhile, weak institutions are
associated with rent-seeking, corruption, deindustrialisation and bad
growth prospects (Van der Ploeg, 2011). As such, the design and stip­
ulation of LCPs need strong institutions while the enforcement, gover­
nance, and monitoring of its provisions need strong public sector
organisations. The challenge is that it is fruitless to determine in a binary
fashion what strong and what weak institutions are, for what matters is
as much the coherence of and the complementarity between different
sets of rules. Strong institutions reflect complex systems of how public
policies shaping and enabling the private sector are decided upon and
implemented, while it is a feature of weak institutions to focus and
change specific policies without bearing in mind the entire system.
7.1. Corrupt and rent-seeking behaviours
According to a wide range of literature, the institutional dynamics
around LCPs are often characterised by issues of non-transparency,
corruption and favouritism (Hansen et al., 2016; Hufbauer and Schott,
2013b). Based on extensive interviews in Ghana and the DRC, Geenen
(2019:8) argues that LCPs are developed within competing political
interests and “embedded in large-scale extractivist projects”. As such,
they are prone to corruption at various levels of power, that is practiced
in the selection of subcontractors and workers (ibid.). Both local elites
and large corporations practice corruption using favouritism and exer­
tion of influence in such activities as procurement contracts and joint
ventures; fronting; as well as nepotism and cronyism in the hiring of
local staff (Martini, 2014). Preferential treatment is common and might
lead to some corrupt behaviour. For example, in South Africa, a few
individuals and businesses abused their ‘historically disadvantaged’
status and deprived the majority in the community from benefits (Kor­
inek and Ramdoo, 2017). Citing Global witness, Martini claims that
LCPs can be even more damaging forms of corruption than one-off
payments given that state revenues could be exposed to continuous
theft while being harder to detect and audit. In a poll conducted by
Kolstad and Kinyondo (2017), Tanzanian participants identified the risk
of elite capture and corruption as the main reason for their preference of
local community development activities over local content.
Political and economic issues underpin such corrupt and rent-seeking
behaviours. A review of countries found that LCPs are designed with
primary and prior consideration of political imperatives, while eco­
nomic parameters are treated secondary (Tordo et al., 2013). As such,
the failure of institutions governing LCPs is attributed to tendencies of
elite capture from large mining investments in order to consolidate
power (Hansen et al., 2016). Large corporations find themselves
entangled in local politics having to respond to rent-seeking behaviours
while contending with potential reputational risks (Hansen, 2020).
Furthermore, ruling coalitions tend to protect and deal with domestic
entrepreneurs who monopolise local content markets (Buur et al., 2013).
Such an over-reliance on these corporations and the favoured local en­
trepreneurs for rent-seeking undermines the credibility of LCPs (Ablo,
2020). The general notion is that LCPs create a fertile ground for elite
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Resources Policy 74 (2021) 102312
rent seeking, power accumulation and corruption while providing the
means for favourable treatment in exchange for political support known
as ‘linkage patronage’ (Hansen et al., 2016; Kolstad and Kinyondo,
2017; Ovadia, 2012).
Furthermore, these problems of corruption and rent seeking are
made possible in some cases by the State-owned Enterprises (SOEs) or
parastatal organisations. The dual function of SOEs as independent
corporations and state entities mandated to implement, monitor, and
report LCPs is poorly managed with political interference usually getting
in the way (Hilson and Ovadia, 2020). To that end, SOEs become in­
struments through which elites engage in corrupt activities undermining
the objectives of LCPs. For example, LCPs in Brazil were questioned
following the revelation of a major multibillion dollar worth of cor­
ruption scheme involving Petrobras (state-owned oil company), sup­
pliers, and politicians (Lima-de-Oliveira, 2020). This led to high profile
jailing of the country’s wealthiest businessmen and former politicians
including former president Luiz Inácio Lula da Silva, speaker of the
house, finance minister, and governor of Rio de Janeiro, among others.
Lima-de-Oliviera concludes that the institutionalisation of LCPs matters
as evidenced by the survival of only the more institutionalised and
transparent policies that are insulated from political interference.
7.2. Misalignment of policies and lack of coordination
Beside organisational resilience and transparency, how various or­
ganisations coordinate and complement one another also matters, as this
ensures the alignment of industrial policies. Streamlined industrial
policies could enable the development of business conditions on which
the achievement of local content hinges. These conditions include
technological capabilities, industrial base, infrastructure, access to
credit, skilled labour, and favourable trade conditions (Stone et al.,
2015; Whitfield et al., 2015). However, industrial policies overall are
often poorly designed despite their crucial role as mechanisms that
ensure mining industry’s interactions with and spill-overs to local in­
dustries (Morrissey, 2011). LCPs, in turn, fail to align with other in­
dustrial policies and hence are deprived of enabling conditions to have
an impact on the broad economy. Mjimba (2011) observed a detach­
ment of sectoral (mining) policies from long-term and macro industri­
alisation strategies such as Tanzania’s Vision 2025 leading to policy
failures. This lack of LCPs’ coordination with other industrial policies
under a national institutional framework could create vertical and
horizontal inconsistencies (Tordo et al., 2013). For example, Calignano
and Vaaland (2018) note that the industrial policies and economic
conditions in many African countries are not favourable to emerging
local industries whose use of raw materials is heavily taxed while im­
ported goods enjoy trade incentives.
LCPs also need to be harmonized with the private sector and inter­
national policies; at the same time, organisations in charge of LCPs need
to work in coherence and partnership with key organisations such as
R&D and educational systems. Partnerships among governments, in­
dustries, business communities and CSOs could be crucial in deriving
shared analysis and understanding of what the problems with linkage
building are and which policy areas matter most. Moreover, these
partnerships help in the exchange of key market and policy information
and ensuring a collaborative environment. However, such coordination
and partnerships are missing in many mineral-rich countries (Ramdoo,
2018). Kragelund (2020) found mis-alignment of Zambia’s LCPs with
the broader fiscal framework within the mining industry. In more than
two-thirds of the countries in the MGI database, the entities designing
and implementing LCPs were found to often operate in silo offering no
structured government approach to work with mining companies and
meet local content targets (Dobbs et al., 2013).
One way of coordinating organisations responsible for implementing
industrial policies including LCPs is by establishing a peak industriali­
sation body (Lombe, 2020). Such a body could take a form of a “focal
institution, committee, or administrative unit [… aimed at] coordinat
F.S. Weldegiorgis et al.
[ing] the design, approval, and implementation of local content plans
across the life cycle of a project [… and] provid[ing] methodologies and
tools for operators to report and monitor compliance with LCRs” (Ola­
wuyi, 2019:20). The establishment of special bodies like the Local
Content Committee in Tanzania and the Australian Industry Participa­
tion National Framework (AIP) Authority can be crucial in the successful
coordination and implementation of functions (GOA, 2019; URT,
2018b). The key function of such central bodies is to coordinate indus­
trial policies and processes of implementation and ensure collaborations
while allowing for a decentralised decision making on activities across
industries. An alternative approach used in Norway is to ensure different
functional responsibilities are separated whereby coordination aimed at
achieving a single industrial development goal is ensured through
communication among the respective organisations (Heum, 2008).
8. Building linkages as pathways to economic transformation
The thematic analysis above indicates that the instrumentalization3
of LCPs in RRACs focuses on developing local supply chains to the
mining industry. As Dietsche (2014, 2017) points out, governments
using regulatory requirements have increasingly relied upon the mining
industry to deliver on local content without realising that this alone
cannot lead to broad-based economic transformation. Such a focus, in
effect, is mining centric and thus falls short of building inter-sectoral
linkages. The debate on LPCs excessively addresses ‘mining local con­
tent’ in its narrow conceptualisation as the centre of analysis, and in
doing so inadvertently views the mining industry as the epicentre of the
greater economy (Fig. 1). This approach, as shown in the discussion
above, largely creates a local economic system that is purpose-built for
and dependent on the mining industry, and consequently exposed to
volatility and short-term gains. This outcome needs to be reversed,
which necessitates an alternative analysis that situates the mining in­
dustry as part of the greater economy, thus breaking the mining indus­
try’s centripetal force and in the process addressing the Dutch Disease
problem (Fig. 2).
Citing previous work on linkage building theory, Dietsche (2014)
observes that LCPs are essentially a form of industrial policy, but with a
Fig. 1. Mining-centric supply chain development.
3
The use of policy as an instrument to guide actual implementation.
9
Resources Policy 74 (2021) 102312
Fig. 2. Economy-centric linkage building.
particularly narrow focus on local procurement and hiring and shifting
the responsibility to deliver onto companies. She draws attention to the
renewed interest in industrial policies more generally, arguing that this
offers an opportunity to critically assess and recognise the different
levels of coordination and collaborative action required for such policies
to support a thriving and inclusive private sector. In contrast to focusing
efforts on scrutinising mining companies whether they deliver on
narrowly defined local content targets, this perspective puts a much
stronger emphasis on the broader public policies, institutional ar­
rangements, and partnerships that governments and their public au­
thorities would need to put in place and insist on to leverage the mining
sector for the development of a country’s overall productive capacity.
Building on this work, this paper calls for an in-depth and compre­
hensive analysis aimed at a better understanding of the elements needed
to design a framework of linkage building for economic transformation.
It proposes the development and adoption of an ‘economic transformation
rationale’ (ETR) to building mining-economic linkages to achieve broad-
based economic development.4 As shown in Figure Two, intrinsic to the
conceptualisation of ETR is the treatment of mining as just one among
many sectors in an economic system and leveraging it for a broad-based
economic development. In doing so, the mining sector’s role within the
greater economy is not treated in isolation (or as a dominant contrib­
utor), but in conjunction with and in consideration of how it links with
the other economic sectors and in the wider context of countries’ public
policies and political-economic decision making. Afterall, the essence of
‘economic linkages’ at the national level is the ability of economic sec­
tors like mining to participate in inter-sectoral linkages and contribute to
economic transformation.
As a broadly-scoped outcome, economic transformation is a “set of
separate but interacting and interconnected processes needed to
generate and sustain […] a standard of living” (Whitfield et al.,
2015:40). Underlying this process is a structural transformation which
reflects a leap from economic growth to development (Elhiraika et al.,
2019). It is centred around diversifying into high value-added produc­
tion and exports brought about by inter-sectoral reallocation of labour,
technology, capital, and land, and broadening of tax base. The emphasis
on structural transformation as a target for linkage building is a complex
but necessary analytical component. Using Lopes et al. (2017:18)‘s
conceptualisation, structural transformation is a “process of continuous
technological innovation, building of human and physical capital, in­
vestment in infrastructure, industrial upgrading and diversification, and
associated societal and institutional changes that create the
4
An analysis pursuing an ETR to linkage building is being undertaken as part
of the broader research project.
F.S. Weldegiorgis et al.
environment for business development and wealth creation”. This pro­
cess is crucially determined by well-designed and targeted industrial
policies (in the broadest sense) supported by a shift in political settle­
ments that engage and create opportunities for non-elites and in­
stitutions shaping a more coherent and complementary public policies.
In the RRACs context, agriculture and minerals have been recognised
as key resources providing the countries with a comparative advantage
and an opportunity for structural transformation (AfDB et al., 2013).
Such transformation requires development and application of physical
capital and knowledge-based assets which include human capital and
technological innovations. The availability of hard and soft infrastruc­
ture would allow African countries to pursue the “higher end of the
industrial value chains in the … mining and agriculture sectors” and
catalyse value addition and diversification (Prakash, 2018:3). Based on a
survey of the literature, Luo and Xu (2018) found that investing in
infrastructure can be a catalyst for economic growth and transformation
particularly in the least developed countries. They highlight the role of
infrastructure in lowering production and transaction costs, increasing
total factor productivity or efficiency of factors such as technology, and
‘crowding in’ other productive inputs such as human and
non-infrastructure capital and FDI. Therefore, investing in soft and hard
infrastructure and technological capabilities could enable mining link­
age pathway to broad-based economic development. This may also be
crucial for cross-country and continental economic integration at a time
when African countries have launched an African Continental Free
Trade Agreement (AfCFTA) in January 2021.
In conclusion, the development of an alternative theoretical
approach to linkage building is warranted due to (i) the importance of
the mining sector, and (ii) the general inability of most RRACs in
leveraging it for broad-based economic transformation as they continue
to heavily rely on mining exports (Elhiraika et al., 2019). As argued in
this paper, LCPs in their narrow conceptualisation are not only insuffi­
cient to promoting linkage pathways to economic transformation but
also have had limited success in building local supply chains to the
mining industry. Even if local supply chains to the mining industry were
sufficiently built, construing this as if economic linkages were built is
problematic. Such a strong case for a rethinking of the current con­
ceptualisation of mining-economy linkages is intended to steer the dis­
cussion to a broader framing of how mining sits within and contributes
to the host economy. While such rethinking has been highlighted in the
last decade, the development of an in-depth and comprehensive
approach is long overdue in the scholarly debate.
As the discussion above has alluded to, the development of an
alternative theoretical approach to building linkages requires assessing
and critically evaluating the host country’s broadly scoped and diverse
natural, human, and institutional endowments, not just mineral and
material resources. This is crucial to comprehensively understand the
role of mining in the structural transformation of the host economy. The
argument presented in this paper shows that building linkages needs to
be conceived as a pathway to structural change, which then dictates how
mining interacts with other sectors of the economy to bring about eco­
nomic transformation. It also entails the consideration of socio-political
transformation to ensure linkage building is supported by institutional
arrangement. Furthermore, an ETR-based approach opens theory and
policy spectrum to understanding and exploring linkage opportunities
from the extraction and domestic use of industrial minerals and con­
struction material. Framing mining’s economic linkages in this way
provides a broader policy platform for governments to navigate beyond
the narrow LCR targeting based on export commodities.
CRediT authorship contribution statement
Fitsum S. Weldegiorgis: Conceptualisation, Methodology, Writing
and Editing. Evelyn Dietsche: Advisory, Reviewing and Editing. Daniel
M. Franks: Advisory, Reviewing and Editing.
10
Resources Policy 74 (2021) 102312
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