Local content policies in the mining sector

Abstract

Historically, the mining industry in resource-rich developing nations has generated little value added in the countries where extraction takes place; many mining countries have sustained undiversified economic structures and vulnerability to commodity shocks. More recently, greater outsourcing has led to the emergence of global supply chains in the sector. Local content requirements (LCRs) have become politically attractive in resource-rich countries, as they aim to create jobs and economic opportunities. Yet in practice, the design and implementation of LCRs that foster sustainable and competitive domestic suppliers has proven extremely difficult. This chapter examines the effectiveness of LCRs to foster employment and economic diversification in resource-rich countries. It reviews the relevant institutional frameworks and includes a brief discussion of the implications of international trade rules on the use of such instruments. It addresses policy implications for countries that aim to maximize benefits from the mining sector while ensuring that their regulatory and business environments contribute to sustaining competitiveness in global markets.