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Local Content Requirements and The Green Economy

Report by Trade Environment, Climate Change and Sustainable Development Branch, DITC, UNCTAD, 2014

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The study was prepared at a time when the “green economy” concept moved from theory to practice, with a range of developed and developing countries placing local content at the heart of their green economy strategies, and their green economy plans at the heart of their industrial policies. It reflects developing countries’ increasing emphasis on the “sustainable” element of traditional development objectives, such as rural development, urban planning and industrialization.







: l



Local Content
and The Green

Printed at United Nations, Geneva – 1421792 (E) – November 2014 – 648 – UNCTAD/DITC/TED/2013/7


Local Content
and The Green

New York and Geneva, 2014


This study expresses the views of the author and does not necessarily reflect the views of UNCTAD or its
member states. The designations employed and the presentation of the material do not imply the expression of
any opinion whatsoever on the part of the United Nations Secretariat concerning the legal status of any country,
territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.

This document has been reproduced without formal editing.

Material in this publication may be freely quoted or reprinted, but acknowledgement is requested, together with a
reference to the document number. It would be appreciated if a copy of the publication containing the quotation
or reprint were sent to the UNCTAD secretariat at the following address:

Chief, Trade, Environment, Climate Change and Sustainable Development Branch (TED),
Division on International Trade in Goods and Services, and Commodities (DITC),
UNCTAD, E Building, Palais des Nations, CH - 1211 Genève 10, Suisse.

Copyright © United Nations, 2014

All rights reserved



Note ........................................................................................................................................................... ii
Acronyms ................................................................................................................................................... iv
Acknowledgements.................................................................................................................................... iv

I. BACKGROUND AND INTRODUCTION ..................................................................... 1

II. LOCAL CONTENT: RATIONALE AND PRACTICE ........................................................ 3
A. What are local content requirements? .................................................................................................... 3
B. The positive rationale for local content requirements .............................................................................. 4
C. Current use and best practices .............................................................................................................. 6

III. LESSONS FROM BEST PRACTICE AND KEY CONCERNS ........................................ 11
A. The wider context for local content: Value-added and competitiveness ................................................ 11
B. The importance of openness ............................................................................................................... 13
C. The importance of realism and “soft” targets........................................................................................ 15
D. Phasing in and phasing out .................................................................................................................. 17
E. Local content: Not a panacea .............................................................................................................. 17

A. The rationale and context for South Africa’s green economy measures ................................................ 19
B. The role of local content outside and inside the South African green economy ..................................... 22
C. Other uses of local content in the global green economy ..................................................................... 24

A. Local content, growth and competitiveness ......................................................................................... 27
B. Transparency and institutions ............................................................................................................... 31
C. Expectations versus reality ................................................................................................................... 32
D. Local content and the global framework for renewables....................................................................... 32

VI. CONCLUSION: OLD AND NEW OBJECTIVES ......................................................... 35

References ............................................................................................................................................... 36
Notes ....................................................................................................................................................... 37


This study was prepared by Sacha Silva of World Trade Advisers and substantively edited by Mr. Bonapas
Onguglo and Mr. Alexey Vikhlyaev of the United Nations Conference on Trade and Development (UNCTAD)
secretariat. The desk-top publishing was done by Mr. Rafe Dent.

This publication, Local Content Requirements and the Green Economy, is a product of the Trade Environment,
Climate Change and Sustainable Development Branch, DITC, UNCTAD. It was commissioned for and forms part
of the background documentation for an ad hoc expert group, entitled: “Domestic Requirements and Support
Measures in Green Sectors: Economic and Environmental Effectiveness and Implications for Trade”, held in
Geneva on 13 and 14 June 2013.

The study is far from an exhaustive examination of these issues. In many areas, the analysis is speculative, aimed
at raising questions and suggesting areas where domestic and international policy makers may need to consider
undertaking further analysis. Above all, it should be stressed that the study raises these matters at a very general
level. Whether any given governmental measure is consistent with WTO rules is a highly contextual question, that
may well depend on the exact design features of that particular measure, and its broader context – regulatory,
technological and commercial. Thus, nothing in this study should be considered as a judgment that any actual
measure of any particular government violates WTO rules.

The study and the meeting are part of a larger effort by UNCTAD to analyze issues arising at the intersection of
green economy and trade policy. The study has been prepared at a time when the “green economy” concept
moved from theory to practice, with a range of developed and developing countries placing local content at the
heart of their green economy strategies, and their green economy plans at the heart of their industrial policies.
It reflects developing countries’ increasing emphasis on the “sustainable” element of traditional development
objectives, such as rural development, urban planning and industrialization. The study has also been prepared
at a time when countries across the income spectrum are taking a fresh look at local content requirements, after
having largely phased them out in traditional strategic industries such as fossil fuel energy and automobiles.

What do we know about the economic and environmental effectiveness of performance requirements in green
sectors? Do performance requirements provide a compelling business case, with short- and long-term returns?
Is there anything unique about renewables that makes them a special case for performance requirements? Does
the politics of accommodating the higher cost of renewable energy demand a clear-cut avenue towards job
creation through localization? Does greening the value chains provide a new rationale for performance require-
ments? Can better governance play a role in dealing with protectionist elements of support measures? Are there
any upsides for developing countries in a world where performance requirements are extensively used? Objective
evidence on the economic and environmental effectiveness of trade-related measures such as subsidies or local
content requirements can provide the answers.

Guillermo Valles,

Division on International Trade
in Goods and Services, and Commodities.

B-BBEE Broad-Based Black Economic

BNDES Brazil National Development Bank
BOP Balance Of Payments
COP Conference of the Parties
COSATU Congress of South African Trade Unions
EEG Export Expansion Grant
EPA Economic Partnership Agreement
FIT Feed-In Tariff
HDSA Historically Disadvantaged South African

IPAP Industrial Policy Action Plan
IRP Integrated Resource Plan
kWh KiloWatt Hour
NNPC Nigerian National Petroleum Corporation
PPPFA Preferential Procurement Policy Framework

PV Photovoltaic
REIPPP Renewable Energy Independent Power

Producer Programme
SARI South African Renewables Initiative



This study explores the use of local content
requirements in the green economy, with a spe-
cific focus on South Africa. The study examines
the emerging use of local content as an increasingly
common tool in industrial policy; one aimed both at
higher (and higher-skilled) job creation and the shifting
of economies towards low-carbon, resource-efficient
and socially-inclusive bases. In terms of approach, the
t Outlines the basic definition, rationales, history and

traditional practice of local content requirements,
with emphasis on the energy sector (Chapter II);

t Notes some of the lessons from the successes and
failures of local content measures, particularly in the
developing-country setting (Chapter III);

t Outlines the emergence of local content to promote
industrial objectives based on a green economy
platform, with a specific focus on South Africa
(Chapter IV); and

t Explores some of the same key lessons highlighted
earlier, but in the context of the green economy
(Chapter V), and provides concluding thoughts
(Chapter VI).

The study was prepared at a time when devel-
oped and developing countries are increasingly
adopting both green economy and local con-
tent objectives. As the green economy concept
has moved from theory to practice, and as green
industrialization is seen as a promising avenue for
increasing employment, a number of developed and
developing countries are increasingly placing local
content at the heart of their green strategies, and their
green strategies at the heart of their industrial policies.
Among the developed countries, Canada (in Ontario
and Quebec), The EU (in Spain, Italy, France, Greece
and Croatia) and the United States have used local
content requirements in some form to stimulate the
growth of renewable energy projects. Among the de-
veloping countries, the use of local content in green
economy strategies extends from large global play-
ers such as China, Brazil, Argentina, India and South
Africa, to smaller countries such as Tunisia, Ecuador
and Nepal. Outside of the green sector, both devel-
oped and developing countries have strengthened the
role of local content policies in stimulating job creation,
providing – in a time of global recession – investment

incentives (via, for example, government procurement)
to domestic producers in key sectors.

The analysis comes at a time when a green
economy and local content linkage is viewed as
a tool for development. There is an emerging body
of work emphasizing the need for a sustainability push
within traditional development objectives, such as ru-
ral development, urban planning and industrialization.
Moreover, many developing countries see growth and
income opportunities (or risks to be managed) in the
international climate change architecture, whether it
implies complying with carbon limits, or seeking eco-
nomic opportunities in the new markets for managing
emissions. At the same time, the job creation impera-
tive – one particularly strong given the aftershocks of
the 2008 global financial crisis – and the need to “leap-
frog” technological barriers has led many developing
countries to re-visit the use of local content require-
ments, which have rapidly spread outside of traditional
heavy industries (e.g. energy and automobiles) into
green economy investments and regulations.

The study also emerges at a time of increasing
recognition of the link between trade and the
green economy. The link between trade and the en-
vironment, once considered a marginal policy discus-
sion, has now become mainstreamed to the degree
that it forms a core area of WTO negotiations, and
enshrined in key trade documents such as the legal
texts establishing in the WTO. While there is no spe-
cific agreement dealing with green economy issues,
under WTO rules members can adopt trade-related
measures aimed at protecting the environment, pro-
vided a number of conditions to avoid the misuse of
such measures for protectionist ends are fulfilled – an
issue which has generated significant interest within
the WTO (particularly the issue of local content). The
WTO legal aspect is outside of the scope of this paper,
which focuses instead on the practical, industrial plan-
ning elements of the link between local content and
the green economy.

The study was prepared on the basis of desk re-
search and stakeholder interviews. The study, writ-
ten in November-December 2012 and revised in April
2014, was primarily based on desk research drawing
from documents prepared by the United Nations (es-
pecially UNEP and UNCTAD), outside sector-specific
research, and materials collected during the author’s
previous work on local content in both the global en-
ergy sector and the Nigerian economy. The paper also
benefited from interviews held with stakeholders in Sub-


Saharan Africa, most of which were held off-the-record
given stakeholder sensitivities when discussing the is-

sue of local content. The list of documents cited can be
found in the References section at the end of this study.

3II. Local Content: Rationale and Practice


A. What are local content requirements?
The aim of local content requirements is to cre-
ate rent-based investment and import substitu-
tion incentives. Local content requirements are
provisions (usually under a specific law or regulation)
that commit foreign investors and companies to a
minimum threshold of goods and services that must
be purchased or procured locally. From a trade per-
spective, local content requirements essentially act as
import quotas on specific goods and services, where
governments seek to create market demand via leg-
islative action. They ensure that within strategic sec-
tors – particularly those such as oil and gas with large
economic rents, or vehicles where the industry struc-
ture involves numerous suppliers – domestic goods
and services are drawn into the industry, providing an
opportunity for local content to substitute domestic
value-addition for imported inputs. Thus – in contrast
to the traditional protected export platform proposed
by many development advocates in the 1960s and
1970s – local content requirements seek to attract
foreign direct investment (FDI) by firms.1 Moreover,
through local content requirements, government can
achieve these goals often without sharing in the risk of
commercial undertakings.2

Local content requirements are often paired with
investment incentives, as part of a “carrot and
stick” approach to attracting FDI. While the use of
local content measures has attracted outsized atten-
tion inside and outside the WTO, governments (both
developed and developing) employ a range of mea-
sure to attract investment, using a “carrot and stick”
t On the “stick” side, governments use performance

requirements, which can be generally understood
(as defined by UNCTAD in 2003) as stipulations
– whether related to local content, export perfor-
mance, technology transfer, R&D, employment
and domestic equity/ownership – imposed on
investors, requiring them to meet certain specified
goals with respect to their operations in the host
country.3 The specific policy goals – strengthening
infant industries, increasing revenue, improving the
balance of trade and lowering unemployment – are
not always accounted for in the decisions of private

economic agents. The use of some measures is
restricted at various levels – the WTO Agreement
on Trade-Related Investment Measures (TRIMs)
prohibits the use of measures related to local con-
tent, trade balancing, export controls and certain
foreign-exchange restrictions, and certain bilateral
treaties limit the use of other performance require-
ments. These measures however are nonetheless
widely used by governments to align investment
with industrial planning. 4

t On the “carrot” side, governments use a range of
investment incentives to offset costs incurred by
firms that choose to establish in the host market.
These incentives range from direct transfers – e.g.
grants (for R&D projects or new capital investment)
and dedicated public-private investment funds – to
indirect transfers, such as low- or no-cost govern-
ment services in marketing and distribution. The
sum of government resources used for investment
incentives is significant: available information indi-
cates that, in 2003, 21 developed countries spent
nearly US$250 billion on subsidies; the total for the
world was more than US$300 billion in that year,
with state and local incentives in the United States
(US$50 billion) nearly equally the total subsidies in
developing countries.5

This carrot-and-stick approach has been used suc-
cessfully by several countries as an integrated pack-
age of industrial planning policies. Chile, for example,
successfully used cash subsidies and local content
requirements – prior to their phase-out under Chile’s
WTO obligations – to develop a more diversified ex-
porting base, with small and medium-sized enterpris-
es in particular seeing a rapid increase in growth and
export volumes. Malaysia employed a combination
of “pioneer status” tax incentives with employment
requirements from the 1960s through the 1990s to
achieve dramatic increases in manufacturing employ-
ment – from 318,000 in 1970 to 2.1 million persons in
2000; corresponding to a doubling of its share of total
employment to 23%, and contributed to a reduction of
unemployment to below 4%.6

Local content requirements can be both ex-
plicit and implicit. In their most direct and explicit
form, local content requirements can be explicit (i.e.
numerical or qualitative) targets contained in national
legislation or industry-specific regulations that specify
a minimum share of locally-sourced goods and/or ser-
vices (or conversely a maximum ceiling for imported
inputs). Other, less direct, forms include the creation


of ‘weighting’ or ‘scorecard’ systems where local con-
tent is one of usually several criteria (including export
performance and whether or not the sector in question
has been designated as strategic by the Government).
This mixed system generally arises in the case of
subsidy programmes – such as the Nigerian Export
Expansion Grant to encourage non-oil manufacturing
– where the score determines the level of subsidy to
be received, or for targeted goals within government
procurement to ensure that government purchases
are in line with employment policies and targets.
Local content requirements may not necessarily need
to be de jure (i.e. written in legislation, regulations or
directives); for public procurement where selection
processes can be heavily influenced by political con-
siderations, a statement by relevant government of-
ficials that local content will be given heavy weighting
in tender assessment could suffice to serve as a clear
signal to potential bidders that a de facto local content
standard will be applied.

Local content can take many different forms,
affecting any number of sectors. Local content re-
quirements can be fashioned for virtually any good or
service that can be used as an input into most goods
and services. This can include inter alia:
t Minimum thresholds on the amount of locally-

sourced materials for the production of goods
– usually expressed as a percentage of volume,
tonnage, length (e.g. for cables), or number – par-
ticularly for large/heavy industrial inputs;

t Minimum thresholds on the amount of locally-
sourced expenditure or man-hours for the use of
services, ranging from engineering and transport to
financial services and insurance;

t Explicit or implicit requirements that companies/en-
tities take local content development into account
in their project and strategic planning, or when un-
dertaking feasibility studies; and/or

t Requirements for companies, operators or inves-
tors to locally establish facilities, factories, produc-
tion units or other operations for the purposes of
carrying out any production, manufacturing or ser-
vice provision currently being imported.

Although restricting trade is not always the pri-
mary aim of local content requirements, they
can have significant impacts on trade. In a sce-
nario where both (a) local content targets are high (i.e.
greater than 20-30%) and (b) enforcement and com-
pliance mechanisms are effective at both the sector
and product level, a Government’s use of local con-

tent requirements can dramatically effect the invest-
ment and sourcing patterns of firms in the host coun-
try market, and by extension on trade. For example,
the use of targeted local content policies by the Thai
Government in its automobile sector led to a 77% de-
crease in the value of imported parts and components
in each domestically assembled vehicle; similar mea-
sures imposed by the South African government in its
vehicles sector from 1965 to 1985 resulted in a nearly
one-quarter decrease import penetration ratios.7

B. The positive rationale for local
content requirements8

The economic impetus can arise from several
sources, primarily to strengthen a weakened
or infant industrial base. The primary rationale for
the use of local content requirements is either the
development (i.e. the infant industry argument) or the
strengthening of the domestic industrial base, particu-
larly where a developing country has been historically
engaged in enclave and/or low value-added activities,
or where weak linkages exist between large industries
and the rest of the manufacturing and service sectors.
In many resource-rich developing countries, the capi-
tal flows and demand associated with the exploitation
of fossil fuels has often led to overvalued exchange
rates, a high propensity to consume (with associated
balance-of-payments difficulties), a neglect of basic
investment measures to bring down business costs,
and a neglect in certain cases of entire sectors (e.g.
agriculture, light manufacturing) that could serve as
inputs into higher value-added activities. Local con-
tent requirements thus become a means of shifting
the economic base away from both consumption
and rent-based industries (e.g. mineral extraction),
and towards the creation of an indigenous production
platform focused on domestic value-added.

The industrial strengthening case is particu-
larly strong in some developing countries in
Sub-Saharan Africa. Immediately following inde-
pendence, a number of Sub-Saharan African gov-
ernments embarked on an ambitious programme of
import substitution, public spending and development
planning – for example, Nigeria channelled 14% of
public investment towards industrial development
from 1962-1968 – coupled with legislative measures
to restrict strategic economic sectors for nationals,
or place strict quotas on expatriate hiring. For some
countries, the import substitution approach to indus-
trial development, during its initial stages, saw argu-

5II. Local Content: Rationale and Practice

able successes. In Nigeria for example the number of
industrial firms grew at over 12% annually from 1964
to 1972; the annual average growth rate of wage bills
and total gross domestic output increased by 17.9%
and 16.4% respectively over the same time period.
More ambitious initiatives however ran into significant
obstacles, as the reality set in that many measures –
which strongly affected key sectors such as banking,
construction, tourism, and energy – were crafted with
little consideration of capacity, industry competence
or competitiveness, and that economic rents created
by the investment restrictions quickly became a valu-
able trading commodity between established foreign
companies, powerful politicians and private sector
middlemen, whereby the latter two groups earned
large commission fees with little real capacity building
in the process. The combination of economic fluctua-
tions due to commodity price swings (especially the
price of oil) and the rapid expansion of the state’s
role in the economy created a powerful disincentive
against long-term foreign investment, particularly for
small and medium-size enterprises (SMEs) who could
not afford access to political elites. Thus local content
requirements are seen as a way to channel investment
away from the often import-heavy, low value-added
industrialization that often resulted from the post-
independence period.

The industry-strengthening argument is mir-
rored in trade-related concerns over the balance
of payments. A major motivation of developing coun-
tries in implementing local content requirements is the
safeguarding of the balance of payments (BOP), given
the often very high foreign currency drainage associ-
ated with the importation of goods and services for
strategic industries. This concern is particularly true in
the case of technologically-intensive resource extrac-
tion (e.g. offshore oil and gas) – in Nigeria’s case, au-
thorities in charge of implementing new local content
legislation estimated in 2011 that orders from oil com-
panies with foreign equipment manufacturers totalled
US$15 billion per year.9 The balance-of-payment
arguments is not always cited as a primary rationale
behind new local content guidelines for the simple
reason that the energy discoveries that prompt local
content legislative efforts are often accompanied by
dramatic increases in export values that either match
or outpace the concomitant growth in exports. The
concerns however tend to arise when energy prices
suddenly fall; leading to a situation where the costs
(and hence import bills) of production are maintained
but export revenues are dramatically decreased.

A secondary use of local content requirements is
to address a market or policy failures. Local con-
tent requirements can help in correcting an economic
outcome whereby multinationals fail to respond to
employment and sourcing opportunities available on
the domestic market. This failure can arise due to, for
example, governments being aware of, but multina-
tionals or domestic firms not accounting for, the posi-
tive “externalities-from-entry”, spillovers and learning
effects that could be generating by local content. In
simpler terms, local content requirement can help in
closing the gap between social and private returns to
certain FDI activities. Local content can also compen-
sate for certain business practices undertaken by for-
eign or domestic firms that hinder the growth of local
capacity – for example, if large firms become reluctant
to cede their technological or market advantages by
licensing or sub-contracting, or engage in restrictive
practices such as price-fixing, collusion or manipula-
tion of transfer prices that prevent wage and price
signals from reaching domestic investors and firms.10

Countries also use local content to “leap-frog”
existing barriers to technological transfer. The
use of performance requirements (particularly those
on local content) are just one of many means to dis-
cipline and speed up the process whereby develop-
ing countries (or advanced economies seeking to
quickly develop a new strategic sector) are able to
learn, adopt and adapt technologies and production
processes innovated elsewhere. The use of perfor-
mance requirements is particularly prevalent not only
(as noted above) in sectors with high rents and strong
network effects, but also in highly sophisticated indus-
tries where these entry barriers are extremely high and
potentially prohibitive for most developing countries.
The barriers can be particularly high in the case of new
technologies such as deep-water oil/gas extraction,
or green technology (see the discussion on the green
economy in Chapter III). The fundamental “leap frog”
rationale, especially in the developing country context,
is concisely captured by Veloso (2001):

The logic for performance standards seems
straightforward. Governments in industrializing
nations were aware that local firms needed to
learn how to master the technologies of the
developed world to be able to catch up and
compete. Nevertheless… market power and
coordination problems may result in under-in-
vestment by both local firms and foreign inves-
tors in the types of skills and technologies that


are critical for industrialization. The government
response was to step in and intervene, set-
ting targets and defining milestones that could
steer the economy in the right direction. Some
of their main targets were export promotion
and backward linkage formation, exactly those
that are recognized as having more importance
for development, and also those that are more
prone to be subject to increasing returns and
externalities that generate under-investment.11

Countries can also use local content to re-dis-
tribute rents arising from economic activities.
One of the specific attractions of local content require-
ments to industrial policymakers is their ability to be
carefully tailored, both in terms of which industries
are targeted and in terms of what level local content
targets are set. Local content requirements allow gov-
ernments to re-direct the rents arising from economic
undertakings (particularly in high-rent activities such
as natural resource extractions) away from foreign in-
vestors and towards specific groups, firms or regions
in the host country. This can either serve a beneficial
purpose – e.g. to ensure that the profits and employ-
ment from natural resource extraction are felt directly
in the communities where the extraction is done – or a
negative purpose, e.g. where the distribution of rents,
or the local content process itself, is used as a means
to compensating certain individuals or firms for politi-
cal reasons, or to fuel corruption. The re-distribution
can also be aimed globally, such as when developing
countries seek in the host country to offset subsidies
and measures that foreign firms enjoy in their home
countries – for example, subsidies on education, ma-
terials, or the tax treatment of profits.

Local content requirements may be preferable
to other forms of protection. The specificity of lo-
cal content requirements has led some observers to
suggest that – from an overall welfare perspective,
particularly in the developing-country setting – content
policies might be preferable to other trade-distorting
measures such as tariffs and subsidies. Tariffs, for
example, create a cost penalty on imported inputs
that does not exist in the case of local content require-
ments. While governments gain from higher tariff rev-
enues, they lose the ability to ensure that the increase
in demand is limited to the strategic good in question.
Moreover, governments’ abilities to increase tariffs
may be limited either by their WTO commitments, or
by FTA commitments with the country of origin of the
imported inputs, or by participation in a regional trade

agreement (RTA) common external tariff arrangement
that sets certain tariff rates (usually low) for industrial

C. Current use and best practices
i). A global picture

Local content requirements have been widely
used at the global level. While there is a paucity of
recent global surveys, a mid-1980s UNIDO study of
the use of local content requirements found that in just
a single sector (automobiles), 27 (mostly developing)
countries out of 50 employed local content guidelines
to boost domestic value-added. In 1989, a study
conducted by the United States Trade Representative
(USTR) found that 23 of 31 developing countries (and
one-third of developed countries) surveyed applied
some form of local content requirements. A follow-up
study in 2002, based on WTO notifications, found that
large developing countries used local content guide-
lines in a range of industries (particularly automobiles).
In some industries, such as the automotive sector,
the use of performance requirements is particularly
prevalent, with virtually every developed country using
(at one point or another) either local content require-
ments, export performance requirements or local
equity requirements to build indigenous industrial
capacity. Further studies however have found that
– in part as a response to WTO commitments – the
overall global trend is a move away from strict local
content targets, with both developing and developed
countries tending to rely more on requirements linked
to incentives.

The rationale for local content requirements is
especially strong for the energy sector. Apart from
the United Kingdom, very few new energy producers
– including Norway, long considered as the gold stan-
dard of local content – had, upon discovery of their
oil and gas deposits, the requisite industrial capacity
to serve as an internationally competitive platform for
exploration, extraction, distribution and export. Given
that the oil industry is nearly a century old, the domi-
nance of established operators and the sophistication
of energy technology – particularly for offshore de-
posits – implies that emerging energy producers will,
at the outset, nearly always depend on foreign firms.
While energy sector investments (if properly managed)
can ensures a steady revenue stream and constant
(and in the case of developing countries, rising) de-
mand levels, its exploitation requires sophisticated

7II. Local Content: Rationale and Practice

and cutting-edge technology, a ready-made demand
for a wide network of suppliers in virtually all areas of
manufacturing and services, and ongoing employ-
ment for trained staff, both at home and in other ener-
gy-producing countries around the world. The “fixed”
and finite nature of energy deposits however gives
host countries – even developing countries with weak
institutions – a distinct bargaining power with respect
to foreign firms seeking access to natural resources,
vis-à-vis investment sectors (e.g. automobiles) where
firms are able to consider a number of potential sites
for investment.12

The impetus is particularly strong for Sub-
Saharan countries that have historically de-
pended on a narrow range of fossil fuels. In the
oil industry alone, services to producing firms have
historically accounted for nearly 90% of total costs.
Weak industrial capacity in many sub-Saharan econo-
mies, particularly in post-conflict environments such
as Angola, however implies that the overwhelming
majority of expenditures on goods and services by en-
ergy companies go to foreign suppliers. In the Nigerian
case for example, the market for oilfield services to-
tals some $8 billion per year, with an expectation of
a near-doubling in size due to supply increases from
future projects.13 Despite the significant market for
energy services however the shares (including materi-
als procurement) that accrue to indigenous producers
in Nigeria are estimated at between 3% and 11%. In
2000, industry experts estimated that up to 90% of
capital input went overseas via equipment purchases,
consulting/services fees and expatriate wages.14

Many developing countries continue to struggle
to develop effective local content policies. In
their pursuit of locally-focused industrial development,
particularly based on the exploitation of natural re-
sources, many developing countries have faced steep
obstacles in their efforts to develop indigenous skills
and production:
t Many countries (e.g. Angola, Libya, Yemen) are

emerging from protracted internal conflicts that
have destroyed most national infrastructure, led to
a global dispersion of skilled nationals, and reduced
business confidence of overseas investors who are
unwilling to make the often enormous investments
required to make the remaining infrastructure viable;

t A number of countries’ local content efforts contin-
ued to be stymied by governance issues at state-
run oil companies, who tend to issue scattered or
outdated regulations that are unevenly enforced,

fail to coordinate with other government agencies
and/or implement local content policies in a non-
transparent or highly politicised manner; and

t Geographical or logistical hurdles (e.g. in Papua
New Guinea and Nigeria’s offshore fields) implies
that productive activities are inherently high-cost
and require globally-competitive level of sophistica-
tion even for basic parts or services, leading to very
low initial levels of local sourcing in countries with a
weak industrial base.

ii). Country cases

Brazil is an often-cited success story, given its
transformation of a protected state-run energy
sector into a globally competitive industry. From
the mid-20th century until the 1990s, Brazil’s oil and
gas industry developed in a highly protected mar-
ket – where the state-owned Petrobras was the sole
developer of all Brazilian oil and gas until the 1990s
– with licensing agreements with international firms
allowed Brazilian suppliers to develop state of the art
technologies in an environment isolated from overseas
competition. Government policy in the energy sector
explicitly sought to promote self-sufficiency in most
petroleum products (a goal not yet reached at pres-
ent) as well as develop national technical know-how in
all aspects of petroleum production. Petrobras, as the
appointed “national champion” for the energy sector,
was given sole responsibility for developing a new na-
tional supply industry. The company also established
a number of subsidiaries in other industrial areas, such
as petrochemicals, fertilizers, sulphur and commercial

Brazil has successful used, at different times,
a mix of protection and deregulation to create
strong local content capacity. Under the pre-liber-
alization import substitution policy, Brazil was able to
develop a protected – albeit technologically unsophis-
ticated – industrial base, both within the energy sec-
tor and in the wider economy, despite facing political
turbulence in the form of a military dictatorship. The
Brazilian import-substitution approach however ran
into difficulties during Latin America’s “lost decade”
of the 1980, with severe inflation and slow growth.
The import substitution policy was then reversed in a
series of policy reforms, including the restructuring of
state-owned enterprises and the relaxation of barriers
to trade. A key element was a complete reorganization
and partial privatization of Petrobras in 1997, with a
focus on improving performance, decentralization and
cost-cutting, whereby the company headcount was


reduced from 60,000 to slightly fewer than 40,000
employees. Government policy still acknowledged
national ownership of mineral assets, but created a
market whereby Petrobras was forced to compete
with foreign suppliers. A key policy change in 1997
was the switch from a complete Petrobras monopoly
on the supply of goods and services, to a policy where
contractors are required to purchase local goods and
services only when they are competitive on cost and
quality with foreign suppliers. These measures have
transformed Petrobras into a global energy player, and
a key driver of local content at home.

Brazil has used a multi-prong approach towards
increasing local content. The Brazilian government
has adopted a policy of “Tudo que pode ser feito no
Brasil, tem que ser feito no Brasil.” (Everything which
can be done in Brazil should be done in Brazil). The
Brazilian approach mixes over-arching government
policies and programs – such as the National Program
for the Mobilization and Development of Oil and Gas
Industry, established by the Ministry of Mines and
Energy and coordinated by Petrobras – with compa-
ny- and contract level specifications for local content.
For example, Petrobras sets explicit targets for local
content in individual projects15 as well as pursuing
macro objectives; the company has publicly stated
its aims to create some new 100,000 jobs by 2010
through ratcheting up local content requirements and
implementation, and its 2006-2010 Petrobras strate-
gic investment plan calls for 65% of equipment and
services to be sourced from domestic suppliers. This
gradual increase in local content has been achieved
through successive bidding rounds, with each round
increasing the desired level of local content. The suc-
cess of the local content build-up in Brazil’s energy
sector has led to the similar approaches in other stra-
tegic sectors, such as mining.16

Malaysia, like Brazil, has developed a strong
national petroleum company that drives local
content development. Malaysia’s state oil company
Petronas has historically focused on an international
expansion strategy to compensate for the relatively
small domestic petroleum market. The company has
been able to successfully pursue joint ventures with
large petroleum multinationals and has pursued an
aggressive human resources strategy, offering numer-
ous training programs and establishing its own univer-
sity to train management and technical staff. Petronas
requires firms under production-sharing contracts to
secure equipment, facilities, goods, materials and ser-

vices locally unless a waiver is granted by Petronas.
Similarly, contractors are required to fill positions with
suitable Malaysian personnel, with exceptions only
granted via a waiver from Petronas.

Malaysia’s local content requirements however
have been developed in the context of an insti-
tutionally strong, market- and export-oriented
economy. Malaysia has over time used windfalls from
the energy sector to invest in massive public-sector
projects and heavy industries such as cement, petro-
chemicals and steel – and like some other developing
countries, these “white elephant” investments led to
massive over-borrowing and fiscal-debt crises. The
primary reason why in Malaysia’s case these periods
of fiscal profligacy did not lead to chronic fiscal crises
lies in the overall export orientation of the economy:

Since the early 1970s the country has led an
export-oriented industrial policy welcoming
foreign investment while developing infrastruc-
ture and local skills through heavy investment
in infrastructure, education and health. In
addition the country has had a stable policy
environment, a competitive exchange rate
and a reasonably prudent macroeconomic
policy. Thus, except for relatively short spells
of excesses, the Malaysian government has
not let the petroleum sector drive up costs and
wages in the economy. As a result, rapid non-
oil industrialization has taken place in parallel
with the expansion of the petroleum sector, an
unusual achievement indeed…. Perhaps the
most important success factor is the checks
and balances embedded in the Malaysian insti-
tutional setting… Malaysia has demonstrated
an ability to adjust and rethink policy measures
when they have turned out not to have the de-
sired effects, or when unfavourable unintended
side effects have arisen.17

Thus the Malaysian Government’s desire to enforce
strict local content requirements on petroleum sector
investors had to be balanced against the risk of nega-
tively affecting the overall attractiveness of Malaysia
as an export base, and thus compromise its ability
to compete on an equal footing with other regional
export bases such as Singapore and China.18

In the case of Norway, the government took an
early policy decision to actively develop a do-
mestic industry, rather than solely rely on local
content requirements. Upon discovery of Norway’s

9II. Local Content: Rationale and Practice

offshore energy deposits, very little initial energy-re-
lated capacity existed in the primarily fisheries-based
economy. The country did however boast internation-
ally recognized shipyards, a strong overall maritime
industry, and resilient democratic institutions. At an
early stage the Norwegian government undertook
numerous initiatives – many under its strong national
petroleum company Statoil – to re-orient its local in-
dustrial base to serve the needs of the new energy
industry. Statoil and associated Ministry of Petroleum
played a key role in developing local technologies: the
private companies developed products, but Statoil
defined product requirements, ensured overall proj-
ect control, and provided technical skills and advice
on the newly developed products. The government
sponsored a Supplier Development Programme to
address the commercial needs of the industry with
local firms. The Norwegian government invested sig-
nificant sums in research and development, as well as
building strong links between private firms and local
academic centres to create industry “clusters”, which
in turn have grown into service suppliers for overseas
petroleum markets.

While Norway has never implemented specific
local content targets, strong incentives were put
into place to encourage local industrial develop-
ment. In Norway, domestic firms were given prefer-
ence when they were considered competitive in terms
of price, competitiveness and quality until 1996, when
– in response to EU legislation – equal conditions/ac-
cess was granted to all operators regardless of origin.
In developing its domestic supply sector however, the
Norwegian government set in motion a series of delib-
erate policies and mandates that essentially forced the
international oil companies to develop the Norwegian
industry as a condition, and by-product, of their own
operations. Commitments by foreign firms to trans-
fer technology to their Norwegian counterparts were
enshrined in legally binding agreements. Petroleum
multinationals were placed in the role of technical as-
sistants to both Statoil and smaller Norwegian firms,
and joint teams were used to fast track the Norwegian
companies into fully-fledged operators. Companies
were required to conduct at least 50% of the research
for technology needed to develop prospects in Norway
at local institutions. Some of Norway’s protective mea-
sures were gradually relaxed over time as the industry
reached international standards of competitiveness.

The United Kingdom government has historically
taken a very hands-on approach to developing

local content. In developing its North Sea oil fields,
the UK government implemented a series of local
content measures, including discretionary licensing
(as opposed to auctions), audits of purchases made
by oil companies and provision of financial assistance
to domestic suppliers. The successful implementation
of these measures increased the UK local content in
the North Sea oil sector from 30% in 1973 to 82%
by 1986, with nearly 100% local content in post-
development operations. Much like their Norwegian
counterparts, local content policies have been suc-
cessful in turning UK firms into competitive suppliers
of petroleum services at the international level.

The UK’s local content measures have however
been taken in a much more favourable context
than that of most new energy producing nations.
The UK – at the time of the North Sea oil discover-
ies – already had a well-established industrial base
and highly trained and educated workforce, with a
high level of technical competence in manufacturing,
shipbuilding and engineering. The UK also provided
significant support to its domestic supplies industry,
creating a dedicated agency (the Offshore Supplies
Office) to develop the industry’s competitiveness,
develop R&D initiatives and advise on joint ventures
with established operators. The UK government also
instituted strict auditing procedures to ensure full and
fair opportunities for domestic suppliers. Most impor-
tantly, government policy ensured that the focus of
local content requirements was on creating high value
addition, rather than mere local incorporation, low
levels of transformation or local ownership. Firm-level
sanctions for a lack of local content development were
largely of the “soft” kind – i.e. difficulty in future bidding
rounds – rather than legal mandates, prosecutions or
fines. The UK government also recognized that in a
highly specialized field such as offshore oil and gas,
foreign (mostly US) involvement was inevitable at
least in the initial stages of industry development, by
providing strong support to a number of multinational
subsidiaries in the North Sea fields.

Other emerging producer countries such as
Trinidad and Tobago, Nigeria and Ghana are
beginning to explore and/or implement local
content regimes. Other developing-country energy
producers are beginning to implement their own local
content regimes, including:
t In Trinidad and Tobago, local content policies have

been driven by the realization that the traditional
approach – whereby preference was given to lo-


cal suppliers if their services were of equal quality
to the international competitor – was not yielding
sufficient capacity building for domestic firms.19 At
present, the government plans to institute several
local content measures, including the establish-
ment of an electronic clearinghouse between multi-
nationals and local suppliers, and partnerships with
several local academic institutions to create curri-
cula specifically targeted at creating local technical
and management staff. The local content approach
has heavily benefited from participation by private
sector operators and has benefited from a wider
focus on using oil and gas local content for other
areas of the economy, given the recognition of the
finite nature of Trinidad’s energy resources.

t Nigeria’s 2010 Content Act creates and number of
incentives throughout the bidding and contracting
process to increase local content levels in its do-
mestic oil and gas sector. The 2010 Act requires
that “all regulatory authorities, operators, contrac-
tors, subcontractors, alliance partners and other

entities involved in any project, operation, activity
or transaction in the Nigerian oil and gas industry”
to incorporate Nigerian content as a key element
in project development and management. At the
outset, the Act ensures that “first” and “exclusive”
consideration to be given to Nigerian providers in
certain instances, for example, where the indig-
enous providers have the requisite capacity. The
key local content element of the Act is an annexed
Schedule that provides for minimum percentage
specifications of Nigerian content for any project to
be executed in the Nigerian oil and gas industry.

t In Ghana, the government has set a 90% local
content target and has mandated operators to
create an Annual Local Content Plan and Annual
Recruitment and Training Programme, and shall “as
far as practicable” prefer local inputs to imported
goods. The Ghanaian government has instituted
the same 10% preference threshold as the Nigerian
regime, and mandates a local content target of
10% in the first year, increasing by 10% each fol-
lowing year.20

11III. Lessons From Best Practice and Key Concerns


There are a number of key issues and lessons,
particularly in the developing country context
and especially in the Sub-Saharan context, that
determine the success or failure of local content
policies. This chapter will explore five key issues,
criticisms and lessons from the application of local
content requirements that have often determined the
degree of actual industrial development occurring
from local content regulations and institutions. These
issues, each considered in turn, are the need for:
t Local content regimes to be couched in a wider strat-

egy of value-added creation and competitiveness;
t The process of local content policy formulation to

be open and transparent, backed by strong and
accountable institutions;

t Realism in setting local content targets, which
should be modified as conditions change;

t A gradual phasing in of local content policies to al-
low for industrial development and adjustment of
the regime to accommodate new information, but
also a gradual phasing-out to avoid the entrench-
ment of special interests that thrive on regulatory
barriers; and

t Local content not to be seen as a panacea for ev-
ery challenge within the domestic economy.

A. The wider context for local content:
Value-added and competitiveness

The primary lesson from best practice is that
local content requirements must be focused on
capacity-building and value-added, rather than
mere ownership. By far the most important success
factor identified in the literature on local content is the
presence of wider strategic planning in trade and in-
dustry that accompanies local content regulations. To
sum in a single phrase, the most successful local con-
tent requirements are not merely focused on the trans-
fer of income from goods and services from foreigners
to locals, but rather part of wider strategy focused on
increasing domestic value-added, regardless of the
nationality of the firms, employees or investors. All too
often, the implicit assumption underlying some de-
veloping countries’ approach to local content is that
domestic firms have the requisite capacity to supply
strategic sectors, but suffer from a demand bias of

foreign firms against sourcing locally. Thus measures
tend to focus more on using legislative mandates to
transfer of economic activity towards firms that are
nominally “local”, either by incorporation or ownership.
While desirable, ownership is not necessarily synony-
mous with capacity building, which involves develop-
ing basic managerial, technical and operational skills
within the national labour force and domestic firms.

The key focus, repeated in several case stud-
ies, is the need to include the “golden rule” of
local content measures. The so-called “golden
rule” of local content requirements states that firms
or procurement authorities should only give priority
to the purchase of local products and services when
they are competitive in terms of price, quality and
timely availability. While recent comparative studies
are not available, a 2003 study of best practices in
energy-sector local content requirements found that
countries that achieved the highest level of industrial
capacity-building specifically used this simple but ef-
fective benchmark.21 In most cases, the 2003 study
found that this rule was either implemented imme-
diately (e.g. Norway) or only after a significant delay
where the nascent indigenous operators were able to
build world-class systems and quality standards (e.g.
Brazil). A number of countries surveyed in Chapter II
have employed a somewhat modified version of the
local content golden rule. This modification either
takes the form of:
t A price preference – e.g. for local suppliers that still

comply with the necessary quality and timeliness
criteria, but are (within a fixed margin) more expen-
sive in terms of price – and/or

t A condition that firms must either “demonstrably
not disadvantage” or “provide full, fair and reason-
able access” to domestic suppliers.

The crucial objective of a local content policy that truly
promotes competitiveness is thus not to simply shift
industry rents from foreigners to locals, but rather to
gradually minimize the market power of large inter-
national contractors, whose global sourcing arrange-
ments and repeat use of preferred suppliers may lock-
out fully capable and competitive domestic suppliers.22

Mandates that are primarily targeted towards
foreign operators – rather than looking holisti-
cally at capacity needs in the entire sector – are
fundamentally misguided. This point was effectively
argued by a joint Ugandan-Norwegian study group
preparing recommendations for leveraging Uganda’s
new oil wealth:


Successful national content development can-
not be achieved by regulation and legislation
alone. An extensive framework often tends to
lead to rules that are too ambitiously and strict-
ly enforced, which easily leads to consumption
of wealth, inferior industry development, viola-
tion of international obligations and corruption.
National content should be achieved through
capacity building. It is a side-track if the fo-
cus of national content is on to what extent
the oil companies adhere to strict quantified
ambitions set by law or regulation. Real con-
tributions to capacity building, by creating a
credible atmosphere for industrial collaboration
as well as for the transfer of competence and
technology, are the only route to create lasting
value to society…

Countries that only have been willing to ac-
knowledge value adding activities in indigenous
firms have not succeeded with their national
content ambitions… National content, mea-
sured as value added, should cover value gen-
eration in both indigenous and foreign-owned
firms. It is the use of domestic resources that is
of importance. The ownership of firms is not a
panacea for value addition.23

Ultimately, the study group recommended that nation-
al content should be measured as value added from
the increased use of domestic resources (and less
use of imported resources) in all companies with an
infrastructure within the host country. This formulation
includes, by definition, the use of domestic resources
by foreign firms. The study group is careful to point
out that this does not necessarily create an inconsis-
tency with respect to the desirable long-term goal of
“indigenizing” a strategic sector. It merely makes val-
ue-addition by foreign and domestic firms a short- to
medium-term measure to build industrial capacity, as
a final driver towards creating an indigenous industrial

Local content cannot be separated from the
wider issue of industrial development and trade
policy. Each country examined earlier in the context
of international best practice saw local content as only
one element in a broader policy of developing a nation-
al supply industry. In the developing country context
– particularly in LDCs and post-conflict states – the
growth of local content will likely remain stillborn until
significant improvements are made in the provision
of public services, basic infrastructure, a streamlined

business environment and improved access to capi-
tal. This includes a focus on both the “hard” elements
of trade and industry (e.g. land, industrial parks, utili-
ties and transport) and the “soft” elements (vocational
education and training, trade fairs, access to risk fi-
nance and tax policy).24 This holistic trade and industry
approach to addressing the costs and risks of doing
business will, over time, achieve far more successes
in creating local content than mere legislative targets
for isolated sectors. A 2007 UNCTAD study, echoing
the conclusions of nearly all available literature on the
subject, found that arguably the most important factor
that doomed several developing countries’ efforts to
use local content requirements was the “general lack
of a dynamic and coherent industrial policy to support
market development, learning and innovations.” 25 The
conclusions of the 2007 UNCTAD study reiterated
the conclusions of an earlier study undertaken by the
same authors, noting that:

“Where [local content requirements are] used
carefully, with offsetting measures to ensure
that suppliers face competitive pressures
and have access to the technology and skills
they need to improve their capabilities, they
can foster efficient suppliers. Where used in a
protective setting, with few pressures to invest
in building competitive capabilities, they can
result in inefficient suppliers that saddle the
economy with high costs, outdated technolo-
gies or redundant skills.”26

This focus on value-added and competitive-
ness is particularly relevant given that local
content requirements nearly always constitute a
“second-best” tool to improve domestic value-
added. Since the existence of local content require-
ments nearly always presupposes that domestic input
sources are less efficient than imported substitutes
(otherwise minimum local sourcing thresholds would
not be required), these requirements result in input
cost increases for producing firms, with the negative
impact increasing on a per-unit basis for relatively
more efficient firms. Despite increasing the share of
domestically produced intermediate goods, for a firm
with a given profit margin and cost structure, local
content requirements results in an overall decrease in
purchases of intermediate goods (relative to a situation
where firms are free to source from the lowest-cost
suppliers). By installing a degree of monopoly pricing
– that increases for more binding content targets that
allow less and less freedom to import substitutes –

13III. Lessons From Best Practice and Key Concerns

standard economic models forecast that local content
requirements result in higher prices, lower consumer
surplus, lower quantities sold, lower firm profits and
lower government revenues (particularly where they
rely heavily on royalties). Furthermore, in a context
where the actual interpretation of specific require-
ments is unclear, input costs not only become higher
but also more difficult to forecast.

Poorly designed local content requirements may
also create perverse outcomes. Firm-level produc-
tion functions are highly sensitive to the degree of
substitutability in production, the supply conditions
in the domestic intermediate-goods industry, and
the market structure for the good in question. Since
local content requirements directly impact these pro-
duction functions, they require careful calibration by
policymakers if they are to truly act as an incentive
for multinationals to domicile their activities within the
host country. If they are not implemented however in
a targeted, temporary and flexible way, they can easily
create a politically powerful lobby of short-lived and
inefficient companies that thrive on the imperative for
local content. The policies may not even bring the in-
tended FDI benefits: by tending to channel investment
into and attracting relatively inefficient firms – since
these firms have the lowest switching costs to higher-
cost suppliers – local content requirements often
serve instead as a cost disincentive for FDI ventures,
resulting in firms deciding to export instead and avoid
the investment and profit risk. While even a success-
ful local content policy will create a certain economic
inefficiency in the short- to medium-term, those higher
costs are economically justified only if domestic firms
acquire the industrial capabilities to generate higher
value-added in the future. If not however, then local
content guidelines may consume economic wealth
within the protected sector, rather than creating it.27

Local content requirements must carefully bal-
ance costs and competitiveness. The burden
of compliance costs being placed directly on firms
– particularly in the absence of a wider government
strategy to address deficiencies in training and infra-
structure – may negatively impact export competitive-
ness in several ways:
t First, local content requirements often require sig-

nificant additional paperwork to show compliance
with the various regulations governing the targeted
sector. While larger and multinational firms are
generally able to absorb the higher compliance
costs, the additional paperwork serves as a bias

against SMEs, and in most cases directly contra-
dicts most countries’ explicit government policies
aimed at developing the SME sector. For example,
in the case of the Export Expansion Grant (EEG)
subsidy administered by the Government of Nigeria
to boost local content in non-oil manufacturing, the
Manufacturers Association of Nigeria estimates that
up to half of the financial benefit of the export grant
is wasted in dealing with application procedures,
claims backlogs and bureaucracy. According to the
Association, the EEG paperwork requirement has
effectively shut out local SMEs from accessing the
grant scheme and severely affecting SME growth in
Nigeria, given that they are less able to circumvent
poor infrastructure relative to larger multinationals.
As a result, the Association estimates that 90% of
the value of the grants is captured by the largest
10% of qualifying exporters.28

t Second, companies are likely to pass on local con-
tent compliance costs to their consumers, further
driving up the cost of essential services. In the case
of the shipping industry, for example, compliance
costs associated with local content regimes (such
as cabotage policies that require all coastal ship-
ping to be conducted by local vessels) often result
– particularly in enclave economies with low indus-
trial capacity and a high propensity to import – in
compliance costs being passed on to importers in
the form of higher freight charges, and ultimately on
to consumers in the form of higher wholesale and
retail prices.

t Third, the additional local content requirements
could serve as a complete barrier to FDI, with some
firms choosing instead to export rather than incur
the costs and risks of domiciling their activities in
the host country. Within the energy sector in Sub-
Saharan countries such as Angola and Nigeria, on-
shore activity has virtually ceased due to security
concerns, leaving only offshore sites where explo-
ration and exploitation costs are significantly higher.
In a highly price-competitive market such as oil and
gas, multinationals have warned that – in the ab-
sence of wider cost-of-business reductions – more
stringent local content guidelines may risks pushing
out foreign investment entirely, or substitute tech-
nologically competitive companies for less efficient

B. The importance of openness
The second lesson is that the local content re-
quirements themselves must be formulated in an


inclusive and transparent manner. In the applica-
tion of local content regimes, a most common stake-
holder concern centres on a perceived narrowness
in the way by which local content regimes are often
formulated, particularly in developing countries with
a history of contention between the Government and
large multinationals. To address these concerns and
set a level playing field for foreign and local operators,
policymakers should focus on process, i.e. the institu-
tions and channels by which local content targets are
formulated and enforced, based on a number of key
questions/considerations. For example:
t With respect to the involvement of foreign firms,

is there a clear channel for these companies to
provide inputs into (a) proposed legislation and/
or guidelines that govern local content and (b)
proposed changes to the regime under scheduled
reviews? Where such inputs are provided, what
assurances exist that the inputs will be seriously
and openly considered? Is there a serious effort to
ensure that the obligation to comply with local con-
tent requirements will be equally imposed on both
foreign and domestic firms?

t With respect to the public sector, is the input of
Ministries that fall outside the sector in question
– particularly the Ministries of Trade, Commerce,
Finance and Agriculture – actively solicited, par-
ticularly when local content measures may be
challenged in outside bodies (such as a potential
dispute in the WTO)?

t Is there a serious effort to solicit the input of civil
society bodies (e.g. trade unions, community rep-
resentatives) from the regions and social groups
that should, in principle, see the largest benefits
from the local content measures?

The ultimate aim of a successful local content process
is to build a commitment by industry operators to
take – and accept – a major share of the responsibility
to achieve the objectives that are set. The ideal end-
result of a successful local content regime should be
buy-in from both the public sector and domestic sup-
pliers (i.e. acting as the demandeurs for higher levels
of local content) as well as the foreign and domestic
operators that will be tasked with complying with the
stated targets, at the risk of losing all or part of their

The process of setting and enforcing local con-
tent targets must be administered by institutions
with a clear, limited mandate. A crucial consider-
ation for the success or failure of local content require-

ments is the design of the entity ultimately responsible
for the formulation of local content requirements and
the management/monitoring of the regime. In many
developing country cases, virtually all substantive
powers to oversee and implement local content re-
quirements are given to either the Minister in charge
of the sector in question (e.g. Energy or Economic
Development), or the state-owned monopoly that de
jure falls under the relevant Minister’s administrative
and political control, and de facto operates as an in-
dependent political and economic entity. As with the
concerns on process, there are a number of key ques-
tions with respect to the institutions overseeing local
t What regulations, if any, set the statutory powers,

budgetary resources and procedures within the
regulating entity? Are there clear institutional bar-
riers between the entity and other parts of govern-
ment, particularly the state-owned monopolies that
are in theory subject to its control? Are the deci-
sions of the entity subject to any sort of legislative
review or appeal?

t Does the entity have a governing council, and if so,
who sits on the council? Is there a serious effort
to ensure fair representation by non-public sector
entities, particularly foreign firms? Has the council
issued omnibus guidelines to clarify, aside from ex-
isting/overarching legislation, how it intends to carry
out specific elements of the local content regime?

The relevant institutions need to be given the
resources to effectively carry out their mandate.
Given that its responsibilities often include the de-
velopment, monitoring, implementation and industry
consultation of local content requirements, the public
entity in charge of local content often has a daunting
task. Even in developed countries, the management
of local content is a highly resource-intensive task – in
Canada, for example, the agency in charge of local
content was staffed with more than 130 professional
employees, half of whom were professional or techni-
cal staff; even so, it reportedly had a hard time per-
forming its tasks.30 Perhaps more important however
than the quantum of financial resources allocated to
relevant entity is the independence and integrity of
its staff; policymakers must ensure that the manag-
ing entity is not “stacked” with political appointees or
current or ex-employees of former state monopolies
– a difficult proposition in a developing-country setting
where such persons are normally the only qualified
nationals with adequate exposure to industry jargon
and local content issues. It is important to reiterate,

15III. Lessons From Best Practice and Key Concerns

of course, that government control of the managing
entity is essential to ensure that local content regula-
tions actually promote development policy; in nearly all
the successful local content case studies in the energy
sector for example, the main agency for implementing
local content was closely associated with the Ministry
of Petroleum or Energy Resources. The Government
however should ensure that the staffing of the entity in
charge of local content is made on the basis of tech-
nical considerations and industry knowledge, rather
than political or social affiliations, with a balance of
government employees and technicians with industry

C. The importance of realism and “soft”

The third key lesson is that local content targets
should be realistic and based on plausible eco-
nomic assumptions. Perhaps the most difficult bar-
rier facing policymakers in the design of local content
regime is the question of where to apply local content
targets, and at what level to set relevant targets. This
question is particularly difficult in an LDC or post-
conflict setting where industrial capacity is low (or in
many cases, non-existent) but where there is a strong
socio-economic or political imperative towards creat-
ing the largest number of jobs or firms in the shortest
period of time possible. The literature and case stud-
ies on local content point to the second key lesson
listed above – i.e. the need for an open process of
local content policy formulation – as the key element
in ensuring that realism reigns over target-setting and
compliance monitoring. When, for example, foreign
firms (which often are the only entities with significant
experience in actual capacity-building) are excluded
from the process, and/or where local content policy
formulation is the sole preserve of a single Ministry
or parliamentary committee, there is a significant risk
of purely “aspirational” targets that are unachievably
high, given the current level of competitiveness of lo-
cal firms and the inevitably long time-frames required
to increase productivity, particularly in a high-cost,
high-risk economies. The frustrations felt by some
observers of developing-country efforts to imple-
ment local content were crystallized by a critique of
efforts by both Nigeria’s state-owned NNPC (through
its 2005 directives to the oil and gas industry) and
the Nigerian Parliament (through the 2010 National
Content Development Bill) to create local content by
legislative fiat:

The ambitious directives had little correlation
with Nigeria’s capacity. Even the NNPC belat-
edly acknowledged lack of capacity in some
of the sectors… Notwithstanding capacity
limitations, remarkable efforts were undertaken
by the IOCs [international oil companies] to
implement the directives, resulting in general
compliance with the above requirements but
with challenges remaining, [and] lack of capac-
ity remains the primary challenge in attaining
these objectives. The directives were issued
with scant regard for the country’s technical
manufacturing base and technical compe-
tence, availability of required equipment, or
the financial capacity of domestic companies
to execute any major contracts. Nor does it
appear that their capacity to meet requisite
health, safety and environmental standards
was considered.

Like the NNPC directives, the draft Bill had a
similar disregard for human, technical, financial
and manufacturing capacity. It tasked IOCs
with furnishing requisite human, manufacturing
and materials capacity and sought to penalize
them for the country’s technical, financial and
educational deficiencies. It also neglected the
cost impact of compliance, notwithstanding
NNPC’s notoriety for failing to fund its share of
joint venture operations.31

The need for realism is particularly important
when consumer prices may be affected. The use
of local content, as noted earlier, is essentially the cre-
ation of artificial demand via regulation. If this level of
demand is set too high relative to current capacity, the
combination of rapidly rising demand coupled with a
slowly growing quantum of local supply will inevitably
lead to higher prices for domestically sourced content,
and likely higher prices faced by consumers, unless
the firm in question operates in a highly competitive
market, or has the cash reserves to absorb the higher
costs. This is particularly true in the short-run, when
the quantity of local content – whether production
plants, skilled/unskilled labour, or service providers
– is fixed, so there are fewer options available in the
domestic market vis-à-vis the equipment that could
be sourced globally.32

The main difficulty in creating a regime of unreal-
istic expectations is then managing the chronic
undershooting that inevitably results. While am-
bitious targets are not themselves a problem, chal-


lenges may arise from policymakers in how to manage
chronic undershooting of local content targets:
t On one hand, policymakers can choose not to

penalize or sanction non-compliance. On the plus
side, this approach allows for capacity to gradu-
ally build, and for operators to adjust levels of local
content to suit individual projects and strategic as-
sumptions. As a negative however it could lead to
local content guidelines not having enough “bite”,
i.e. a legal or regulatory incentive for operators to
make the difficult and costly switch towards local
sourcing, and thus frustrate and/or render ineffec-
tive the entire local content strategy.

t On the other hand, policymakers could choose to
penalize non-compliance of local content targets.
This could take the form of simple disqualification
in a bidding process, or even a financial penalty,
such as a given percentage of the project budget.
As with the more laissez-faire option above, this
choice brings positive and negative consequence.
Penalties for non-compliance can send a strong
signal of the Government’s seriousness in develop-
ing local content. They can however also lead to a
dilemma of what avenue to take when too many
firms are unable to achieve local content targets.
Some countries (e.g. Nigeria) have instituted a
waiver system, whereby the Minister for Petroleum
Resources can waive the obligation under Nigeria’s
2010 Content Development Act for a given firm or
project, subject to the firm providing a clear plan
for future local sourcing. This waiver-based system
however can easily lead to incentives for corruption,
particularly where the criteria for evaluating waiver
applications is not made public, or is not applied in
an objective or transparent manner.

Unrealistic targets may also create strong incen-
tives for circumvention by operators. A wide gap
between current capacity and some local content
targets, particularly combined with a punitive regime
for non-compliance, may create strong temptations
for both domestic and multinational firms to create
Special Purpose Vehicles and other temporary legal
entities with prima facie local ownership to satisfy local
content requirements, with little or no improvement in
actual domestic capacity utilisation. 33 Local provid-
ers can easily form, for example, shell “engineering
companies” that employ skeletal technical staff to
secure local content-compliant contracts, which then
outsource actual implementation to the same foreign
firms that traditionally imported the given good or ser-
vice. This incentive is compounded in a context where

local content legislation lacks a clear definition of key
terminology, specifically what constitutes a “local” or
“indigenous” company: arguably, a domestic affiliate
of an international service provider could qualify as a
“local” company even though actual service or mate-
rial provision is outsourced outside the country.34

The key is to allow local content regulations and
targets to be modifiable as conditions change.
The crucial consideration in designing local content
regimes is to ensure that, as conditions change – for
example, as capacity improves, or as global/domestic
economic conditions change, as technology moves
in new directions, or as new information is available
to policymakers with respect to current and poten-
tial local capacity – the local content targets and
policies change in tandem. This requires primarily a
clear statutory obligation to regularly review the local
content regime at an appropriate interval, with the
active involvement of all stakeholders (both domestic
and foreign). Modification however requires, perhaps
more importantly, political will. When local capacity im-
proves, the upward adjustment of local content targets
is a natural and painless political exercise. However
when local content targets have been shown to be
unrealistic given current conditions, a downward ad-
justment is particularly difficult, given the strong politi-
cal pressures, high public profile and quantitative job-/
industry-creation commitments that often accompany
local content measures. As with other key lessons
highlighted in this chapter, the main goal is to achieve
balance: in this case, between targets that reflect the
current low-capacity reality too closely (and thus do
not provide a sufficient market and rate of return for
new investors), and between targets that are too far
removed from reality (and thus create distortions, op-
portunities for circumvention and a loss of faith in the
overall management of the local content programme).

An optimal approach would eschew hard, quan-
titative targets in favour of “soft” measures.
Governments are arguably correct in assuming that
many foreign firms, particularly in high-risk undertak-
ings such as energy extraction, are not likely to fully
engage in long-term capacity-building unless a local
content program has some form of clear legislative
“bite”. Best practice however suggests that – rather
than setting arbitrarily ambitious targets across the en-
tire industry – an optimal local content regime should
focus instead on mandating energy companies to de-
velop plans for domestic capacity-building, which the
companies themselves expect to work, based on their

17III. Lessons From Best Practice and Key Concerns

understanding of production realities and the con-
straints within the domestic economy. The proposed
approach draws from the Norwegian case, where
legislatively mandated local content requirements
were eschewed in favour of “soft” measures. The
Norwegian measures ensured inter alia that operators
were not only specifically aware of industry require-
ments for local content, but also keenly aware that
lack of compliance would cause difficulties in future
bidding rounds; similar approaches were used in the
United Kingdom. Thus rather than setting highly am-
bitious and potentially unrealistic targets, thresholds in
local content legislation should be conceived as long-
term targets rather than immediate minimum levels
backed by the threat of regulatory retaliation (e.g. fines
and sanctions).

D. Phasing in and phasing out
The fourth lesson is that local content regimes
– like any form of protection – should be care-
fully calibrated implemented over time, and ide-
ally reduced over time as capacity improves. The
analysis of the previous paragraphs suggest that local
content targets should be modified to allow year-by-
year increases, based on realistic expectations, from
current levels of industry capacity to full “localization”
of the good or service supplied. Ambitious levels can
be immediately visualized in areas (e.g. banking and
legal services) where the host country already has
strong domestic capacity, whereas other areas (e.g.
manufacturing) that suffer disproportionately from a
high-cost setting could be granted longer phase-in
periods. Targets can then be increased and become
more ambitious over time as capacity is expanded
and a diversified industrial structure is assured, or
converted into a more appropriate metric (i.e. using
a different percentage ratio, or basis for compliance).

The most binding local content measures should
have a clearly defined time limit, to ensure that
protection does not create an entrenched group
of firms that thrive from the existence of regu-
latory barriers. Another key lesson from successful
local content programs, from Norway to Malaysia, is
that the initial industrial gains from protection were of-
ten dissipated as insulated local suppliers – provided
with a guaranteed and legislated industry demand, re-
moved from market prices and technological trends –
gradually lost sight of standards of international com-
petitiveness, and suffered a strong adjustment during
periods of market liberalization. It is worth noting that

even in the standout case of Norway, this pitfall was
not avoided by the forward-thinking policy choices of
the government, but rather was forced upon the sys-
tem by the collapse of oil prices in 1986 and Norway’s
participation in the European Economic Area that
required the abolishment of all local content laws.
Nonetheless, industry experts estimate that between
10 and 15 years was necessary to develop neces-
sary capacity in Norway’s non-maritime industries to
international competitive standards. 35

E. Local content: Not a panacea
The fifth and overall lesson is that local content
should not be seen as a panacea to systemic
problems in the economy. One area of common
agreement between both governments and foreign
firms is that the latter have a strong long-term com-
mercial incentive to increase their local content levels –
as a means of cutting costs, avoiding constant border
delays, increasing their understanding of local markets
and opportunities, and clarifying their strategic plan-
ning both in the host country and abroad. That long-
term objective however cannot be instantly brought to
reality by legislative fiat, particularly when local content
measures are isolated from wider and deeper struc-
tural changes to the economy. Without policymak-
ers focusing on addressing basic infrastructural and
trade/industry policy deficiencies before implementing
a wide-ranging local content programme, ambitious
local content targets simply act as an additional cost
on foreign operators, who will either reduce their in-
vestments (further exacerbating the low domestic
spillovers on employment and supply) or reduce their
profits, which could in turn lead to shareholder pres-
sure back home to further reduce investments and ex-
posure in the host country. One observer of Nigeria’s
new oil and gas legislation expressed concern that
local content is being seen by both the political class
and its domestic industrial lobby as a cure-all to at-
tract foreign investment and create employment in
Nigeria – one that failed to address Nigeria’s multiple
economic, social and political challenges:

While a combination of lack of capacity, in-
frastructure, basic industry and corruption
probably contributed to the drain of capital,
economic woes (including Nigeria’s endemic
unemployment, lack of local capacity, wide-
spread poverty, and also militancy in the Niger
Delta) are often blamed on a lack of local con-
tent. Local content has metamorphosed into


the silver bullet that cures all ills, notwithstand-
ing systemic corruption, political instability,
fiscal mismanagement, unemployment and

crime; it has become the single engine for job
creation, cross-sectoral growth and capacity

19IV. Local Content and The Global Green Economy: A South African Focus


This chapter provides an overview of the use
of local contents in the global push towards a
green economy, with a specific focus on South
Africa. The last two decades have seen a steady
increase in policymakers’ interest in not only the con-
cept of the green economy – once a specialized niche
within environmental economics – but also its prac-
tical applications as a tool of trade policy, industrial
planning, urban design and economic development.
Whether guided by recognition that fossil fuels are an
inherently risky and unsustainable economic platform,
or a national desire to minimize the ecological impact
of day-to-day activities – neither of which are neces-
sarily limited to developed or developing countries
– the push towards a green economy has become
an increasingly mainstream policy concern. Moreover,
the green economy has seen a major shift in attitudes
towards local content. Many countries after largely
phasing out the use of local content requirements
in strategic industries (due to structural adjustment,
internal liberalization or WTO legal outcomes), are in-
creasingly taking a “second look” at local content, and
placing local content measures at the heart of their
green economy plans. This speaks to the importance
that countries place on – and the desirability of – the
creation of green economy suppliers, energy sources
and employment.

The analysis is mindful of the many different ap-
proaches towards defining a “green economy”.
At its most basic level, the green economy has been
defined as one that is low carbon, resource efficient
and socially inclusive; in practice, the sectoral scope
is focused primarily on four sectors: renewable energy
(e.g. solar, wind, geothermal), green building and ener-
gy efficiency technology, energy-efficient infrastructure
and transportation, and recycling/waste-to-energy.37

The emphasis of green economy measures however
can vary significantly, with some countries focusing
on the “low carbon” element of the definition – e.g.
measures taken to comply with emissions targets, or
to take advantage of carbon trading schemes – while
others have focused on the socially inclusive employ-
ment effects. Some countries choose to emphasize
the production side, targeting strategic export and
energy sectors, while others emphasize changes in

creating “sustainable consumption” patterns in the
domestic market. The analysis in this chapter will
focus primarily on renewable energy, due to the fact
that this sector (a) often assumes central importance
in countries’ green economy plans and (b) has been
especially fertile ground for local content schemes.

A. The rationale and context for South
Africa’s green economy measures

The framework for the Government’s green
economy and local content imperatives are both
found in the “New Growth Path” framework,
key industrial planning documents and Green
Economy Accord. In 2010, the South African gov-
ernment launched the “New Growth Path” – an ambi-
tious framework policy that seeks to create five million
new jobs by 2020, with most growth envisaged in
the private sector. The framework policy is seen as a
means to correct the legacy of the apartheid era – high
level of economic inequality, rising unemployment and
widespread job insecurity – as well as effect a para-
digm shift in an economic model overly concentrated
in consumption (with a persistent trade deficit) and
narrow minerals exports, and reliant on outdated eco-
nomic and human skills infrastructure. To reverse this
model, the New Growth Path targets five sectors for
priority intervention – infrastructure, agriculture, min-
ing, manufacturing, tourism and the green economy –
largely through new public investment.38 Another key
policy document – the Government’s Industrial Policy
Action Plan for 2011-2013 (IPAP2) – has echoed the
same call for a radical shift in South Africa’s indus-
trial base.39 As an outcome of the “social dialogue”
on these key policy documents, the Government has
signed a number of “Accords” with labour, business,
public sector and civil society stakeholders, includ-
ing inter alia a Green Economy Accord (hereinafter
referred to as “the Accord”) aimed at creating 300,000
“green jobs” by 2020.

The 2011 Green Economy Accord grew from
previous policy efforts to develop the renew-
able energy sector in South Africa, beginning in
2003. South Africa relies heavily on fossil fuels, and
particularly on its abundant coal reserves, for 91%
of its energy needs, with renewable energy playing a
negligible role. Its reliance on coal however has led
South Africa to a dilemma – while it ranks among the
world’s cheapest energy producers, it also commands
the unenviable position of being one of the world’s
worst emitters of greenhouse gases, dominated by


Eskom, a limited-capacity state-run utility.40 As part
of a deliberate government effort to both reduce
greenhouse gas production and revamp the energy
sector to meet South Africa’s economic needs, The
Department of Minerals and Energy issued the White
Paper on Renewable Energy in 2003, which first set
out clear definitions of the sector,41 established targets
for renewable energy generation, and began the first
efforts to create an “enabling environment” – including
financial instruments and legal reforms – that encour-
aged the entry of new and multiple players on the
generation market.42 The White Paper was followed
by the 2007 Biofuels Industrial Strategy, which pro-
posed targeted interventions (including exemptions/
rebates and agricultural support programs) in sugar
cane/beet and oilseeds to achieve 2% market share in
the national liquid fuel supply. 43

The Green Economy Accord is a comprehensive
strategy covering both energy and non-energy
sectors. The Accord, signed in Durban in 2011, en-
visages the creation of 300,000 ranging from energy
generation and “clean manufacturing” to eco-tourism
and environmental services. The Accord is comprised
of twelve commitments (see Box 1 below), ranging
from highly specific short-term targets (e.g. the instal-
lation of a million solar water heaters by 2014) to more
systemic long-term initiatives, such as the develop-
ment of mass transportation to reduce the number of
cars on South Africa’s roads. At the time of its launch,
the Accord was touted by the Government as “one
of the most comprehensive social pacts on green

jobs in the world”.44 The Accord however faced some
criticism from some environmental activists, who claim
that rather than the Accord – rather than setting new
targets and initiatives – simply gathers a number of ex-
isting initiatives which have been in the public domain
for some time. Other activists however acknowledge
that, despite its flaws, the Accord symbolizes high-
level political signals to key stakeholders – particularly
within South Africa’s powerful trade unions – to sup-
port green economy investments.45

The Accord has been supported by a number
of financing initiatives. During 2011-2012, the
Government of South Africa – via the Department
of Environmental Affairs – established a R800 million
(approximately US$100 million) “Green Fund”, imple-
mented by the Development Bank of Southern Africa
and aimed at providing “catalytic finance” to facilitate
investment in green initiatives through three windows.46

During the first wave of applications, the Green Fund
received proposals totalling R10.9 billion – more than
thirteen times the size of the current Fund. Starting
in 2012, the state-owned Industrial Development
Corporation will provide up to R25 billion (over US $3
billion) for investments in green economy activities until
2017; the South African Treasury has also established
a Renewables Fund that has begun receiving tender
applications.47 The Government’s efforts have also
been matched by donors and private firms, including
the establishment by in December 2011, following the
COP17 talks, the European Investment Bank and the
Anglo-African bank Investec of a €100 million renew-

Box 1. Commitments under the South African 2011 Green Economy Accord

Under the Green Economy Accord, the parties commit to inter alia:
1. Install one million solar water heaters by 2014 and increase the local content of components;
2. Develop new initiatives, including financing/funding sources, to rapidly increase green economy invest-

ment levels, particularly for small and social enterprises;
3. Realise the renewable energy targets under the IRP;
4. Develop, monitor and realise energy efficiency targets by 2015;
5. Increase recycling rates in the public sector, paper/packaging sector and industrial waste;
6. Kick-start the development of a local biofuels industry to achieve mandatory blending targets;
7. Develop clean coal technologies applicable to the power generation sector;
8. Increase energy-efficient retrofitting of workplaces, homes and power-stations;
9. Invest in mass-transport systems to reduce transport-related carbon emissions;
10. Improve rural electrification to reduce informal settlements and environmental degradation;
11. Provide incentives and conditionalities to increase local employment and manufacturing; and
12. Cooperation between government and the private/civil society sector during the COP17 talks.

Source: “New Growth Path: Accord 4 – Green Economy Accord”, Economic Development Department, Republic
of South Africa, Cape Town, 17 November 2011.

21IV. Local Content and The Global Green Economy: A South African Focus

able energy funding facility to promote clean energy
and energy efficiency in South Africa.48

The funding efforts for the renewables sector
in particular received an added boost with the
South African Renewables Initiative (SARI). The
SARI was launched at end-2011 as an international
partnership (originally supported by funding from the
UK, Germany, Norway and Denmark) to “mobilise
and channel” international public finance into the
development of renewables generation capacity in
South Africa. The initiative, which was being driven
jointly by the Department of Energy, the Department
of Trade and Industry and the National Treasury, was
premised on “crowding in” low-cost loans, insurance
products, and other financial instruments to lower the
cost of capital and reduce the incremental cost of

With respect to renewable energy, a major step
forward was the 2010 Integrated Resource Plan
(IRP), which set a targeted balance between dif-
ferent energy sources. The IRP – a 20-year electric-
ity plan considered by the South African government
as a “continuously revised, living plan” – establishes
targets and commitments for energy from coal, nu-
clear power, imported hydropower (from Zambia and
Mozambique), and renewables. The IRP seeks to
more than double installed capacity by 2030, with
nearly half of new capacity to be drawn from renew-

able sources, evenly divided between wind and power
(see Figure 1 below). The final “resource balance”
contained in the IRP recommendations are based a
number of key policy considerations, including inter
alia managing the cost and affordability of new tech-
nologies, achieving reductions in carbon emissions,
and localization/job creation. The IRP document dem-
onstrates the trade-offs between the use of cheap
coal and expensive new technologies, estimating that
the “low carbon” scenario (with renewables at 32%
of total generation) would result in 80% higher costs
per kilowatt-hour than the “low cost” scenario (with
renewables at a mere 3% of the total).50 The IRP rep-
resents the first time that the private sector has been
actively encouraged to providing electricity to the na-
tional grid on a significant scale, with investment costs
estimated at $36 billion by 2030.51

The Renewable Energy Independent Power
Producer Programme (REIPPP) represents by the
far the largest and most publicly visible govern-
ment programme for reaching the renewables
targets under the IRP. The REIPPP is a procure-
ment programme specifically focused on achieving
the South African government’s targets for renewable
energy targets. The REIPPP invites bids from inde-
pendent producers in a series of bidding “windows”
for the seven major categories of renewable energy
– i.e. onshore wind, solar thermal, solar photovoltaic,
biomass solid, biogas, landfill gas and small hydro.

Figure 1. Revised energy balance in 2010-2030 IRP

Source: Integrated Resource Plan For Electricity 2010-2030 (Revision 2), Department of Energy, Republic of South
Africa, March 2011.






Already the REIPPP has issued two bidding windows,
with the third expect to conclude in May 2013, and
five rounds in total.52 Projects are expected to begin
commercial operation between 2012 and 2016. At
present, the REIPPP is procuring 3,725 MW of en-
ergy; the Department of Energy however approved in
October 2012 a doubling of that figure.53

B. The role of local content outside
and inside the South African green

There is already a significant push towards lo-
cal content creation in South African govern-
ment policy, particularly with respect to public
procurement. The Preferential Procurement Policy
Framework Act (PPPFA), revised in 2011, has been
explicitly crafted by the Government as a means to
harness the government’s purchasing power to “arrest
the industrial decline” in South Africa.54 The PPPFA
scores bids on an 90/10 split on price and economic
development for contracts above R1 million (modified
to 80/20 for contracts below that level), of which local
content requirements form a part of the “economic
development” criteria. For those sectors which have
been “designated” by the Government as a strategic
objective under the IPAP – where local production and
content is of “critical importance” – only those bids
with a stipulated minimum threshold for local content
will be considered.55 For non-designated sectors, bid-
ding entities may choose to still include a minimum
threshold for local content. In addition to the public
procurement rules under the PPPFA, government also
has significant influence over the funding activities (and
hence local content requirements) of state-owned
financial institutions such as the Development Bank
of Southern Africa and the Industrial Development

De facto local content measures can also be
found in the Broad-Based Black Economic
Empowerment (B-BBEE) legislation. B-BBEE
measures were launched by the Government fol-
lowing the end of apartheid, aimed at “chang[ing]
the imbalances of the past by seeking to substan-
tially transfer and confer ownership, management
and control of South Africa’s financial and economic
resources to the majority of the citizens”.57 The policy
framework provides a B-BBEE “scorecard” verified by
specialized agencies, which are then used in the as-
sessment of contracts. While the B-BBEE regulations
do not specify local content per se, they operate as

de facto local content measures by requiring compa-
nies to grant special status to B-BBEE compliant do-
mestic suppliers. While the B-BBEEE regulations are
not either mandatory or legal obligation for all private
businesses, stakeholders have indicated that failure of
a company (or its suppliers) to have a given B-BBEE
score can lead to difficulties or disqualifications during
tender procedures. The B-BBEE scorecards provide
a score the degree of Black involvement or ownership
on seven codes which are assigned a given weight or
share, as shown in Table 1 below.

Table 1. B-BBEE scorecard criteria

Element Weighting Points
Ownership 20
Management Control 10
Employment Equity 15
Skills Development 15
Preferential Procurement 20
Enterprise Development 15
Socio-Economic Development 5
Total Score 100

Source: South Africa SME Toolkit, accessed online at

In certain industries, mandatory B-BBEE score-
cards and requirements have been developed,
leading to de facto mandatory local content re-
quirements in these sectors. In the 2005 “Broad-
Based Socio-Economic Empowerment Charter for
the South African Mining Industry”, the industry com-
mitted to, inter alia, grant “preferred supplier” status
for Historically Disadvantaged South Africans (HDSAs)
– a designation not available to non-South Africans –
as well as encouraging firms to partner and enhance
the capacity of HDSA-owned companies. In the min-
ing industry, the ‘scorecard’ for individual companies
is 20% based on preferential (i.e. B-BBEE-compliant)
procurement, broken down into procurement of
capital goods (5%), services (5%) consumables (3%),
international suppliers (2%) and utilization of South
African research facilities (5%).58

The South African Government has emphasized
local content creation at the heart of the Green
Economy Accord. At the very outset, the Accord
speaks to the necessity of:

[having] a localization strategy that uses the
enormous spending on climate change-
induced technologies to create local industrial

23IV. Local Content and The Global Green Economy: A South African Focus

capacity, local jobs and local technological in-
novation. Without a deep commitment to local-
ization, we will bear much of the cost of green-
ing our society without reaping an important
benefit in the form of job creation.59

Following this emphasis, several of the twelve main
interventions contain local content targets, aside from
the general aim of creating 300,000 new green jobs by
2020. These commitments include inter alia a “drive to
increased localization” of components for solar water
heaters; an industry wide localization target of 35%
by 2016 in the renewable energy sector, increasing to
75% in the years to follow; and emphasis on South
African leadership in new market opportunities such
as clean cook-stoves and heaters. The eleventh pillar
of the Accord is dedicated to addressing localization
issues, referring to “incentives, industrial funding…
and conditionalities” that will be used in “every effort
to develop [local] capacity on a viable basis.60

There has been a high-level, cross-Ministry ap-
proach to developing local content in the green
economy. Given the importance of both “localiza-
tion” and economic diversification under the key

Government strategies – i.e. the New Growth Path and
the IPAP – the push towards setting local content tar-
gets, and managing local content initiatives, has bene-
fited from the participation of a number of government
departments. The Green Accord, for example, was a
joint initiative of nine different departments/ministries,
including inter alia Energy, Trade & Industry, Economic
Development and Public Enterprises. Stakeholders
have confirmed that the setting of sector-specific tar-
gets (e.g. for “designated sectors” under the IPAP2
process or for projects tendered under the REIPPP)
is done by the lead departments (e.g. the Department
of Energy in the case of the REIPPP) in coordination
with the Department of Trade and Industry, who in turn
consults with the relevant industry stakeholders. As an
example of the political profile of local content in the
green context, the key South African government of-
ficial in charge of industrial policy has explicitly spoken
to the importance of leveraging local content in gov-
ernment procurement for the promotion of renewable
energy, noting that:

… Significant work is being done to understand
the industrial opportunities arising from the pro-

Table 2. Breakdown of “economic development” criteria in REIPPP onshore wind projects

Factor Sub-Criteria Threshold % Target %

Job creation RSA-Based Employees who are Citizens 50 80.0
RSA-Based Employees who are Black Citizens 30 50.0
Skilled Employees who are Skilled Black Citizens 18 30.0
RSA-Based Employees that are Citizens from Local

12 20.0

Local content Value of Local Content Spend 25 45.0
Ownership Shareholding by Black People in the Project Com-

12 30.0

Shareholding by Black People in the Construction

18 20.0

Shareholding by Black People in the Operations

8 20.0

Shareholding by Local Communities in the Project

3 5.0

Management Control Black Top Management 40.0

B-BBEE Procurement Spend 60.0

QSEs (Qualifying Small Enterprises) and EMEs
(Exempted Micro-Enterprises) Procurement


Women Owned Vendors Procurement 5.0
Enterprise Development Enterprise Development Contributions 0.6.0

Socio-Economic development contributions 1 1.5.0

Source: “Generating Power for Emerging Markets”, Mark Pickering, WINDABA Conference, 22-24 October 2012,
Cape Town.


posed deployment of renewable-energy tech-
nologies into the power mix… The [Department
of Trade and Industry] is working with technical
teams at the Department of Energy and the
National Treasury to understand, for instance,
the various components that are required for
a wind farm and to then assess what could
be produced locally at competitive prices. The
early studies suggest that the towers and pos-
sibly even the blades could be made in South
Africa, but the DTI is keen to engage with orig-
inal-equipment manufacturers to understand
what other components could be produced by
domestic industry.61

The emphasis on local content is particularly
strong in the development of renewable energy.
The link between localization and the green economy
is particularly evident in the REIPPP. On one hand, the
REIPPP is exempt from the main local content rules
in the South African economy – it is fully exempt from
the PPPFA’s 90/10 and 80/20 bid evaluation rule, and
there is no explicit link between the B-BBEE scoring
system for the REIPPP (i.e. no scorecards or minimum
scores for qualifying bids). On the other hand, the link
between local content and the REIPPP is arguably
stronger than in the two above-mentioned programs,
with a 70-30 split that more heavily weighs on ‘eco-
nomic development’ (i.e. non-price) considerations.
Of the 30% allocated to economic considerations, the
threshold and target value for local content vary by
sector (see Table 2 below for the breakdown of the
economic development component in the case of on-
shore wind power). For each type of renewable energy
(e.g. solar, wind, etc), the Department of Energy sets
specific minimum local content requirements – appli-
cable to both goods and services – for each bidding

Both the minimum local content requirements
and actual local content levels are expected to
rise over time. The REIPPP has an explicit built-in
increase in local content targets over time, in order
to ensure that the Government’s local content targets
are meant, and the ensure that suppliers have an suf-
ficient level of demand to ensure adequate return on
their investment. For solar and wind power, the aver-
age levels of local content for the first round of bids
were 28.5% and 21.7% respectively; these levels rose
to 47.5% and 36.7% respectively during the second
round of bidding. Department of Energy officials have
since proposed further increases for the third bidding

window, stating that “the requirements for localization
will be revised “in recognition of a need to continu-
ously improve potential benefits to local industry”; the
Congress of South African Trade Unions (COSATU)
has argued for a 50-65% level.62 The importance
of local content in the REIPPP bidding process has
been underscored by the Director-General of the
Department of Energy in 2011, who stated “if you can-
not meet localization and job creation requirements,
we will not even look at the price”.63 The emphasis
on local content in the renewables programme is so
pronounced in fact that one stakeholder character-
ized off-the-record the REIPPP as a “socio-economic
development programme via the promotion of the
renewables sector, rather than the other way around”.

C. Other uses of local content in the
global green economy

South Africa is only one of several countries,
both developed and developing, who are em-
ploying local content measures as part of their
green economy strategy. As noted in the introduc-
tion to this chapter, the high-level importance placed
by governments on the development of green econo-
my has led to a fundamental shift in attitudes towards
local content at the global level. Where such measures
were increasingly rare in strategic industries, local
content is once again at the forefront of trade policy
and industrial planning, particularly with respect to
green sectors and green industrial measures. Perhaps
the most striking development – particularly given the
controversy generated by local content at the WTO –
is the fact that both developed and developing coun-
tries have openly linked investment into their green
sectors with local content obligations, ranging from
major global players (e.g. Canada, China, and Brazil)
to newer emerging powers.

Canada applies local content requirements to
the renewables sector in Ontario, its largest
province. The Ontario framework is based on the
Green Energy and Green Economy Act, passed by the
provincial legislature in 2009, and (in the Ministry of
Energy’s words) intended to “provide the government
with the necessary tools to ensure Ontario’s place as
North America’s renewable energy leader, and to cre-
ate a culture of conservation, assisting homeowners,
government, schools and industry in embracing lower
energy use”. The 2009 Act was created with the goal
of creating 50,000 new green jobs and builds on ear-
lier provincial government commitments to eliminate

25IV. Local Content and The Global Green Economy: A South African Focus

coal-fired power plants by 2014 – the single largest
climate change initiative in Canada.64 The 2009 Act
contains a range of green economy initiatives, includ-
ing streamlined approvals for renewable energy proj-
ects and mandatory energy audits for new homes.
The key provisions however – i.e. those that have
attracted the most scrutiny – are:
t Those requiring that transmission and distribution

utilities accept electricity from qualifying facilities
(with special incentives for small/micro providers)
on the basis of inter alia wind, solar and biomass

t Incentives for small/micro producers and commu-
nity-based projects;

t A “feed-in tariff” program that provides qualifying
producers with long-term contracts at premium
prices; and

t The conditions that feed-in tariff rates are granted
only to those projects that achieve a minimum lo-
cal content threshold (see Table 3 below), with
each project developer obligated to present to the
Ontario Power Authority a domestic content plan,
showing how they intend to reach the stated target.
Based on an analysis by Ontario authorities of the
production chain involved in different renewable
production functions, the overall targets are sub-
divided into the different goods and services, with
item-level qualifying percentages. Failure to achieve
the given percentages can lead the Power Authority
to cancel the contract.

Canada also applies local content at the provin-
cial level in Quebec. In the province of Quebec, the
main provider (Hydro-Quebec) undertook a significant
overhaul of its previous total monopoly in response
to its inability to fully service the domestic market,
and the lure of overseas markets (requiring inter alia
liberalization at home). Part of this overhaul involved
sourcing energy from private providers, with a recent
focus on wind energy. Like the Ontario FIT program,
Hydro-Quebec has a number of special programs for
generation facilities run by small and/or community

providers. But as with Ontario the most controversial
provisions have been those requiring bidders to guar-
antee that they will meet up to 60% local content in
tenders for wind power, including 30% in a specifically
(and economically depressed) region. In addition, bid-
ders can only source the wind turbines used in their
facility from so-called “designated manufacturers”:
Hydro-Quebec-approved turbine manufacturers who
have invested in certain regions.65

China used local content measures to create
a domestic wind industry that has become a
global player in renewable energy. From 1996 to
2008, manufacturers and operators of wind turbines in
China were required to source at least 70% of content
from local manufacturers; bids with larger amounts
of domestic content were scored higher. Under di-
rectives from the National Development and Reform
Commission, the local content requirements were
combined with subsidies – with individual grants since
2008 ranging from US$6.7 million to $22.5 million, and
which could collectively total several hundred million
dollars – and support under the Clean Development
Mechanisms established under the Kyoto Protocol,
of which China is by far the largest beneficiary. The
nature and scope of China’s wind industry may be
altered going forward by the shutdown of China’s
wind subsidies regime - known as the Special Fund
for Wind Power Equipment Manufacturing – following
a trade disputed with the United States, instigated by
the United Steelworkers Union and settled in 2011.
The termination of the subsidy program may not have
a substantive impact on China’s success – while in
2004 82 percent of all wind power equipment installed
in China was imported, in 2010 Chinese-made equip-
ment accounted for almost 90 percent of new instal-
lations. This has led to speculations that the success
of the program, rather than the WTO dispute, was the
primary motivation behind the Chinese government’s
cancellation of the subsidy regime.66

Spain has utilized informal local content require-
ments to build the world’s second-largest wind

Table 3: Ontario’s Local Content Requirements

Technology Project Size Local Content Requirement
Wind 10 kW or less None
Wind Over 10 kW 25%; increased to 50% on January 1, 2012
Micro solar photovoltaic 10 kW or less 40%; increased to 60% on January 1, 2011
Solar photovoltaic Over 10 kW 50%; increased to 60% on January 1, 2011

Source: Sustainable Prosperity (2012)


turbine manufacturer. While there is no national-
level local content policy, Spanish provinces utilize
local content guidelines in granting development con-
cessions to firms as well as an attractive feed-in tariff
rate for renewables. Four Spanish provinces (Galicia,
Navarra, Castile & Leon and Valencia) utilize some
form of local content rules, with the latter two having
established a 70% local content threshold since 1995.
A critical additional factor in the growth of the Spanish
firm Gamesa (which is now active in other markets,
particularly in China) was a close joint venture with a
foreign market leader (Denmark-based Vestas) that
transferred key technology and know-how over time,
allowing the smaller Spanish firm to grow within the
confines of the joint venture. 67

Since 2005, Brazil has required that at least 60
percent of the total cost of wind energy projects
is sourced from Brazil. Compliance with local con-
tent regulations is a precondition for access to subsi-
dized loans from Brazil’s National Development Bank,
which is the market leader in financing for the domes-
tic wind sector and provides up to 50% reduction in
interest rates for qualifying projects. The local content
requirement in wind was increased to 90% in 2007.68

Brazil also has a 60% (for components) and 90% (for
services) local content minimum – referred to as “na-
tionalization indices” in its Programme of Incentives for
Alternative Electricity Sources, also aimed at the wind
power sector.

India is incorporating local content into the
context of an ambitious renewable energy pro-
gramme. In 2010, the Indian government launched
the Jawaharlal Nehru National Solar Mission, aimed
at promote ecologically sustainable growth, address
India’s energy security challenges and establish India
as a global leader in solar energy. India’s green econ-

omy local content targets include inter alia stipulations
that all eligible solar PV projects must use cells and
modules made in India, and that 30% of a project’s
value in solar thermal projects must be sourced locally.
Further additions to the Solar Mission local content
guidelines (e.g. requirements to source solar inverters
from local manufacturers) are currently being contem-
plated by the Government. India has also used local
content as a means to develop its domestic manufac-
turing of electric vehicles; from 2010 onwards, vehicle
firms were eligible for a 20% cash subsidy from the
Ministry of New and Renewable Energy in return for
sourcing 30% of parts and component from local sup-
pliers. 69

A number of other countries are beginning to
implement local content policies as part of their
green economy strategy. The use of local content is
not limited to established players on the green energy
market. The European Bank for Reconstruction and
Development reports for example that in the Ukraine,
an increasing share (from 30% to recently 50%) of a
renewable projects cost has to be sourced domesti-
cally to be eligible for feed-in tariffs; Turkey offers a
FIT premium in proportion to the local content in the
renewable generation assets; in Croatia, the vari-
able part of the FIT depends on the share of goods
and services of domestic origin used in wind farm
construction. A number of the Bank’s Southern and
Eastern Mediterranean clients have also introduced
local content rules into the tender requirements
for renewable energy development contracts.70 In
Argentina’s Chubut province, the wind energy law
of 2005 stipulated that feed-in tariff support is con-
ditioned upon compliance with local content targets
that rapidly increased from 10% in 1999, to 60% in
2003, and 100% in 2007.

27V. Local Content and the Green Economy: Issues and Concerns


This chapter addresses many of the key les-
sons drawn from the larger global study on local
content, but with a specific focus on the Green
Economy and, where appropriate, South Africa.
Chapter III of this study outlined a number of key les-
sons learned from the practice of local content in both
developed and developing countries, largely limited
to heavy industries (e.g. automobiles) and the non-
renewable energy sector. In light of the rapid increase
in local content rules in the newly-emerging green
economy global market, this chapter re-visits (and
adds to) many of the key lessons highlighted earlier.

A. Local content, growth and

The use of local content requirements has, in sev-
eral instances, attained its key policy objectives
– the creation of green jobs and the attraction of
green investments. One of the few disputed stylized
facts of the link between the green economy and lo-
cal content is the success that many countries have
seen in creating green jobs and persuading investors
to domicile their green investments in the host country,
rather than simply exporting energy products into the
host market. Some of these successes include:
t In Ontario, the local content requirement (along with

$110 million in economic development financing)
has attracted a $7 billion wind turbine manufactur-
ing investment from South Korea-based Samsung.
According to the Ontario government, the Green
Energy and Economy Act has created 20,000 jobs;
independent observers note that approximately
3,000 new jobs are accounted for (as of 2011) in
new proposals for manufacturing plants under the
Ontario FIT program.71

t Quebec’s local content requirement likely
helped spur the creation of a General Electric-
commissioned plant – the largest wind farm in
Canada – with 450 employees, and has led to sev-
eral companies – including a number of German
firms who pioneered the use of renewables in the
European market – establishing renewable energy
supply chains in the province, particularly in desig-
nated economically depressed regions.72

t Following a decade-long implementation period,

China has now overtaken the United States in in-
stalled wind energy capacity, and has gone from a
small-scale turbine manufacturing base to having
three of the global top 10 manufacturers in only six
years’ time (2003-2009).73 Similar successes have
been noted in the domestic market: before 2000,
Chinese companies held only a 10% share of the
domestic market; in 2009 however, the top ten
Chinese companies accounted for 85.3% of newly
installed capacity.74

The employment figures for individual projects are only
nominal figures that do not account for wider supplier
and network effects: one study of job creation from
solar PV manufacturing suggests a total (direct and
indirect) employment boost of 10 jobs per MW during
PV production – in the Ontario case, this translates to
a multiplier effect of 5-10 indirect jobs for each green
manufacturing job.75

It is not clear however what “additionality” in em-
ployment has been gained from the local content
requirements. While the increases of local content in
these markets are clear, some critics of the guidelines
have argued, using economic models and assump-
tions of market growth, that local content has actu-
ally reduced employment relative to a no-guidelines
situation. They have argued that the rapid bidding up
the price of domestic goods and services (which are
fixed in the short run) leads to increases in production
costs, which then lead to higher prices, reductions
in demand, reductions in new orders for goods and
services, and thus lower employment. In the Ontario
case, a study, commissioned by foreign renewable
energy manufacturers seeking entry into the Ontario
market, led by Mitsubishi Electric of Japan, found
that the domestic content rules for solar will lead to
increased costs, 9,000 fewer jobs and $2-billion less
in investment than would occur without the content

The sustainability of local content employment
targets in renewables is also unclear over dif-
ferent stages of project implementation. The
high technological component of the renewable en-
ergy sector implies that the labour intensity (and thus
employment impact) is likely to be much higher in the
initial construction stages than the long-term opera-
tions, unlike other traditional targets of local content
(e.g. automobile manufacturing) which are much more
labour intensive over the whole life of the given project.
Moreover, the skills differential between the construc-
tion and operational phases – given that many renew-


able projects use sophisticated electronic platforms
– implies that companies may easily achieve employ-
ment targets in the initial phase, but then struggle to
find the requisite high-skilled local labour in the opera-
tional phase, particularly in a developing-country set-
ting with several sectors competing for scarce high-
skilled locals. Figure 2 below shows an estimate for
the South African wind industry, showing that 97% of
the estimated job creation will occur in the construc-
tion phase, with the remaining 3% in the longer-term
operational phase. In the United States, green-power
companies have received more than $4-billion (U.S.)
to build wind farms as part of the Obama adminis-
tration’s job-stimulus program. A recent Wall Street
Journal investigation found that those projects cre-
ated a total of 7,200 temporary construction jobs and
only 300 permanent jobs.77

The employment impact also varies significantly be-
tween different technologies – for example, wind and
solar technologies are among the more high-profile
targets for policymakers when designing green econ-
omy initiatives; these two technologies however have,
particularly during their operational phases, relatively
low employment impacts vis-à-vis other renewables
sources (such as waste-to-energy) with a much lon-
ger, more varied and less technology-intensive pro-
duction chain.78

While the focus on small energy operators is
laudable, the stringent paperwork requirements

often result in additional costs and delays.
Another common feature of many countries’ local
content legislation – particularly in the energy sector –
is the use of special incentives to attract small opera-
tors. While this is an important policy goal, particularly
for countries with parallel strategies to encourage the
growth of SMEs, their coupling with stringent local
content requirements (and voluminous paperwork to
show compliance) often acts either as a significant
regulatory cost – one usually passed on to consum-
ers – or a complete barrier to investment by small
and micro enterprises. This factor has been blamed
for unforeseen costs and delays in both the Ontario
program79 and the South African RIEPPP, with observ-
ers noting that the REIPPP bid documentation runs to
several thousand pages, and that the minimum scale
of many projects – R1 billion (approximately US$117
million) for a medium-sized facility, and three times that
level for the biggest projects – essentially serves as a
deterrent for most SMEs.80

One of the most commonly cited concerns in the
use of local content requirements regards the
high prices paid particularly to producers of re-
newable energy, and its effect on the prices paid
by consumers and companies. Following from
the general analysis of local content requirements in
Chapter III, the key concern regarding their use is that
many renewable energy sources are, in the short- to
medium-term, more expensive than traditional fossil

Figure 2: Job creation in South African wind projects

Source: “The Impact of Importing RE Technology and Opportunities for Localization”, South African National Energy
Development Institute, presentation to the “Energy Consultative Meeting: Portfolio Committee on Energy
(PCE), Thursday 07 June 2012, Johannesburg.

20 479 jobs to
be created


29V. Local Content and the Green Economy: Issues and Concerns

fuels for countries with abundant reserves. By forc-
ing developers of renewable energy to source from
domestic suppliers (rather than technology provid-
ers from outside the jurisdictions that might be lower
cost), local content requirements risk raising the cost
of generating renewable electricity by an even greater
margin. This is particularly true for renewable energy,
where cost differentials between efficient and less-
efficient producers of high-technology components
can be far more dramatic than for traditional heavy in-
dustries or basic services. One observer of the Ontario
FIT program has qualified the positive results of the
program by noting that:

The [positive] response… must also take
into account the financial cost of implement-
ing a FIT program. For instance, the average
weighted price of electricity in Ontario as of
August 2010 was 4.02 cents/kWh. With the
FIT program guaranteeing rates between 13.5
and 19.0 cents/kWh, a significant discrepancy
exists. Typical consumers in Ottawa are now
paying 17.7% more for their energy than they
were in April of 2010; half of the increase is
due to the implementation of HST [harmonizes
sales tax], but the other half resulted directly
from rate increases. Additionally, rates are pre-
dicted to increase steadily for the next four or
five years.81

Another recent analysis of the Ontario program in
Canada’s flagship Globe and Mail newspaper found

Ontario residents will pay an average of
$285-million more for electricity each year for
the next 20 years as a result of subsidies to
renewable energy companies… By the end
of 2013, Ontario household power rates will
be the second-highest in North America…
and they will continue to accelerate while they
level off in most other jurisdictions. Even more
alarming for Ontario’s economic competitive-
ness, businesses and industrial customers will
be hit by almost $12-billion in additional costs
over the same period.82

These price increases are particularly worrying
for developing countries, some of which have
some of the highest energy costs in the world,
constituting a formidable barrier to trade and
economic growth. At present, many developing
countries – including many of the higher-profile emerg-

ing markets – already face a competitiveness barrier
in the form of high electricity prices. Energy costs in
Brazil are currently the world’s third highest, leading to
prohibitive production costs for domestic and foreign
investors. Electricity prices are a big component of
what investors have termed the “Brazil cost” – the mix
of taxes, high interest rates, labour costs, infrastruc-
ture bottlenecks, and other issues that have caused
the economy to become less competitive.83 As a
comparison with the United States – where electric-
ity costs average 11.5 cents per kilowatt hour (kWh)
– some emerging markets show much higher current
price levels, including Mexico (19.3 cents/kWh), the
Philippines (30.5 cents/kWh) and Brazil (34.18 cents/
kWh).84 Given that the purchasing power of both con-
sumers and firms (especially at the small- and medi-
um-sized end of the spectrum) is much more limited
than in European or US markets, this implies that in the
renewable energy sector there is a direct ceiling on the
ability of authorities to set ambitious local content tar-
gets where sufficient levels of price-competitive local
industrial output do not exist, unless governments are
willing to incur large fiscal losses to subsidize prices in
the short- and medium-term. The political trade-offs
are particularly difficult in markets such as South Africa
that can exploit abundant fossil fuel reserves and thus
enjoy low prices. Whereas wind, solar and other green
energy sources are cost-competitive in Europe given
favourable market conditions and the scarcity of non-
renewable sources, the current market price – set in
the South African case by coal – is not sufficiently high
to make many renewable technologies commercially

Given that subsidies are often required to keep
prices at a competitive level, high-level political
concerns have been expressed over whether lo-
cal content funded by large transfers from tax-
payers are the best and most stable means of
encouraging the growth of green jobs. The large
gap between taxpayer subsidy levels and gross job
creation – shown in Table 4 below, albeit for a range
of producers in which only some used local content
rules – suggests that policymakers, particularly those
in developing countries with scarce budgetary re-
sources and narrow tax bases, need to carefully con-
sider the appropriateness of combining local content
with green economy goals. This is particularly true for
countries that adopt highly ambitious local content
targets, implying – where there is little initial capacity
in the domestic market – that the gap between pro-
duction costs, retail prices and profitability will remain


significant for the short- to medium-term. Until indus-
try consolidation and/or growth occurs, the interim
financing needs will need to be filled by the same
public entities that have set the original targets and
signed the (often long-term) purchasing contracts at a
set price. The effect of such support (see the follow-
ing paragraph) being terminated can be negative and
large: when the Government of India withdrew its 20%
cash subsidy to electric vehicle producers, contingent
on 30% local content in 2012 after only two years in
operation, manufacturers estimated that business fell
by 70%, and that EV sales dropped from 7000 per
month to between 2500 and 3000 per month.86 The
Government of South Africa in 2011 cut subsidies for
renewables from 7% to 40% after the Treasury pub-
lished revised figures for debt and inflation.87

The cost-price trade-off of local content is par-
ticularly relevant for high capital-intensive green
economy investments. The first key lesson outlined
in Chapter III – i.e. that the use of local content had to
be balanced against the inevitably higher costs that
resulted from inefficient domestic sourcing, and that
local content was thus a “second best” option – is
particularly true in green economy undertakings, given
the heavy capital during the construction and estab-
lishment phases. The often large differentials between
the costs of imported and domestic components
however, especially in the early phases when local
firms have yet to reach sufficient size and quality levels,

can lead to increasing (and expensive) calls for state
intervention, and/or pressures on the Government
to begin carving out exceptions – which frustrates
the original intention to create a regulatory incentive
for local content. A 2012 study by the World Trade
Institute highlights the chain of events in the Brazilian
wind turbine sector, which are subject to a 60% lo-
cal content requirement by the National Development
Bank (BNDES):

Brazilian steel is about 70% more expen-
sive than imported steel. Accordingly, the
turbine costs will increase as well, which is
likely to be supported by subsidies and an
increase in power prices. In 2009 and 2010,
Brazil issued tenders to encourage wind
energy development. However, the winning
bid prices were much lower than expected.
This reduces profit margins across the entire
value chain and reduces market attractive-
ness – This is why [the BNDES’ concession-
al] loans are rather important, even though
they come with a stringent local content
requirements. Still… wind energy project
developers have accused the Brazilian local
content requirements for their difficulties in
scaling up the wind market in Brazil. In 2010,
BNDES considered offering an exception on
local content for imported steel. However,
the steel industry in Brazil is aiming at market
growth as well and blocked this proposal.
In response, some wind energy turbine de-
velopers have started experimenting with
concrete towers.88

Although the Brazilian market has been described as
having “massive” potential, the financing difficulties
from traditional lenders have hindered growth possibil-
ities. The BNDES credit lines however – as of August
2012 – have, despite providing a significant below-
market subsidy – gone unused, as both domestic and
foreign investors have stated that they are unable to
comply with the 60% local content requirement, with
the representative of one major German solar opera-
tor noting: “You can get a government loan but then
again your module is 30% more costly so what’s the

In certain countries, the cost-price gap has led
to the either dramatic cuts or outright termina-
tion of support programs for the renewables
sector. In the Spanish case, the funding of the highly
successful renewable energy program has created a

Table 4. Comparison of renewable program job impact
and maximum subsidy amounts (2012)

Source: “Assessing the Cost-Effectiveness of Renewable
Energy Deployment Subsidies: Guidance for
Policy-Makers”. World Trade Institute, Berne,
January 2012.

* Job growth measured in maximum estimate of thousand
job years, gross.

** Includes only the impact of concessionary tendering,
not subsidy regime or feed-in tariff (not included due to
lack of data).

Job growth
(thousand job
years, gross)*

(€ billion)

Germany 832 33.3
China** 83 0.9
Germany 472 60.4
UK 54 4.4
Germany 256 71.8
Spain 105 33.5

31V. Local Content and the Green Economy: Issues and Concerns

debt burden of €16 million, largely due to a €4 billion
gap between wholesale prices and final prices paid for
by consumers. The cost of the renewables program,
no doubt prompted by Spain’s severe financial difficul-
ties following the collapse of its housing market after
2008, has led the Government to re-evaluate its sub-
sidy program, with a planned 35% decrease in wind
energy subsidies by January 2013. This dramatic pol-
icy reversal has had an impact on investor behaviour
in the Spanish renewable energy market, forcing some
companies to delay their IPOs and others to look at
investing in less risky markets.90 In Germany, subsidies
to renewables to date total US$130 billion, mostly to
solar power companies who nonetheless maintain a
miniscule (0.3%) share of the energy market – leading
Germany to recently announce a pullback from green-
power subsidies, saying the cost was “a threat to the
economy” and announcing an end to solar subsidies
by 2017.91 In the United Kingdom, more than 100
MPs have written to the government demanding cuts
in wind subsidies that currently amount to £400 million
per year.92 The key concern is thus whether a local
content model that relies on premium feed-in pric-
ing – a key element to ensure viability of new green
energy sources – and large taxpayer transfers can be
sustained given the reality of fiscal constraints faced
by governments.

B. Transparency and institutions
While most green economy initiatives are still
too recent to provide clear data, there remains
some degree of concern regarding transpar-
ency. The realization of bold green economy goals
will depend, as with the administration of any indus-
trial program, on good governance at the national
level. This is particularly true given that the majority
of green economy initiatives at present constitute ei-
ther explicit government purchases (through public
procurement) or implicit government guarantees (e.g.
through state-owned financial institutions). The global
green economy push in most developing countries is
still relatively recent, and thus there is little hard data
to suggest that green initiatives have departed from
general governance trends, although some anecdotal
evidence suggests otherwise:
t Stakeholders in South Africa generally expressed

positive views on the REIPP procurement process,
noting that the bid evaluations take place on closed
but video-recorded premises, and that the first two
rounds have not produced any allegations of irregu-

larities. Some observers however have cautioned
that there are “serious gaps in the governance of
the electricity sector in South Africa”, and drawn
attention to the politicisation of public procurement
in the REIPPP/IRP process.93

t The regulatory bodies in charge of Thailand’s green
economy initiatives have been criticized as lacking
“sufficient data, knowledge or human resources to
provide sufficient oversight of investment plans”
and exhibiting a “rampant conflict of interest in the
regulation of the sector” that has led to both excess
demand forecasts and higher bills for consumers.
A review of Indonesia’s renewable-energy procure-
ment program also found “the absence of an inde-
pendent regulatory institution to scrutinize either the
basis for awarding the contracts or their renegotia-
tion”, with contracts finalized behind closed doors
rather than through competitive bidding processes;
solar power projects in India were providing large
incentives with little evidence-based justification,
leading to a high failure rate of green products and
companies – for example, in Maharashtra state,
of 380,000 compact fluorescent lamp light-bulbs
sold, 50% failed within six months.94

Some countries have underestimated the degree
of capacity building required to implement ambi-
tious local content programs. The attractive invest-
ment incentives created by governments in their green
economy strategies – including inter alia local content
measures and subsidies – have, in many large mar-
kets, attracted a flood of proposals in the various ten-
der/bidding rounds. In certain instances however the
ability of governments to process the applications and
finalizing purchasing agreements has lagged behind
market realities, creating strong disincentives against
local employment and production. For example, the
October 2012 announcement by the Government of
South Africa that the third round of bidding would be
postponed into 2013 was widely greeted with dismay
among energy producers, many of which had incurred
significant costs to navigate the complex bidding pro-
cess that required an army of legal, technical, financial
and empowerment advisors. Parallel with the an-
nouncement of the delayed bidding, there was a “can-
did admission… that [the Government agencies] were
perhaps not equipped for the volume of administra-
tive, regulatory and financial requirements” of the pro-
cess – a cautionary tale for other, smaller developing
countries that lack even South Africa’s economic size
and public sector weight.95 In 2011, the Department
of Energy unit in charge of managing the REIPPP bid-


ding process was estimated to have only half of the
necessary capacity needed for smooth functioning of
the initiative.96 Moreover, the delays due to lack of ca-
pacity has a direct impact on the Government’s policy
aim of assisting small businesses, given that they are
much less able to absorb long delays vis-à-vis larger
conglomerates, who will either crowd out or absorb
the smaller firms.97

C. Expectations versus reality
Another key issue the realism of targets vis-à-vis
actual increases in capacity. Once again echoing
the key lessons from Chapter III, some observers of
local content in the renewables sector have argued
that the application of traditional local content ambi-
tions (i.e. 25%-35% in the first few years, rising to
greater than 50% in subsequent years) is misguided
given the high technological barriers particular to the
renewables sector and the long time lags associated
with high-tech ‘learning by doing’. This concern has
been raised in programs ranging from South Africa’s
REIPPP – whose sector-specific local content targets
have been characterized as “unrealistic” and “not cost
effective”98 given the high tech- and capital intensity of
the sector – to Ontario’s feed-in program.99 In 2011,
the mid-year report submitted by the South African
Department of Energy highlighted the challenges of
rapidly scaling-up green economy capacity: instead of
4,500 temporary jobs created each year, the actual
number stood at 521; with respect to additional full-
time jobs created through energy projects, the actual
number was 104 compared with forecasts of 500.100

There is also a danger in the setting overly ambi-
tious growth targets given the current oversup-
ply in the renewables market and substandard
connections. The need for local content targets that
are (a) gradually introduced and (b) able to be modi-
fied over time is nowhere more apparent than in green
economy initiatives. There are two implicit assumption
underlying ambitious local content targets, namely:
t That the requisite demand exists both at home and

abroad for renewables, and that this demand will
increase over time; and

t That even where demand exists, there is adequate
capacity to connect new producers with the exist-
ing market (e.g. power grids).

In the Chinese case, the difficulties being faced by the
renewables sector suggest inter alia that some local
content targets may have been too ambitious. While

an estimated one million people have found work
in China’s green sector (600,000 in the solar sector
alone), the sector as a whole faces massive overca-
pacity due to a global glut that has cut the price of
some key green products (e.g. solar panels) in half,
and driven several major producers in the developed
and developing world out of business. China’s biggest
solar panel makers are suffering losses of up to $1 for
every $3 of sales this year, as panel prices have fallen
by three-fourths since 2008. One-quarter of China’s
wind farms are not connected to a power grid—a
reflection of poor planning, insufficient transmission
lines, and technical concerns by regional utilities
that the intermittency of wind power can be disrup-
tive to normal operations. China Datang Corporation
Renewable Power, a state-owned wind energy devel-
oper, saw first-half 2012 profits plunge 76%, in part
because regional utilities did not have the capacity to
accept all the energy it produces.101

The FDI penalty for over-ambition is particularly
true for many green activities that, unlike their
traditional heavy industry counterparts, are not
geographically fixed. When setting targets for tra-
ditional fossil fuel industries or heavy industry sectors
such as automobiles, the geographically fixed nature
of inputs and markets implied that host countries have
a certain degree of leverage when setting local con-
tent targets. This is particularly true for the traditional
oil and gas extraction industries, given that easily ac-
cessible and/or high-quality deposits are only found in
a certain number of countries and regions, and firms
deterred by high local content requirements are likely
to incur high costs by deciding to invest in jurisdictions
with less stringent regulations but less accessible re-
sources. In the case of the renewables sector however
the natural resources that are being harvested – e.g.
wind, sun, biodiesels and waste-to-energy – are either
much more widespread or can be easily harvested
with a sufficiently advanced agricultural sector. The
high degree of responsiveness to market conditions
in the renewables sector – and thus the importance
of setting achievable local content targets – can be
seen in the rapid movement of producers out of major
renewables market such as China, Brazil, Canada and
Europe following the announcement of major cut-
backs in subsidy level.102

D. Local content and the global
framework for renewables

Efforts are underway to liberalize trade in environ-

33V. Local Content and the Green Economy: Issues and Concerns

mental goods and services. Under paragraph 31(iii)
of the Doha Ministerial Declaration, WTO Ministers
mandated negotiations on “the reduction or, as ap-
propriate, elimination of tariff and non-tariff barriers to
environmental goods and services”. “Environmental”
goods and services are not an internationally de-
fined category, and will have to be defined by WTO
negotiators, most likely in the form of a positive list
of products to be covered under an eventual sectoral
agreement, once negotiators have settled a number of
conceptual and practical issues – for example, how to
consider goods that have environmental and non-en-
vironmental uses, given that the Harmonized System
largely classifies on the basis of the composition of
a good (rather that its end-use), and that tariff nego-
tiations are conducted on the basis of tariff codes.103

Outside the WTO, bilateral and bi-regional efforts are
also underway to ensure non-discriminatory and lib-
eralized trade in environmental goods and services.
The European Union tabled proposals in various ACP
regions for reductions on environmental goods during
the Economic Partnership Agreement (EPA) negotia-
tions; in 2011, APEC leaders pledged to develop a list
of environmental goods upon which a maximum rate
of 5% would be applied, as well as “eliminate, consis-
tent with our WTO obligations, existing local content
requirements that distort environmental goods and
services trade in the region by the end of 2012, and
refrain from adopting new ones, including as part of
any future domestic clean energy policy.”104 The 2011
APEC declaration was followed by an agreement in
September 2012 to reduce tariffs on 54 environmental
goods – the first time that trade negotiations have pro-
duced a specific list of goods for liberalization in the
name of promoting trade in green economy goods.105

For the limited set of environmental goods,
countries may find reduced policy space in

designing local content regimes. Until the major
conceptual issues have been settled – e.g. changes
in tariff structures to distinguish by environmental and
non-environmental uses – the set of goods and ser-
vices strictly deemed to fall under the “environmental”
umbrella is likely to remain limited to finished products
(e.g. solar panels and specialized components such
as water and gas turbines). Until that point, the impact
of liberalization on the policy objectives of local con-
tent regimes may be minor, given that few countries
outside of the club of major renewable-energy players
(e.g. United States, Europe, Canada and Brazil) have
the capacity to produce these finished goods; the
more basic components produced by less established
players – for example, pipes, paints, cement and un-/
semi-skilled labour – will likely remain uncovered as
long as end-uses are impossible to distinguish. The
are several longer-term trends which suggest a poten-
tial conflict between local content and the global push
towards environmental goods and services, including:
t The fact that while actual liberalization is being

proposed on a limited set of items, prohibitions
against the use of local content as they affect trade
in environmental goods and serves (see the APEC
Ministerial Declaration in the previous paragraph)
are couched in much broader language that ap-
pears to address virtually any local content mea-
sure that could restrict trade in designated goods/
services, both present and future;

t Successive changes to the Harmonized System
will ensure that, over time, structural distinctions
in national tariffs will be made to ensure that end-
uses (i.e. environmental/non-environmental) will be
reflected in the national tariff, allowing trade agree-
ments to significantly expand the reach of liberal-
ization agreements to more basic environmental in-
puts, further reducing policy space for local content
as a trade and industrial development measure.

35VI. Conclusion: Old and New Objectives


As with earlier efforts at crafting local content
regimes, policymakers must exercise caution
when estimating the potential employment,
production and trade gains from the green
economy. As noted in the outset of Chapter V, the
employment gains – whether additional or not – and
nationalisation of market shares from green economy
local content measures have, in the cases of many
developed and developing countries, been extremely
encouraging. The closing paragraphs of chapter III
cautioned however that how local content measures
cannot be seen as a “magic bullet” to reverse wide-
ranging and deep-seated structural problems in the
economy that act as a brake on investment. In the
South African case for example, the ambitious push to
transform the country’s energy future through renew-
able energy has encountered obstacles with respect
to the efficiency and capacity of regulatory agencies;
in Brazil, the Government’s plan to develop a global
renewables industry to rival Petrobras in the oil and
gas sector has been stalled by the “Brazil cost” of
doing business, reflected long-standing weaknesses
in infrastructure and regulatory oversight. In China,
the attractions of the lucrative and growing domestic

market have been, in some instances, dampened by
the lack of transparency at the public level and weak-
nesses in the basic infrastructure required to realized
green economy objectives.

The key lessons, once again, is the need for
carefully calibrated and realistic local content
regimes. The rapid scaling-back of renewable en-
ergy subsidies in virtually all major markets reflects
not only the sensitivity of local content ambitions to
economic and fiscal cycles, but also suggests that –
notwithstanding the effects of the recent global reces-
sion – the ambition of many green energy programs,
particularly their local content components, did not
adequately account for the slower pace of regulatory
and productivity change in the wider economy, the of-
ten prohibitive price differential between domestic and
imported substitute inputs, and by extension the level
of taxpayer subsidy required to both honour long-term
purchase agreements and ensure competitive rates
for final consumers. As with traditional efforts at craft-
ing effective local content regimes, the focus of trade
and industrial planning policymakers should be on
creating realistic, flexible and transparent local content
frameworks that carefully balance the socio-economic
ambition of politicians and the society at large, with
the realities of price, cost, market size and regulation
facing individual firms and employees.



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1 Veloso (2001).
2 UNCTAD (2003).
3 UNCTAD 2003.
4 Ibid.
5 Thomas (2007).
6 UNCTAD (2003).
7 “Thailand in Global Automobile Networks”, International Trade Centre, Geneva, date unknown, accessed

online at www.intracen.org and “Globalisation, Imports and Local Content in the South African Automotive
Industry”, Anthony Black and Sipho Bhanisi, Development Policy and Research Unit, Johannesburg,
October 2006.

8 This section draws heavily from UNCTAD (2003).
9 “NCDMB Issues Deadline On Oil Equipment Import”, Leadership Online, 02 August 2011, accessed online

at http://www.leadership.ng.
10 Veloso (2001).
11 Ibid.
12 UNCTAD (2003).
13 UNCTAD (2007) & Ihua et al (2010).
14 UNCTAD (2006), Neff (2005) and Nwokeji (2007).
15 In its oil exploration, for example, the Brazilian minimum local content requirements are 70% for onshore, 51%

for off shore in shallow water of up to 100 meters and 37% for deep water between 100 and 400 meters.
16 “Brazil Said to Require Local Content on New Mining Contracts”, Bloomberg Businessweek, 14 February

2012, accessed online at http://www.businessweek.com.
17 Nordas et al (2003).
18 UNCTAD (2003).
19 Government of Trinidad and Tobago (2004), “Local Content & Local Participation Policy & Framework For

The Republic Of Trinidad And Tobago Energy Sector”, Port of Spain, Trinidad, October 2004.
20 Government of Ghana (2010), “Local Content and Local Participation in Petroleum Activities – Policy

Framework”, Accra, February 2010.
21 Nordas et al (2003).
22 “Are Local Content Regulations a Pathway to Competitiveness or a Road to Protectionism?”, Michael Warner

– Local Content Solutions, 2010.
23 Uganda Ministry of Energy and Mineral Development (2011).
24 Ibid 18.
25 Nordas et al (2003), Neff (2005), UNCTAD (2007).
26 UNCTAD (2007).
27 Heum et al (2011).
28 See “EEG Submission to Minister of State, FCMI”, Manufacturers Association of Nigeria, Abuja, 20 January

29 See “Panel Discussion: Local Content Rules Changing Nigerian Business Models”, Drilling Contractor, 22

October 2010, available online at http://www.drillingcontractor.org.
30 UNCTAD (2003).
31 Nwaokoro (2011).
32 Sustainable Prosperity (2012).
33 Obasi (2010).
34 Nwaokoro (2011).
35 Nordas et al (2003).
36 Nwaokoro (2011).
37 “Defining the Green Economy: A Primer on Green Economic Development”, Center for Community Innovation,

University of California at Berkeley, November 2008.
38 See “The New Growth Path: The Framework”, Department of Economic Development, Republic of South

Africa, 23 November 2010.


39 The IPAP2 identifies several support areas relevant to this study, including green/energy saving industries
and biofuels, and creates a process whereby the Department of Trade and Industry can “designate” certain
sectors and products as local content targets in local procurement, with each designation specifying a
sector- or product-specific level of local content. The first designations, made in December 2011, included
power pylons, rolling stock, buses, canned vegetables, clothing, textiles, footwear, leather products and set-
top boxes. (Ibid. 18) Where the industry or sector is not designated, the procurer may include local content
requirements in the tender if done in accordance with specific Government directives. (See “South Africa’s
Renewables Programme – Latest Developments and the Way Forward”, Scott Brodsky, Dewey & Laboeuf,
Johannesburg, July 2011.)

40 See “Effort To Wean Country Off Coal”, Financial Times, Friday December 11 2011. The remaining 9% is
generated from unsustainably harvested fuelwood.

41 The White Paper covered solar, wind, biomass, biofuels, hydropower and geothermal energy generation.
42 See White Paper on Renewable Energy, Department of Minerals and Energy, Republic of South Africa,

Pretoria, November 2003.
43 See Biofuels Industrial Strategy of the Republic of South Africa, Department of Minerals and Energy, Republic

of South Africa, Pretoria, November 2007.
44 “South Africa: Nation’s Green Economy Accord”, Press release, Department of Economic Development,

Republic of South Africa, 29 November 2011.
45 See “SA’s new green economy accord met with scepticism” Mail & Guardian, 17 November 2011, accessed

online at http://mg.co.za.
46 The three windows are: (i) Green Cities and Towns, focused on inter alia waste management, transport

and urban development; (ii) Low Carbon economy, focused on inter alia energy efficiency, rural energy and
biofuels; and (iii) Environmental and Resource Management, focused on biodiversity and land use.

47 See “Broader Frameworks”, South African Renewables Initiative, Pretoria, accessed online at http://sare-

48 See “€100m boost for ‘green’ energy in SA”, SouthAfrica.info website, 2 December 2011, accessed online
at http://www.southafrica.info.

49 See “Renewables sector makes local content pledge as SA unveils new green deal”, Engineering News, 17
November 2011, accessed online at http://www.engineeringnews.co.za.

50 See “Executive Summary of the Draft Integrated Electricity Resource Plan for South Africa - 2010 to 2030 –
IRP 2010”, Department of Energy, Republic of South Africa, Pretoria, 22 October 2010.

51 Ibid, Financial Times, Friday December 11 2011.
52 See REIPP website, Department of Energy, accessed online at http://www.ipprenewables.co.za.
53 See “SA’s renewables procurement programme to be enlarged by a further 3 200 MW”, Engineering News,

9th October 2012, , accessed online at http://www.engineeringnews.co.za.
54 See “SA pins reindustrialisation hopes on new procurement rules”, Engineering News, 6 February 2012,

accessed online at http://www.engineeringnews.co.za.
55 “Preferential Procurement Policy Framework Act (5/2000): Preferential Procurement Regulations”, 2011,

National Treasury, Republic of South Africa, 8 June 2011.
56 See Industrial Policy Action Plan 2011/12 – 2012/13, Department of Trade and Industry, Republic of South

Africa, February 2011.
57 “South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment”,

Department of Trade and Industry.
58 See “Increasing Local Procurement By the Mining Industry in West Africa”, Report No. 66585-AFR, World

Bank, Washington, January 2012.
59 See “New Growth Path – Accord 4: Green Economy Accord”, Economic Development Department, Republic

of South Africa, Cape Town, November 2011.
60 Ibid.
61 See “Updated Ipap adds impetus to big local-content push”, Polity, 6 August 2011, accessed online at

62 See “More local content required for renewable energy projects”, Business Report, 14 May 2012, accessed

online at http://www.iol.co.za.
63 See “Renewable Energy Has to Go Local”, Business Day Live, 04 July 2011, accessed online at http://www.

64 “Ontario Legislature Passes Green Energy Act”, Ministry of Energy, Ottawa, 14 May 2009.
65 Lampros (2010).


66 “China to End Challenged Subsidies in Wind Power Case”, China Programme, Volume 11 / Number 11 ,
International Centre for Trade and Sustainable Development, 13th June 2011.

67 Kuntze and Moerenhout (2012).
68 Sustainable Prosperity (2012) and Kuntze and Moerenhout (2012).
69 Kuntze and Moerenhout (2012).
70 “Local content requirements for renewable energy: an unnecessary evil”, EBRD Blog, European Bank for

Reconstruction and Development, 23 November 2012, accessed online at http://www.ebrdblog.com.
71 Sustainable Prosperity (2012) and ILSR (2011).
72 Ibid.
73 Kuntze and Moerenhoute (2012).
74 Ibid.
75 ILSR (2011).
76 Ibid.
77 “The sorry lessons of green-power subsidies”, Globe and Mail, 29 April 2012, accessed online at http://www.

78 “The Impact of Importing RE Technology and Opportunities for Localization”, South African National Energy

Development Institute, presentation to the “Energy Consultative Meeting: Portfolio Committee on Energy
(PCE), Thursday 07 June 2012, Johannesburg.

79 Ibid.
80 “SA’s renewables plan: too important to fail”, Tech Central, 19 July 2012, accessed online at http://www.

81 PISC (2012).
82 Ibid 35.
83 “Brazil cuts high electricity costs to boost economy”, Reuters, 12 September 2012, accessed online at www.

84 “Global electricity price comparison”, Wikipedia entry on “Electricity Pricing”, accessed online at http://

85 “Prospects for Renewable Energy in South Africa”, German Development Institute, Discussion Paper Number

23/2009, 2009.
86 Kuntze and Moerenhoute (2012).
87 “South Africa cuts proposed green energy subsidies”, Reuters, 23 March 2011, accessed online at www.

88 Kuntze and Moerenhoute (2012).
89 “Local Content Rule Thwarts Solar Development in Brazil”, Bloomberg, 9 August 2012, accessed online at

90 PISC (2012).
91 “Solar Stocks Plunge as Germany Vows to Quicken Subsidy Cuts”, Bloomberg News, 20 January 2013,

accessed online at http://www.bloomberg.com.
92 “Ontario’s green dream was just a fantasy”, Globe and Mail, 15 March 2012, accessed online at http://www.

93 “EGI at the 14th International Anti-Corruption Conference”, Electricity Governance Initiative, World Resources

Institute, 12 December 2012.
94 Ibid 85.
95 “A bureaucratic learning curve: South Africa’s renewable energy plans face further delays”, Gordon Addie,

Taylor Hopkins Associates, Cape Town, October 2012.
96 “Department misses green targets”, Mail and Guardian, 28 October 2012, accessed online at http://mg.co.za.
97 “Delay in Alternative Energy Bidding Will Cost Jobs - South Africa”, Southern African Alternative Energy

Association, Welobie, South Africa, September 2012.
98 “Assessment of The Procurement Framework for Onshore Wind under South Africa’s REIPP Programme:

Successes and Challenges”, Shamilah Grimwood (White & Case LLP), WINDABA 2012 Conference, 22-24
October 2012, Cape Town.

99 Sustainable Prosperity (2012).
100 “Department misses green targets”, Mail & Guardian Online, 28 October 2011, accessed online at http://



101 “The Downside of China’s Clean Energy Push”, Bloomberg Businessweek, 21 November 2012, accessed
online at http://www.businessweek.com.

102 Ibid 84.
103 Liberalising Trade in “Environmental Goods”: Some Practical Considerations”, OECD Joint Working Party

on Trade and the Environment, Working Paper no. 2005-05, Organisation for Economic Cooperation and
Development, Paris, December 2005.

104 “Annex C- Trade And Investment In Environmental Goods And Services”, Asia-Pacific Economic Cooperation,
12 November 2011, accessed online at http://egs.apec.org.

105 “APEC List of Environmental Goods: Promoting Exports, Creating Jobs, and Advancing Green Growth and
Sustainable Development”, USTR Press Release, 9 September 2012, Office of the United States Trade
Representative, Washington. The list includes including such core products as: renewable and clean energy
technologies (e.g. solar panels, and gas and wind turbines), wastewater treatment technologies (e.g. filters
and ultraviolet disinfection equipment), air pollution control technologies (e.g. soot removers and catalytic
converters), solid and hazardous waste treatment technologies (e.g. waste incinerators, and crushing and
sorting machinery), and environmental monitoring and assessment equipment (e.g. air and water quality
monitors, and manometers to measure pressure, and water delivery systems).







: l



Local Content
and The Green

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