The Role of Local Content Policy in National Development Prof. Urama Kevin Chika (FAAS) Executive Director, ATPS E-mail: [email protected]@atpsnet.org

The Role of Local Content Policy in National Development

Prof. Urama Kevin Chika (FAAS)

Executive Director, ATPSE-mail: [email protected]

Presented at the E-Nigeria 2013 conference, 04 December 2013, Abuja Nigeria,

mailto:[email protected]

Outline

Introduction Role of ICT in National Development Local Content Policy Levers Good Practice Case Examples Challenges for the ICT Sector Conclusions Recommendations

INTRODUCTION

What is Local Content Policy?

An adjective of or pertaining to the number or percentage of the components of a product,…, that are manufactured in a specific country.

Local Content Policy (LCP) can help support the recognition, creation, preservation, dissemination and utilisation of local content.

The value of local content policy cuts across sectors. However local content policies are often "stove-piped" into sectors.

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There are various perspectives on what " local content" means in the IT sector. Local content can refer to percentage of indiginours materials, language, cuilture, etc., in products. For example, local-content laws of USA may stipulate that 90 percent of the components of the car must be made in the U.S. or import restrictions will apply. The language of operation of a piece of IT equipment is also important in diffeining its penetration, useability and impact in societies.

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LCP refers to a set of government actions that affect the generation, acquisition, adaptation, diffusion and use of local knowledge, resources and materials in products.

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For example, without extending local content policy for the oil and gas sector, most oil and gas related contracts which are in the steel sector will elude policy.

The Innovation Ecosystem

“The elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge, …, and are either located within or rooted inside the borders of a nation state” (Lundvall, 1992).

“The national institutions, their incentive structures and their competencies, that determine the rate and direction of technological learning (or the volume and composition of change generating activities) in a country” (Patel and Pavitt, 1994).

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KEVIN02/12/2013This is a reflection of the rise of systemic approaches to the study of technology development as opposed to the linear model of innovation. In the linear model, knowledge flows are modeled quite simply: the initiator of innovation is science and an increase in scientific imputs into the pipeline will directly increase the number of new innovations and technologies flowing out of the downstream end. In reality however, empirical evidence has proven that innovation does not happen in the mainstream but in the interactions of actors.

The Innovation Systems Frame

Valued Acer Customer

Source (Jamie Speirs, et al. 2008): Review of Current Innovation Systems Literature in teh Context of Eco-Innovation, p. 4.

ICT and Development

Information and Communication Technologies (ICTs) represents a diverse economic sector: a “productive sector” and an enabler of productive use of ICTs in all economic sectors.

Emergence of social innovations in all sectors – unleashing productive potentials in agriculture, industry, and public governance.

Contributed significantly to GDP of countries: 3.8% of GDP in Egypt (2009), 5.9% in India (2007/2008); 9% in Malaysia (2007); 5% of total business sector value added in Brazil between 2000 and 2007, and 5.46% of GDP in Nigeria (2011).

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KEVIN01/12/2013It is a productive sector in itself and, more importantly, an enabler of productive use of information and communication technologies (ICTs) throughout the economy and society. It drives private sector productivity and competitiveness, creates employment and spurs innovation. Developing ICT therefore benefits the whole economyICT is a key economic sector where endogenous skills development plays an important role; Public-private partnerships for skills development take different forms; Stargeic linkage programmes have the potential to foster skills development, promote value addition to the local economy, increase local participation, build local capacity and drive economic development and create economic opportunities

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In Cameroon, the ICT sector has been making a vital contribution to an otherwise relatively stagnant economy. Between 2000 and 2008, it grew annually between 15% and 46%. In Egypt, the ICT sector’s value added reached 5.6 billion USD in 2009, comprising 3.8% of GDP.In India, the contribution of the ICT sector towards GDP rose from 3.4% in 2000/01 to 5.9% in 2007/08, with a compound annual growth rate above 20% for this period (Malik and Mundhe 2011).In Malaysia, the ICT sector contributed about 9% towards GDP in 2007, compared to the beginning of the decade when sector contribution was 11.4%. (Ramasamy and Ponnudurai 2011).On average, between 2000 and 2007, it accounted for approximately 5% of total business sector value added in Brazil (Porcaro and Jorge 20

Various macro and micro level studies have concluded that the productive use of ICT results in, among others, higher productivity among individuals, businesses and government, and that it also drives innovation in all sectors (UNCTAD 2009 and 2010).

As in most other sectors, government policies and interventions have played a key role in the development of the IT sector in individual economies.

The role of government has also evolved over time depending on the level of maturity of the sector.

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KEVIN02/12/2013Consequently, while government institutions/organizations in many countries have played a direct role in facilitating development of the sector in the initial stages, the government has shifted to a facilitation role once the sector has attained critical mass, with much of the subsequent growth initiatives being private sector led.Give example of Uganda (Africa Innovative Forum)

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KEVIN29/11/2013The relocation of leading defense contractor Lockheed to the Silicon Valley in the fifties, thereby bringing in significant orders and leading to creation of a large number of ancillary technology firms represents one of the earliest instances of government playing a crucial role in development of IT Parks. Similar models have been followed by governments in different countries such as Korea and Singapore.

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Firms in other sectors as well as public sector organisations and individuals will have greater opportunities to use ICT productively if locally based firms can provide relevant ICT products and services at affordable prices and in a timely manner.Studies find strong correlation between local content, infrastructure development and access prices, but it is not able to positively determine the direction of causality due to data constraints and complex mutual dependencies.

Local Content Policy Levers

Fiscal policies:

the different financial concessions and benefits offered to local players in the IT sector;

R&D and Innovation Policies:

designed to encourage innovation, and research & development, areas which have traditionally formed the backbone for the development of certain segments of the IT sector.

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Some of these policies could involve provision of financial concessions & benefits, as in the case of fiscal policies.

Human capital-related policies:

primarily intended to facilitate availability of requisite human resources, which constitute one of the key enablers for development of the IT sector.

Investment climate policies:

designed to make the economy attractive to domestic/international investors through a combination of policy measures and

instruments.

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Most government policies and interventions in this category, while they may be tailored to meet the specific requirements of a particular sector like IT, are usually targeted at meeting socio-economic objectives through all round economic growth.

Instruments Illustrative InterventionsFiscal Policies

Direct tax concessions and waivers

Income tax holidays, concessional tax rates, simplified return filing provisions, special tax exemption

Indirect tax concessions and waivers

Customs duty exemption on exports and imports, service tax concession, sales tax waivers

Subsidies, grants, incentives and other financial support

Capital subsidy, subsidies on land, power & telecom tariff, interest expenses

Innovation Policies

Research and development (R&D) support

Direct funding through strategic R&D grants & patent incentives, development test bed facilities, tax break on R&D expenses

Intellectual property rights (IPR) protection

Legislation and implementation mechanisms for protecting products, copyrights and trademarks;

Providing incubation facilities and services

Support schemes for start-ups and SMEs offering plug & play facilities and other incubation services.

Human Capital Policies

Formulating educational policies & curriculumwith a focus on IT sector requirements

Making changes in curriculum based on IT sector requirements, allowing private investment in education with requisite quality checks

Supporting training & capacity building initiatives

Government sponsored/supported programs for developing and enhancing skill sets of IT work force

Facilitating employment creation and attracting talent

Subsidies linked to job creation, policies to attract foreign experts, relaxed visa regulations and labour market policies

Investment Climate Policies

Simplified institutional and implementation framework

Declaring IT as a “priority sector” resulting in preferential treatment and efficient policy implementation mechanisms, single window clearance facilities, investment facilitation services;

Facilitating cross-border investments tradein products and services

Favourable export import policies, free trade agreements, Double Taxation Avoidance Agreements, permitting foreign direct investments (FDI) with profit repatriation

Enabling development of e-Commerce/e-Government

Legislations for recognizing legal validity of digital signatures & actions, responsibility of service providers, incorporating cyber crime into existing penal provisions;

Venture capital (VC)/private equitymarket development

Government sponsored VC funds, transparent & well regulated financial services sector with special fiscal concessions/benefits for attracting global VC/private equity investors

Facilitating development of enabling infrastructure, leveraging spill over benefits

Allowing competitive development of physical (roads, airports, urban infrastructure) and telecommunications infrastructure, flexible land use policies

Good Practices: Case Examples

United Kingdom

Licenses would only be awarded where the potential licensee shows commitment to the use of British suppliers;

Prior actions would be taken into account;

Ministerial approval for development plans required a demonstration of efforts being taken to ensure the maximisation of British content.

… Most developed countries follow similar policy stance.

Fiscal Policies: Case Examples

Innovation Policies: Case Examples

Human Capital Policy

Investment Climate Policies

Case Study: ChinaFiscal Policy

Reduced income tax rate of 10% for key software enterprises identified by the state;

No customs duty and import VAT for software companies importing capital equipment including technology.

Innovation Policy Any amount exceeding 3% of VAT paid on sale of software products to

be refunded provided it is used for R&D; Patent Law and Copyright & Trademark Laws revised in line with TRIPS; Almost all IT Parks have incubation facilities supported by

provincial/local Government & academic institutions

Human Capital Policy

Specific laws on popularization of and ensuring progress of science and technology; Entry of foreign players in higher education on a case to case basis R&D institutes based in Beijing are encouraged to run schools/training institutes jointly with

colleges, universities and scientific research institutes qualified for training postgraduates Simplified visa requirements

Innovation Policy Ministry of Information Industry as the policy making & administrative agency, with supportive role from

provincial Governments MoU between government and Microsoft 100% FDI allowed in IT & BPO companies, IT Parks Electronic Signature Law passed in 2005 Recent interest from global VC funds Government supported existing VC funds at provincial/IT Park level Competitive telecom market with dominance of state owned players Public private partnership (PPP) for physical infrastructure development

Case Study: Angola

Introduced local content policy in 2000 requiring oil industries to recruit locals and source from locally run business. Implementation challenged by human capital deficit, and underdeveloped Business Development Services (BDS) which exacerbated Shortage of Suppliers.

Angola’s Response:

Training programs; Appropriate knowledge and technology transfer schemes; Supply chain management research – matching local skills to

industry needs; Enterprise development centres (EDCs); Finance mechanisms to encourage local enterprise

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With the "Anglorisation" mandate, Internatioanl Operating Companies (IOCs) to cource locally, there was need for an entity to assist local bussiness in growing their technical capacity.

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In 2005, the State run company (Sonangol P& P partnersed with the IOCs, to establis a centre to serve as the recommended EDC. 100% Angolan ownership preferred, or at least a joint venture with 50% Angolan participoation required.

Nigeria’s ICT Sector: Situation Analyses

Approximately 90% of the software used in Nigeria is being imported;

Proficiency in ICT is still very low among ICT professionals and the general populace;

ICT local content (including software and hardware) remains grossly under developed;

LCP needed to ensure increase in local content participation especially for the production of hardware, and software development, thus creating jobs and accelerating human capacity development of Nigerians in the ICT sector, and indeed across other sectors.

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over-dependence on foreign importation of software and hardware and this has led to diminished opportunity for domestic economic empowerment, and contributed to limited capacity building within the context of ICT

Common Traits in Case Studies

Inherent differences in sectors: extractive industries (mining:-oil and gas, minerals; agriculture, tourism, ICT, etc., and stages of development of the sector);

Successful implementation informed by:

Private sector recognition of the value to their business;

Ability to invest resources (time and money) to enhance endogenous capacity and local supply chains;

Sustainable demand and purchasing power of citizens;

Continuing befits and value addition to investors (local and foreign).

Lessons from Case Studies Leverage assets of each participating sector;

A gradual process “start small and aim high”;

Involving all stakeholders is key to understanding and managing real world barriers;

Transparent, open, fair and accountable procurement policies and equal opportunities for locals helpful;

Not always rosy in the short term

Cross-sectoral response strategies required – “No quick fixes”.

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Start with basic services and aim to harness upstream, midstream ad downstream opportunities fast.

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(IOCs, first tier local suppliers, national and local government agencies, NGOs, etc.,)

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Early stage local content development might not always be the most efficient, but over time the benefits accrue as endogenous skills and capabilities improve;

Challenges for the ICT Sector The technical complexities of IT procurement (such as

legacy or lock-in issues, inadequate frameworks, and implementation capacities;

The lack of IT standards and interoperability frameworks;

Risk management: - The use of previous experience or bid/performance requirements to mitigate procurement risks;

The restricted access to tender notices, either because of their cost or their limited publication;

Data, Indicators – accounting for/regulating the the informal economy;

Policy environment and nature of Incentives

Knowledge systems and infrastructure reforms

Knowledge/Technology Transfer/Sharing?

Standardised System of Monitoring and Evaluation

Improving STI Infrastructure (Science labs, ICT, etc.,)

Strengthen STI Policy Research and Training institutions

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Governments, especially ministries of education, should evaluate the level of multiple skills, such as ICT skills, knowledge and attitudes which would lead to the critical mass of competences existing at local level and take appropriate measures to create an enabling learning environment. Key steps include improving basic literacy (e.g. drafting, language, etc.,), critical thinking ability, as well as media, information and digital literacy skills. Policy steps to improve ICT, digital, media and information literacy should include both the formal educational system and lifelong learning. Targeted programs aimed at certain segments of the youth and adult population can also teach necessary skills to members in a community who can then help others create, record and disseminate local conte

Conclusions There is a compelling business case for a

comprehensive local content policy in all sectors

Adopting a holistic approach to policy development with focused policies is key;

Efficient institutional and implementation mechanisms are critical;

Encouraging private sector participation is critical;

Linking incentives (including subsidies) with identified strengths (core competencies) of domestic companies is necessary;

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It builds market-based economies, generates economic opportunities for citizens and stabilitises commuities

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Effective coordination with Ministries (education, health, ICT, S&T, Finance, Agriculture, etc) and parasatatals, Departments;

Having the right policy mix is essential for maximizing spill over benefits;

Fostering efficient linkages with other economies is essential;

There are additional flexibilities for policy formulation in a federal structure of government.

Recommendations

Governments and Donors:

Collaboration in knowledge and information sharing, resource pooling, enhances access new sources of innovation, create economies of scale, and enhance legitimacy;

Recognize differences in motivations, and maximize win-win.

Be flexible in interventions and tools

Plan activities in commercially viable terms.

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Motivations can be different but the outcome or development impacts can be the same or similar. By recognizing this, the various interests can weave an approach that maximises positive impact.

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Value comes from linking technical traiing to potential end-users.

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Corporation's increasingly point to corporate strategic planning and bottom-line business practice as prime movers for investing in the expansion of local content

Create a database of local sources and suppliers

Review impacts by sectors, identify and enhance linkages and synergies amongst Ministries

Public procurement policy to realise local content vision:

“Nothing makes the point better than successful practice. Government procurement and contracting regulations and practices should seek to realise the full benefits of local sourcing of materials. A source-neutral procurement policy may not be an optimal choice for developing countries with low global competitiveness capabilities”.

Polices to enhance innovative capabilities is critical

Policy makers should take the necessary steps to foster an innovative environment for content creation. Creative ecosystems often evolve around educational institutions.

Private Sector

Invest in training and local capacity development

Prioritise both contracting or hiring

Do not compromise quality

Economies of scale matters, but do not forget the micro-scale firms

Move beyond tactical decisions about the “bottom line”, invest in long term competitiveness advantages

Failing to act now carries a cost.

And it short term profits are not always what they seem

Thank you!

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Documents

The Role of Local Content Policy in National Development Prof. Urama Kevin Chika (FAAS) Executive Director, ATPS E-mail: [email protected]@atpsnet.org