An increasing number of African countries are enforcing local content laws, which were initially aimed at the mining industry, but are spreading to other sectors.
The rationale behind the laws has colonial overtones, whereby foreign companies exploited Africa’s natural resources and exported them, used their own equipment and services and employed ‘expats’ to do the skilled work.
“So the goods get exported and the profits get exported and the expats move on, taking their skills with them,” said Dayo Okusami, partner at Templars in Lagos.
As a result a minimal number of local companies own the assets and few locals are trained and qualified in these sectors, among others.
The Nigerian local content act was passed 12 years ago specifying varying thresholds for ownership, services and local employment.
For example, the government is aiming for the majority of the personnel who work in the mining industry to be Nigerian.
Likewise it wants Nigerian companies to provide as much as 70% of services to the oil and gas sector, including legal services.
“The push for local content has contributed at least 40% to Templars’ growth over the last 10 years, and during that time our firm has tripled in size.”
He said the firm is now instructing UK and international firms on
billion dollar projects. “Right now, I am instructing a London law firm on a project worth nearly $1 billion.”
He said 15 years ago Nigerian law firms would get the offal and the international firms would get the meat of the major transactions. “Now we are the butcher and we decide who gets the offal and who gets the meat!”
This changing market dynamic also means that African lawyers don’t need to work overseas for international companies, because they are getting to work on international business on the continent.
Similarly, the African legal market has evolved to the extent that African companies are comfortable to be advised by local law firms and not look overseas for legal services, said Okusami.
While Nigerian law firms have been benefiting for a decade from their local content laws, this type of legislation is a recent phenomenon in some African countries.
Opportunities and challenges
For example, local content laws were introduced in Tanzania in 2017 that require companies operating in the country to hire Tanzanians and use local suppliers and service providers, including lawyers.
However, enforcement has not been that stringent, due to the lack of mechanisms to do so, said Wilbert Kapinga, managing partner of Bowmans in Tanzania
“There is no clarity on how to implement the laws.
“So, I have clients that have had to keep applying for exemptions since 2019 and carry on business regardless, as the authorities continue to set up a workable structure,” he said.
Local content will be an increasing advantage for firms like Bowmans who require that the majority of the equity of the firm is owned by Tanzanians, said Kapinga.
“Already this is allowing us to qualify for jobs that require Tanzanian local content and win many of the tenders.”
He said the same will apply to Bowmans’ six other African practices in Kenya, Malawi, Mauritius, South Africa, Uganda, and Zambia, which have the same business model.
He said international law firms are more comfortable dealing with the likes of Bowmans, which adhere to international best practices and have the right local content profile.
“So instead of doing a transaction directly, they will do it through us.”
In 2017 when local content laws were introduced in Tanzania a number of investors withdrew from the country.
But the then president became ill and died suddenly in 2021 and the current female president Samia Suluhu Hassan has gone out of her way to encourage foreign investment and make the laws more acceptable.
“As a result, several mining companies are returning or increasing their existing investments in the country,” said Kapinga.
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