A Conceptual Framework for Measuring Local Firm Capabilities in New Producing Countries

About the Project

Natural Resource-led Development in New Producing Countries

Our project seeks to understand how natural resource extraction can drive inclusive economic growth in new producing countries. We are engaged in a multiyear multidisciplinary study with four objectives:

• Understand the human geography of new producing countries.
• Assess the magnitude of new discoveries and estimate direct fiscal impact.
• Understand how industry can be localized to create economic growth.
• Estimate spillovers and welfare impacts to society.

We recognize that policymaking in new producing countries is a complex process, and our project also seeks to understand the interactions of actors' interests that drive energy sector policies.

Our initial focus is on four countries – Kenya, Mozambique, Tanzania and Uganda – that expect to develop significant oil and gas reserves in the next 5-7 years. Through natural resource development, these countries hope to achieve middle-income economic status by 2030-2040. This project is conducted through close collaboration with leading think tanks and NGOs in Africa.

Key Points

Policymakers in new resource-rich Eastern African countries are eager to promote industrialization and economic development by encouraging international oil and gas companies (IOCs) to use local suppliers. However, policymakers usually lack information on the local firms’ abilities and typically depend on studies by the IOCs to assess these capabilities. Such studies are useful and necessary but they usually only address the needs of the IOCs. By considering the capacity of local firms to learn and innovate, vital information is gathered which can then be used to enhance the design of local content policies. It also raises the prospects for the creation of a more sustainable local supplier base.

The assessment of the capabilities of local firms could be improved by introducing the constructs of absorptive capacity and innovation. This would give policymakers a dynamic, instead of static, view of the local industry.

Providing policymakers with a better understanding of the local firms’ potential and ability to learn and grow will allow them to come up with more varied options in the design of local content policies and potentially provide more suppliers for industry.

A wider perspective of the local firms’ capabilities also contributes to the linking of local content policies to the overarching objective of expanding the local economy.