The Economics and Politics of Local Content in African Extractives: Lessons from Tanzania, Uganda and Mozambique

Abstract

Extractive foreign direct investment (FDI) is heralded as the new development opportunity in Africa. A key precondition for FDI's contribution, however, is that foreign investors create ‘local content’ by linking up to the local economy. Consequently, African host governments are contemplating ways in which they can promote local content. This paper examines local content policies and practices in three African countries – Tanzania, Uganda and Mozambique – all countries with huge expectations for extractive based economic development. It is found that in spite of high ambitions and strong expectations, local content is limited, shallow and inefficient. The paper explores why local content apparently is so difficult to achieve in these African countries. It is argued that conventional economic explanations, focusing on market failures and weak institutions, are partial at best and therefore must be complemented with political explanations. Hence, it is proposed that local content practices in the three countries can be understood partly as the results of ruling elites’ efforts to build and maintain stable political coalitions.