African nations enact laws to benefit local economies

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A growing number of African countries are enforcing local content laws, which initially targeted the mining industry but have spread to other sectors.

The rationale for these laws has colonial overtones, whereby foreign companies exploited Africa’s natural resources and exported them, used their own equipment and services, and employed “expatriates” to do the skilled labor.

“So goods are exported and profits are exported and expatriates leave, taking their skills with them,” said Dayo Okusami, partner at Templars in Lagos.

As a result, few local businesses own the assets and few locals are trained and skilled in these and other sectors.

The Nigerian Local Content Act was passed 12 years ago, specifying different thresholds for property, services and local employment.

For example, the government aims for the majority of personnel working in the mining industry to be Nigerian.

Likewise, he wants Nigerian companies to provide up to 70% of services to the oil and gas sector, including legal services.

Growth catalyst

“The push for local content has contributed at least 40% to Templars’ growth over the past 10 years, and during that time our business has tripled in size.”

He said the cabinet is now giving instructions to UK and international businesses on

billion dollar projects. “At the moment, I’m commissioning a London law firm with a project worth almost a billion dollars.”

He said that 15 years ago, Nigerian law firms would get the giblets and international companies would get the meat of major deals. “Now we are the butcher and we decide who gets the offal and who gets the meat!”

This changing market dynamics also means that African lawyers do not need to work abroad for international firms, as they begin to work on international cases on the continent.

Similarly, the African legal market has evolved to the extent that African businesses are comfortable being advised by local law firms and not seeking legal services abroad, Okusami said.

While Nigerian law firms have benefited from their local content laws for a decade, 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, which require companies operating in the country to hire Tanzanians and use local vendors and service providers, including lawyers.

However, enforcement has not been as strict, 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 apply the laws.

“So I have clients who have had to continue to apply for exemptions since 2019 and continue to operate regardless, as the authorities continue to put in place a workable structure,” he said.

Local content will be a growing advantage for companies like Bowmans which require majority ownership of the company to be owned by Tanzanians, Kapinga said.

“This is already allowing us to qualify for jobs that require local Tanzanian content and winning many tenders.”

He said the same would 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 with firms like Bowmans, which adhere to international best practices and have the right local content profile.

“So instead of doing a transaction directly, they’ll do it through us.”

In 2017, when local content laws were introduced in Tanzania, a number of investors pulled out of the country.

But the then president fell ill and died suddenly in 2021 and current president Samia Suluhu Hassan has done everything possible to encourage foreign investment and make the laws more palatable.

“As a result, several mining companies are returning to or increasing their existing investments in the country,” Kapinga said.

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