Localisation in Africa

Introduction

The concept of localisation, known as black economic empowerment in South Africa, has taken hold across the African continent. It has been promoted by governments, especially in resource rich countries, as a means of advancing economic transformation and enhancing the economic participation of the local people, but specifically those who were disadvantaged by oppressive regimes such as Apartheid and colonialism.

While the laws governing localisation differs from country to country, there are common themes which governments and the laws seek to achieve.

Skills development

Skills development primarily focuses on empowering the people with skills, ensuring that employees access more opportunities for skill acquisition; creating space for the new entrants into the labour market to gain work experience; and introducing transformative tools through training and education to redress unfair discrimination practices in the labour market against disadvantaged groups. Another imperative is to improve productivity in the workplace and competitiveness. For example, in Madagascar in order to operate, a company must incorporate a subsidiary in Madagascar and must implement a training and employment program for nationals and contribute to the supply of minerals to the local market.

Local supplier development

In order to improve the local competencies, companies that wish to operate in Africa are encourage to engage in local supplier development. Supplier development is about generating a new capability or competency in suppliers. The aim is to increase the competitiveness, capacity and capability of the African supply base where there are comparative advantages and potential competitive advantages of local supply. This can be achieved through skills transfer, increasing the local content of items procured, as well as building new capability in the local supplier base.

Socio-economic development

Socio economic development is generally measured using indicators such as life expectancy, GDP, literacy and employment.

Company that intend to operate on the continent can participate in socio-economic development by directly investing in education programmes, improving infrastructure in relation to their business, or engaging in helping smaller entrepreneurs to grow.

Ownership and management control

Ownership and management control is aimed at increasing the extent of a company’s local control. This may be the most widely spoken-about factor of localisation but possibly the most complex for companies to navigate. In South Africa, ownership localisation aims to transfer part ownership of the productive assets in the South African economy to black people. Empowerment shareholders must enjoy voting rights as ordinary shareholders, and economic interest in the hands of black people and black shareholders must receive the same distributions in proportion to their shareholding, as any ordinary shareholder would. It is now well established that diversity in ownership and control results in better companies.

Enterprise development

Enterprise development focuses on creating or supporting individual enterprises to develop their capabilities. These enterprises typically have low barriers to entry, with low complexity. This type of localisation can be seen as more outward-focused compared to supplier development; similar to supplier development but with greater emphasis on social responsibility spending by uplifting communities through economic participation and employment creation. For example, in Tanzania there are formal reporting requirements and a clear emphasis on maximising local content, local capacity building and technology transfer.

It is important that companies who seek to conduct business in Africa do not see localisation as barrier or a hurdle to its success but rather an opportunity to meaningfully contribute to the growth of the nation in which they operate and to partake in redressing the wrongs of the past and consequently the growth of the company itself. By complying with localisation, companies promote economic transformation on the continent, which in turn will promote economic growth within the country due to the increase in the extent to which communities own and manage enterprises.