The Role of Local Content Policy in National Development Prof. Urama Kevin Chika (FAAS) Executive Director, ATPS E-mail: kurama@atpsnet.org Presented at the E-Nigeria 2013 conference, 04 December 2013, Abuja Nigeria,

Outline Introduction Role of ICT in National Development Local Content Policy Levers Good Practice Case Examples Challenges for the ICT Sector Conclusions Recommendations

20 April 2017 INTRODUCTION

What is Local Content Policy? An adjective of or pertaining to the number or percentage of the components of a product,…, that are manufactured in a specific country. Local Content Policy (LCP) can help support the recognition, creation, preservation, dissemination and utilisation of local content. The value of local content policy cuts across sectors. However local content policies are often "stove-piped" into sectors.

The Innovation Ecosystem “The elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge, …, and are either located within or rooted inside the borders of a nation state” (Lundvall, 1992). “The national institutions, their incentive structures and their competencies, that determine the rate and direction of technological learning (or the volume and composition of change generating activities) in a country” (Patel and Pavitt, 1994).

The Innovation Systems Frame

20 April 2017 ICT and Development

Information and Communication Technologies (ICTs) represents a diverse economic sector: a “productive sector” and an enabler of productive use of ICTs in all economic sectors. Emergence of social innovations in all sectors – unleashing productive potentials in agriculture, industry, and public governance. Contributed significantly to GDP of countries: 3.8% of GDP in Egypt (2009), 5.9% in India (2007/2008); 9% in Malaysia (2007); 5% of total business sector value added in Brazil between 2000 and 2007, and 5.46% of GDP in Nigeria (2011).

Various macro and micro level studies have concluded that the productive use of ICT results in, among others, higher productivity among individuals, businesses and government, and that it also drives innovation in all sectors (UNCTAD 2009 and 2010). As in most other sectors, government policies and interventions have played a key role in the development of the IT sector in individual economies. The role of government has also evolved over time depending on the level of maturity of the sector.

Local Content Policy Levers 20 April 2017 Local Content Policy Levers

Fiscal policies: the different financial concessions and benefits offered to local players in the IT sector; R&D and Innovation Policies: designed to encourage innovation, and research & development, areas which have traditionally formed the backbone for the development of certain segments of the IT sector.

Human capital-related policies: primarily intended to facilitate availability of requisite human resources, which constitute one of the key enablers for development of the IT sector. Investment climate policies: designed to make the economy attractive to domestic/international investors through a combination of policy measures and instruments.

  Instruments Illustrative Interventions Fiscal Policies Direct tax concessions and waivers Income tax holidays, concessional tax rates, simplified return filing provisions, special tax exemption Indirect tax concessions and waivers Customs duty exemption on exports and imports, service tax concession, sales tax waivers Subsidies, grants, incentives and other financial support Capital subsidy, subsidies on land, power & telecom tariff, interest expenses

Research and development (R&D) support Innovation Policies Research and development (R&D) support Direct funding through strategic R&D grants & patent incentives, development test bed facilities, tax break on R&D expenses   Intellectual property rights (IPR) protection Legislation and implementation mechanisms for protecting products, copyrights and trademarks; Providing incubation facilities and services Support schemes for start-ups and SMEs offering plug & play facilities and other incubation services.

Human Capital Policies Formulating educational policies & curriculum with a focus on IT sector requirements Making changes in curriculum based on IT sector requirements, allowing private investment in education with requisite quality checks   Supporting training & capacity building initiatives Government sponsored/supported programs for developing and enhancing skill sets of IT work force Facilitating employment creation and attracting talent Subsidies linked to job creation, policies to attract foreign experts, relaxed visa regulations and labour market policies

Investment Climate Policies Simplified institutional and implementation framework Declaring IT as a “priority sector” resulting in preferential treatment and efficient policy implementation mechanisms, single window clearance facilities, investment facilitation services;   Facilitating cross-border investments trade in products and services Favourable export import policies, free trade agreements, Double Taxation Avoidance Agreements, permitting foreign direct investments (FDI) with profit repatriation Enabling development of e-Commerce/e-Government Legislations for recognizing legal validity of digital signatures & actions, responsibility of service providers, incorporating cyber crime into existing penal provisions; Venture capital (VC)/private equity market development Government sponsored VC funds, transparent & well regulated financial services sector with special fiscal concessions/benefits for attracting global VC/private equity investors Facilitating development of enabling infrastructure, leveraging spill over benefits Allowing competitive development of physical (roads, airports, urban infrastructure) and telecommunications infrastructure, flexible land use policies

Good Practices: Case Examples 20 April 2017 Good Practices: Case Examples

United Kingdom Licenses would only be awarded where the potential licensee shows commitment to the use of British suppliers; Prior actions would be taken into account; Ministerial approval for development plans required a demonstration of efforts being taken to ensure the maximisation of British content. … Most developed countries follow similar policy stance.

Fiscal Policies: Case Examples

Innovation Policies: Case Examples

Human Capital Policy

Investment Climate Policies

Case Study: China Fiscal Policy Innovation Policy Reduced income tax rate of 10% for key software enterprises identified by the state; No customs duty and import VAT for software companies importing capital equipment including technology. Innovation Policy Any amount exceeding 3% of VAT paid on sale of software products to be refunded provided it is used for R&D; Patent Law and Copyright & Trademark Laws revised in line with TRIPS; Almost all IT Parks have incubation facilities supported by provincial/local Government & academic institutions

Human Capital Policy Specific laws on popularization of and ensuring progress of science and technology; Entry of foreign players in higher education on a case to case basis R&D institutes based in Beijing are encouraged to run schools/training institutes jointly with colleges, universities and scientific research institutes qualified for training postgraduates Simplified visa requirements Innovation Policy Ministry of Information Industry as the policy making & administrative agency, with supportive role from provincial Governments MoU between government and Microsoft 100% FDI allowed in IT & BPO companies, IT Parks Electronic Signature Law passed in 2005 Recent interest from global VC funds Government supported existing VC funds at provincial/IT Park level Competitive telecom market with dominance of state owned players Public private partnership (PPP) for physical infrastructure development

Case Study: Angola Angola’s Response: Introduced local content policy in 2000 requiring oil industries to recruit locals and source from locally run business. Implementation challenged by human capital deficit, and underdeveloped Business Development Services (BDS) which exacerbated Shortage of Suppliers. Angola’s Response: Training programs; Appropriate knowledge and technology transfer schemes; Supply chain management research – matching local skills to industry needs; Enterprise development centres (EDCs); Finance mechanisms to encourage local enterprise

Nigeria’s ICT Sector: Situation Analyses Approximately 90% of the software used in Nigeria is being imported; Proficiency in ICT is still very low among ICT professionals and the general populace; ICT local content (including software and hardware) remains grossly under developed; LCP needed to ensure increase in local content participation especially for the production of hardware, and software development, thus creating jobs and accelerating human capacity development of Nigerians in the ICT sector, and indeed across other sectors.

Common Traits in Case Studies Inherent differences in sectors: extractive industries (mining:-oil and gas, minerals; agriculture, tourism, ICT, etc., and stages of development of the sector); Successful implementation informed by: Private sector recognition of the value to their business; Ability to invest resources (time and money) to enhance endogenous capacity and local supply chains; Sustainable demand and purchasing power of citizens; Continuing befits and value addition to investors (local and foreign).

Lessons from Case Studies Leverage assets of each participating sector; A gradual process “start small and aim high”; Involving all stakeholders is key to understanding and managing real world barriers; Transparent, open, fair and accountable procurement policies and equal opportunities for locals helpful; Not always rosy in the short term Cross-sectoral response strategies required – “No quick fixes”.

Challenges for the ICT Sector The technical complexities of IT procurement (such as legacy or lock-in issues, inadequate frameworks, and implementation capacities; The lack of IT standards and interoperability frameworks; Risk management: - The use of previous experience or bid/performance requirements to mitigate procurement risks; The restricted access to tender notices, either because of their cost or their limited publication;

Data, Indicators – accounting for/regulating the the informal economy; Policy environment and nature of Incentives Knowledge systems and infrastructure reforms Knowledge/Technology Transfer/Sharing? Standardised System of Monitoring and Evaluation Improving STI Infrastructure (Science labs, ICT, etc.,) Strengthen STI Policy Research and Training institutions

Conclusions There is a compelling business case for a comprehensive local content policy in all sectors Adopting a holistic approach to policy development with focused policies is key; Efficient institutional and implementation mechanisms are critical; Encouraging private sector participation is critical; Linking incentives (including subsidies) with identified strengths (core competencies) of domestic companies is necessary;

Having the right policy mix is essential for maximizing spill over benefits; Fostering efficient linkages with other economies is essential; There are additional flexibilities for policy formulation in a federal structure of government.

Recommendations Governments and Donors: Collaboration in knowledge and information sharing, resource pooling, enhances access new sources of innovation, create economies of scale, and enhance legitimacy; Recognize differences in motivations, and maximize win-win. Be flexible in interventions and tools Plan activities in commercially viable terms.

Create a database of local sources and suppliers Review impacts by sectors, identify and enhance linkages and synergies amongst Ministries Public procurement policy to realise local content vision: “Nothing makes the point better than successful practice. Government procurement and contracting regulations and practices should seek to realise the full benefits of local sourcing of materials. A source-neutral procurement policy may not be an optimal choice for developing countries with low global competitiveness capabilities”.

Polices to enhance innovative capabilities is critical Policy makers should take the necessary steps to foster an innovative environment for content creation. Creative ecosystems often evolve around educational institutions.

Private Sector Invest in training and local capacity development Prioritise both contracting or hiring Do not compromise quality Economies of scale matters, but do not forget the micro-scale firms Move beyond tactical decisions about the “bottom line”, invest in long term competitiveness advantages

Failing to act now carries a cost. And it short term profits are not always what they seem

Thank you! Contacts e-mails: executivedirector@atpsnet.org African Technology Policy Studies Network The Chancery, 3rd Floor, Valley Road P. O. Box 10081-00100 Nairobi, Kenya Tel: +254-20-271 4098/ 168/ 498 Fax: +254-20-271 4028 Website: www.atpsnet.org Email: info@atpsnet.org Skype address: atpsnet Thank you! Contacts e-mails: executivedirector@atpsnet.org kurama@atpsnet.org