Local content policies in the context of extractive industries have attracted increased interest in recent years. Most countries with a significant extractive industry have included local content requirements either in their legislation or exploitation contracts. Such efforts may be constrained by low capacity of potential suppliers, low skills, and a number of other factors constituting the general business environment. A number of extractive industry companies have introduced supplier development programmes that attempt to reduce the constraints and skill gaps. Government policies on local content vary, with some prescribing quantitative targets for local content, while others focus on improving skills and raising the capacity of domestic industry. Infrastructure built for extractive industries can often be used by local populations and other economic activities. Difficulties in finding suitable financing arrangements have, however, limited the number of successful greenfield multi-client/multi-user extractive industry-related infrastructure projects.

The paper discusses the practical possibilities of achieving increased downstream processing and the policies that are commonly used for this purpose. It reviews the reasons why forward vertical integration is not always an optimal choice for extractive industry companies. It finds little support for the argument that differences in market power dictate the geography of downstream processing. Tariffs on processed products may also play only a limited role. The degree of vertical integration varies and appears to be mainly driven by production economics. Market determined processing margins fluctuate, which raises the risks of investing in downstream processing capacity. Policies for downstream processing are discussed based on experiences in four countries: India, Indonesia, Zambia, and Tanzania. In most of these cases, a very limited amount of analysis appears to have been undertaken to design the policies. Results so far seem to indicate that a number of unintended consequences dominate the outcomes.

Local content policies for extractive industries have attracted increased interest. Local content requirements are often included in legislation or contracts. Such efforts may be constrained by low capacity of potential suppliers, low skills, and the general business environment. A number of extractive industry companies have introduced supplier development programmes that attempt to reduce the constraints and skill gaps. Government industrial policies on local content vary: some prescribe quantitative targets for local content, while others focus on improving skills and raising the capacity of domestic industry. Infrastructure built for extractive industries can often be used by other economic activities. Difficulties in finding suitable financing arrangements have, however, limited the number of successful multi-user extractive industry-related infrastructure projects.

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