Measuring local content in manufacturing case

A case study of paint manufacture in Nigeria Dr. Measuring local content in manufacturing Dr. A case study of paint manufacture in Nigeria Eng.

Measuring local content in manufacturing case

Print Local content requirements LCRs are policy measures that typically require a certain percentage of intermediate goods used in the production processes to be sourced from domestic manufacturers. The great majority of LCRs are aimed at sectors other than renewable energy. Collectively, LCRs in the renewable energy space probably impact over USD billion of trade annually, but the available data do not permit an estimate of trade impacted by LCRs.

Moerenhout and Kuntze find that LCRs in green industrial policies are generally promulgated for four reasons. First, LCRs augment public support for renewable energy projects. Second, proponents point to the classic case for protecting infant industries, especially in developing countries, until they can compete on the international market.

Third, the creation of "green" jobs, especially in developed countries, is put forward as a justification for the use of LCRs. Proponents also point to the potential environmental benefits of greater competition between renewable energy firms over the medium-term.

Measuring local content in manufacturing case

On this first point, renewable energy generally costs more than coal-fired power. Thus, one way to enlist public support for the extra cost is to tie renewable energy projects to domestic innovation and job creation through LCRs. Local content requirements can also present an attractive solution to allow infant industries to become internationally competitive in their renewable technology and manufacturing capability.

In addition LCRs may counteract government subsidies in other countries. According to this line of argument, LCRs provide incentives for local firms to produce and eventually innovate in the most promising green energy sectors and to lower their production costs over time.

By requiring firms to use a certain percentage of local inputs, demand for domestic cleaner industries will increase, spurring green job creation in the short-term.

In the long term, there are economic benefits to be gained from "learning by doing" and from increasing the supply of renewable energy. Countries implement LCRs with the two-pronged goal of achieving a robust renewable energy industry that will be competitive in international markets, and securing associated local job creation.

Proponents of LCRs point to the positive spill-over effects for the environment in the medium term. By increasing the number of players in the international market, proponents of LCRs contend that, in the medium term, greater competition will spur innovation in the renewable energy sector and consequently lower green technology costs.

Following this line of argument, the medium- term benefits will compensate the short-term disadvantages in terms of greater production costs. In addition, proponents claim that, by promoting the transfer of technology, LCRs foster sustainable practices worldwide.

Arguments against LCRs Opponents to local content requirements in renewable energy policies point to the economic costs - inefficient allocation of resources, higher retail power prices, negligible employment gains and a negative impact on trade - and question the environmental gains in the medium-term.

Critics hold that LCRs lead to an inefficient allocation of resources by distorting the operation of comparative advantage. Enterprises inefficiently invest their resources in local inputs to artificially improve the competitiveness of local products, making foreign products less attractive to potential buyers.

While proponents argue that LCRs are a short-term policy, put in place to protect infant industries and businesses, opponents point out that once LCRs become a mainstay, withdrawal of government support will often be met with fierce resistance.

It is also possible that the relevant manufacturing sectors will never attain the level of efficiency necessary to operate without government support, and instead require continuous government support. In the short term, since firms are required to purchase local inputs that are likely to be more costly than foreign ones, their manufacturing costs are increased.

Producers pass the higher manufacturing costs on in the form of increased power prices to domestic consumers.

LCR proponents contend that in the medium and long-term, greater competition and innovation will eventually lower manufacturing costs, and hence consumer power prices, but this seems far from certain.

It is also worth noting that creating additional jobs through LCRs is not a certainty. LCRs increase the cost of renewable energy production through higher input prices. As such, less renewable energy is produced, resulting in zero job creation and possibly job losses in the green industrial sector.

Addressing local content requirements: Current challenges and future opportunities

It is also possible that there is job creation but lower returns to other factors. Since LCRs require firms to source components locally, employment will increase in the component industry.

The net effect for job creation of higher input prices and hence less renewable energy production combined with greater demand for component manufacturing is difficult to pinpoint.

Countering the output effect is the substitution effect, which assumes that labour can serve as a substitute for the local material. If the percentage of local content required is very high, then renewable energy production will be reduced, accompanied with net job losses.

However if the amount of local content required is not very high, then firms might increase their employment to offset higher prices for local material. Negative impact on trade The effect of LCRs on trade is to discourage foreign imports and to stifle competition between domestic and foreign firms.

The impact on trade of LCRs depends on the percentage of local content required and the efficiency of existing firms.Local content requirements (LCRs) are policy measures that typically require a certain percentage of intermediate goods used in the production processes to be sourced from domestic manufacturers.4 Local content requirements in renewable energy policy serve as either a precondition to receive government support or an eligibility requirement for government procurement in renewable energy projects.5 LCRs .

Part 1:A case study of paint manufacture in Nigeria (Eng. S.I.C. Okoli – Protective Coatings Manufacturers Nigeria (PCMN)) Part 2: Measuring local content in manufacturing (Dr. Michael Warner – Local Content Solutions).

Measuring the Capabilities of Firms to Deliver Local Content in Resource Rich Countries 4 Summary This paper is the third in a series of four that focuses on. Measuring local content in manufacturing: PowerPoint Presentation, PPT - DocSlides- A case study of paint manufacture in Nigeria.

Dr. Michael Warner – Local Content Solutions. Part 1:A case study of paint manufacture in Nigeria Eng. S.I.C. Okoli – Protective Coatings Manufacturers Nigeria (PCMN). Measuring local content in manufacturing: A case study of paint manufacture in Nigeria.

Overview. Measuring local content in manufacturing: Slideshow by. Local content and natural resource governance: The cases of Angola and Nigeria. Author links open overlay State intervention in the market is required in the case of local content even though these policies are in the long term interest of the private sector, particularly international oil companies.

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