LCGPA sets the path for effective Local Content Agenda

Hind Al Soulia - Riyadh - By Abdulrahman Bin Abdullah Al-Samari

As a crucial step towards the socio-economic progress of Saudi Arabia, Local Content has emerged as the cornerstone for value creation and achieving inclusive and sustainable economic growth. Therefore, the development of Local Content is an indispensable action to carve a significant advantage for the economy of the Kingdom, while complementing its mission of seeking growth with new opportunities across promising sectors.

But what counts as Local Content? Local Content is the total spend in the Kingdom of Saudi Arabia on Saudi components within labor, goods, services, assets, and technology. In other words, it is the outcome of employing local products, services, talents and technology in order to produce more products and services that add value to the Gross Domestic Product.

Driving Economic Growth

Local Content development is exceptionally vital for the Kingdom's economic transformation. It will stimulate growth across sectors through its five essential components — labor, goods, services, assets and technology, and lead to high gains on the macro-economic level by driving production capacity and contributing towards job creation. It outlines an ultimate win-win situation – a higher Local Content equals lower imports, higher non-oil exports and higher non-oil revenues.

Besides reducing the balance of payments deficit, Local Content development is expected to create and promote new industries that lead to thousands of job opportunities for the youth in the Kingdom. This eventually will help in strengthening the national capacity building as companies will hire more Saudi talents. Similarly, the research & development and capacity building will promote local knowledge and technology, thus contributing to the national transformation plan.

Collaborative Multi-Sectoral Efforts

As a government entity that has been mandated to develop and promote Local Content across the nation, the Local Content and Government Procurement Authority (LCGPA) has undertaken a mission that started with outlining a road map for exploring Local Content opportunities, followed by drafting policies for Local Content preferences, and building strategic partnerships with the public and private sector entities. We have put in place a well-thought-out strategy that will ensure constructive collaborations with stakeholders to accomplish our objective of nurturing Local Content with support and partnerships of the public and private sectors.

We are spearheading the mission with Local Content Partnerships Initiative, a framework of cooperation between LCGPA and leading national private and public entities that are also the members of the Local Content Leadership Council (LCLC) — LCGPA’s primary division for coordinating entities’ joint efforts to build Local Content on a larger capacity.

The Local Content Partnerships Initiative was launched in October 2019 following the signing of the agreements between LCGPA and Saudi Aramco, SABIC, Maaden, STC, Saudi Electricity Company (SEC), Saudi Arabian Airlines (Saudia) and the Council of Saudi Chambers (CSC). The most recent ones to join the council are the Ministry of Industry & Mineral Resources and the Ministry of Energy.

Through strategic partnerships such as these, LCGPA has introduced procedural incentives to encourage stakeholders to maximize Local Content. As part of its endeavors, LCGPA is also measuring the current local content score of companies and potential suppliers as well as baselining them before developing targets and initiatives to increase Local Content.

LCGPA has already approved the baselining of Local Content for 109 companies in different sectors that have duly filled the Local Content calculation form. The baseline is calculated through a scientific approach that takes into account the national components in the company’s assets, workforce, procurement, and capacity building.

As the Local Content baseline is a mandatory requirement as per the regulation outlined in the new Government Tenders and Procurement Law, it will certainly facilitate the national companies’ participation in upcoming government tenders and procurements.

In addition to the above, The Local Content Partnerships Initiative will help in accelerating LCGPA’s efforts towards supporting national industries, upgrading local production practices, and encouraging capacity building. Furthermore, LCGPA’s partners will support us in ensuring that the international best practices are followed in local production methods - and together we will extend the necessary technical support to local content applications and educational workshops.

Going the Extra Mile

The multi-faceted Local Content development scheme by LCGPA, accessible by large companies and SMEs, includes mechanisms that are focused towards promoting the private sector to drive Local Content.

The price preference mechanism is one such procedure whereby the local products are granted a price preference in government tenders by adding 10 per cent to the bidding price against the foreign products. Another mechanism is the mandatory listing of local products, aimed at supporting a number of national industries, whereby suppliers with government entities are required to procure specific products exclusively from local manufacturers.

To ensure the excellence of applying Local Content policies, which are currently within the new Government Tenders and Procurement Law, LCGPA is developing a Local Content portal that is embedded within Etimad platform that will offer stakeholders a smooth experience and services while applying local content policies. Along the same lines, LCGPA will be introducing the Center of Excellence that will focus on developing guidelines, tools and training in addition to extending its support to the stakeholders.

Amidst a highly competitive environment and various challenges of the modern economy, the result of the efforts towards Local Content development will start realizing over an extended period of time with the much-needed support and involvement of all stakeholders. Still, with the Kingdom’s advancing transformation journey, setting up a robust Local Content is imperative to shape a sustainable Saudi economy and support nationwide efforts towards achieving the national development goals.

— the writer is CEO of Local Content and Government Procurement Authority .