Guidelines on the Use of Local Content in the Procurement of Goods and Services

The guidelines have been issued by the Minister of Industry in Regulation No. 49/M-IND/PER/5/2009 as a means of furthering the provisions contained in Presidential Instruction No. 2 of 2009. The guidelines require that where the government is procuring goods and services that a minimum local content be used. However, where local content is insufficient or not fit for purpose then non-local products can be procured.

The guidelines are expected to facilitate growth in domestic/local industry. However, there have been a number of criticisms of the minimum local content requirements as both being anti-competitive and a form of protectionism that ensures that local companies no matter the quality of their respective goods and services survive. The government argues that this is not protectionism but rather a means of preparing local companies for the onslaught of broader free trade agreements of the future.

The guideline set out that the procurement of local content begins at the planning phase and ends with the implementation (or procurement) of the minimum content requirements. The requirement to use local content is compulsory. However, there are certain criteria that would allow for the procurement of non-local goods and services. The requirements are:

Simply, if the local content cannot satisfy the above basic points then the necessary goods and services can be procured from non-local providers.

Sanctions apply to both the provider and the user of the procured goods and services. Generally, the sanctions are administrative in nature and include financial penalties.

The guidelines repeal and replace Regulation No. 11/M-IND/PER/3/2006 and Regulation No. 31/M-IND/PER/6/2006.

The guidelines were issued on 12 May 2009 and will come into force on 12 August 2009.