SALIENT POINTS FROM THE UGANDAN NATIONAL LOCAL CONTENT ACT
On 20 May 2020, the Parliament of the Republic of Uganda passed the National Local Content Bill, 2019, (National Local Content Act or Act) into law and it now awaits the President’s assent.
The Act seeks to address and remedy the shortcomings and defects with all existing policy, legislation and guidelines touching on the subject of local content in Uganda and include, the Public Procurement and Disposal of Public Assets Act, 2003, (PPDA), the Petroleum (Exploration, Development and Production) Act, 2013, the Petroleum (Exploration, Development and Production) (National Content) Regulations, 2016, the Guidelines on Reservation Schemes to Promote Local Content, 2018 and the ‘Buy Uganda Build Uganda’ (BUBU) Policy.
Each of these laws, regulations, guidelines and policies presented shortcomings to holistically addressing the overall question of national local content, hence the need for legislation to align them.
The overall object of the National Local Content Act therefore is to impose local content obligations on ALL persons using public resources or carrying on an activity under a license in Uganda.
Information on the salient provisions of the Act are provided below.
Application and Interpretation
The Act applies to persons and entities: (i) carrying on an activity where public money is used or carrying out public procurement in accordance with the PPDA; (ii) carrying out a licensable activity under the provisions of the Mining Act, 2003, the Electricity Act, 1990, the Uganda Tourism Act, 2008, or any other licence under an Act of Parliament.
The Act also applies to persons in possession of an investment licence or enjoying a tax incentive; an entity under a public private partnership agreement pursuant to the Public Private Partnership Act, 2015; any person carrying out public works whose activities are financed through public borrowing or any similar arrangement.
What is local content and local content entity?
The Act defines local content to ‘include the quantum or percentage of locally produced goods, locally produced services and the utilisation pf personnel, financing, goods and services by a local content entity in any operation or activity carried out in Uganda’.
A local content entity is defined to mean, ‘Government, including a government Ministry, Department, Authority, Local Authority, Local Government, statutory body or agency’. It also includes a natural or artificial person, a partnership or any other entity, as well as an individual contracted by a local content entity carrying on an activity under the Act.
Designation of a Department
The Act establishes a Local Content Department under the Ministry of Finance, Planning and Economic Development to implement the provisions of the Act, (Department). The functions of the Department include: coordinating and managing local content in Uganda, advising Government on local content issues, developing a local content plan, approving local content plans, and undertaking public education on local content in Uganda.
They also include developing guidelines for the implementation of local content, monitoring and evaluating performance of entities under the Act, and promoting development of local content in Uganda. The Department shall have powers to institute inquiries and review contracts subject to Article 119 of the Constitution.
National Local Content Requirements
Requirement to prioritise Ugandan goods and services
The Act places an obligation on a local content entity to give preference to goods manufactured and services produced in Uganda. Exception is made where such goods or services do not meet the required quality, quantity or timeline for delivery or completion. In which case, the local content entity must ensure that the required goods or services are provided by an entity that has a joint venture with a Ugandan company or citizen.
Important to note is that a local content entity cannot reject locally manufactured goods or services provided by a Ugandan citizen solely on grounds of quality, where:
- in the case of goods, they been approved by the national standards agency or through an international standards agency;
- in the case of services, they have been provided in accordance with best industry practices; and
- in the case of manufactured goods, the provider is willing to meet the required quality and time.
Similarly, rejection on the basis of the price of a good or service is prohibited if the price is competitive within five percent, (there is a place for negotiation), or the same can only be procured in Uganda.
Employment of Ugandan citizens
All persons to whom the Act applies are bound to employ Ugandans and can only employ non-citizens after it has been certified by the Department that there are no Ugandans capable of performing the work. Where a non-citizen has been approved for a position, the law requires that provision is made for skills transfer and the entity must submit a succession plan in respect to the role performed by the non-citizen.
The grant of work permits for foreign nationals must now be supported by a letter from the Department certifying that an applicant possesses skills necessary for employment and that no Ugandan possess the skills for a role. All positions held by Ugandans will attract emoluments commensurate to the role and, in the case of any difference with a non-citizen, it will not be more than 10%.
Contracts for public works
The Minister will, in consultation with the PPDA, reserve certain contracts for public works to be exclusively granted by Ugandan citizens and companies.
Subcontracting of Contracts and Public Works
The Act expressly prohibits subcontracting of any contract or works contracted under the Act. It also sets out a mandatory requirement for foreign entities to subcontract 40% of contracted works to a Ugandan company that meets the criteria set out in section 16.
However, liability for the subcontracted work still rests with the contracting party and not the subcontractor.
The Department may of its own volition or upon receiving an application by the local content entity, recommend a subcontract for termination on grounds set out in section 17 of the Act, which include but are not limited to, failure and abscondment of performance, contravention of the Act, and misrepresentation or fraud, among others.
A terminated subcontractor and its officials will be barred from doing business with Government for 10 years.
Local Content Plans (Technology Transfer)
National Local Content Plan
The Department will in consultation and with the approval of the Minister in charge of Finance develop, publish and gazette a national local content plan which contains mechanisms for achieving local content obligations prescribed by the Act.
Entity /individual local content plans
It is a mandatory requirement of the Act for every supplier, contractor or provider to develop a local content plan. These plans should be submitted for approval within six months of the commencement of the Act.
Similar submissions will be made to the PPDA, Ministry of Finance or respective licensing organisation, which will review the plan and, if satisfied, approve it. Provision is made for deviation from an approved plan under exceptional circumstances as listed in section 22 of the Act.
Local content plans require entities to specifically do the following:
- Subcontract 40% of the scope of contracted services;
- Dedicate/ spend 20% of the total contract sum on the procurement of goods manufactured or readily available in Uganda;
- Employ Ugandan citizens on the project and ensure that 60% of its total staff are Ugandan;
- Undertake training of Ugandan staff in spheres of the project and dedicate at least 2% to training;
- Implement strategies to transfer technology, knowledge and skills to Ugandans;
- Undertake local supplier capacity development and formulate a succession plan; and
- Subcontract and create local partnerships in activities and dedicate at least 1% of the total sum of its contract sum to such activities.
There is a reporting requirement on these legal requirements: reports on compliance with the provisions of the Act both generally and specifically, must be submitted to the Department and procuring entity quarterly.
Contravention of these obligations may require an entity, contractor, supplier or provider to provide security of performance: pay into a fund an amount required to be spent under the Act and in some cases, withhold from the contractor money due to the contractor.
Compliance, Offences and Penalties
The Act further expressly states offences under the Act in section 31. The general penalty for breaches of any provision of the Act where no specific penalty is prescribed will be a fine not exceeding 1 000 currency points or a term of imprisonment not exceeding three years or both.
Being a Ugandan citizen or entity alone does not guarantee one the grant of a contract or sub-contract. Other competencies are still binding, experience inclusive. It is therefore incumbent on local suppliers and contractors to cloth themselves with all necessary competencies to qualify them for an award under the Act.
National supplier database
A national supplier database of approved applicants will be developed by the Department for every sector in the economy, and this may be accessible by the public. An approved citizen may be removed from the database if he or she no longer meets the criteria set out in the Act.
A local entity is bound by statue to maintain records relating to its compliance and fulfilment of its local content obligations. These records include payments made to Ugandan citizens for goods and services, payments made to non-citizens, and payments like salaries, dividends and any information prescribed under the Act.
Prohibition of imposition of foreign standards and qualifications
The standards will be those approved by the Uganda National Bureau of Standards or another national body for goods. Similarly, for services, local persons will not require foreign technical qualifications and, if inevitable, an equivalent qualification applicable to Uganda will be adopted.
Anybody or entity aggrieved by any decision of the Department will appeal to the High Court within five days of the decision. There is need for regulations to expound on this provision.
The Minister is mandated under this Act to make regulations for giving effect to the provisions of the Act and for its due administration.