Industrial Policy and Local Content: Brazil's Pre-Salt Area Case

Abstract

Abstract The objective of this paper is to analyze the Local Content, as industrial policy in Brazil, especially in a low geological risk area as the pre-salt. The paper will regard its history, as well as its role, in the oil and gas supply chain, identifying the positive and negative aspects and discuss possible changes in the policy and its importance to the sector's growth recovery. This paper promotes the discussion of the Brazilian Local Content policy as a form of industrial policy for the development of Oil & Gas sector, which is a very representative sector in terms of investment. This work involves the policy evaluation, identifying the reasons that have led to this choice in Brazil and comparing it to other examples around the world. The paper also analyses the possibility of using different types of industrial policies applied globally in Oil & Gas sector. As the results of this study, it was identified that the Local Content policy is capable of promoting the sector's development and it can be positive for the players, especially in a low geological risk environment as Brazilian pre-salt. However, the policy must be adjusted so it allows the increase of competitiveness on a global scale, not only by the oil companies but also by the suppliers. A competitive national production is beneficial for the companies that operate in Brazil, which could reduce import of equipment, labor and services, making their production processes agiler. Regarding the suppliers, incentive policies are needed to promote their development and their establishment at a competitive level with other global companies. It was verified, however, that the policy needs adjustments, mainly with respect to focus definition of the sector's industrial policy. It is clearthat it is important to define key segments to be prioritized and to consider the Local Content policy as part of a wider industrial policy in Brazil. The paper's original contribution is therefore to bring a wider theoretical framework to the current discussions taking place in Brazil about Local Content, considering the industrial policy theories. The discussion itself is relevant, in a moment of policy changes regarding the sector's development in Brazil and representativeness of the pre-salt in terms of impacts in the industry's production chain.