With decreasing oil and gas supplies and increasingly-hard-to-reach reserves, global oil and gas majors have started to invest in frontier areas, many of them in the developing world — like East Africa and Afghanistan, just to name two.

Investing in these areas is not only a political and geological challenge, but also an economic one. How does one build up an extractive industry in a country without infrastructure? What are the expectations of the local population?

Local content requirements (LCRs) have become a central point of interest in this respect. It's where the interests of leaders in developing countries and international oil and gas companies meet or diverge from.

In their simplest form, LCRs are legally (but not necessarily) binding and require international companies to transfer part of their revenue shares to the local economy via so-called forward and backward linkages with the local industries.

International oil and gas companies are not merely expected to pay taxes, royalties or some share of the oil that they extract (in the case of production-sharing agreements), but they are also expected to have long-lasting positive impacts on the economy of the countries they are investing in.

They should transfer technology and know-how, employ local labor and source local goods (backward linkages). If possible, they should enable the construction of facilities that process and export these resources, such as refineries and petrochemical facilities (forward linkages).

From this, developing countries and emerging economies expect to develop their own competitive oil and gas industries and, if possible, a diversified economy in order to decrease their vulnerability to oil and gas price shocks — one fate of the so-called resource curse. On the other hand, oil and gas companies expect to fulfill their corporate social responsibilities and get into good terms with the local population.

Is this too ambitious?

In 2013, the World Bank wrote in its anticipation of a global local content initiative starting this year: "Extractive industries — mining, oil and gas — can create much-needed jobs for people in host communities. Too often though, this does not happen and the transformational potential of these industries for development is lost."

LCRs are nothing new. They were there during the North Sea oil and gas rush in the 1970s and 1980s, and they have been part of oil and gas legislation of countries like Brazil, Kazakhstan, Indonesia, Trinidad Tobago and Angola for up to 30 years as in the latter case.

Some of these countries have stricter and more defined LCRs, but many of them are looser, requiring the investor to source goods and services locally, only if those are competitive to imported goods and services.

For instance, in the case of Norway, Nordas, Vatne and Heum in 2003 argued that the country "did not have specific requirements as to the share of local content … the oil companies never doubted that the Norwegian government and politicians appreciate the choice of local firms to supply the oil and gas activities with goods and services, and were pretty sure that this would be honored in negotiations for future licenses. Thus, during the late 1970s and early 1980s local firms probably were chosen even if they were not the most cost effective."

Trinidad and Tobago is another a typical example of a loose regulatory framework for local content. In the country, in which oil and gas production started in the 1950s, production-sharing agreements used to require foreign investors to source local goods and services only if the local content would be competitive with imported goods and services, and without specifying a threshold on how much should be sourced locally.

With no significant local employment rates over the past decades, the government acknowledged in the 2000s that the skill gap of the local workforce and businesses was just too big and adopted a new local content and local participating framework in 2004. The new framework is still pretty loosely defined and leaves the choice of building up local know-how mostly with the foreign investors.

At the other extreme is Brazil, which introduced LCRs in the upstream sector at the end of the '90s. Brazil's LCRs have changed over time in line, fluctuating around a required rate of 20 percent of locally sourced capital and labor from 1999-2002, and reaching 40 percent for the fifth and sixth licencing round.

Since 2007, minimum local content targets are preset for each licensing round and subcategory of expenditure, including basic engineering to logistical and operational support — sometimes reaching ambitious levels, leaving the Economist magazine to doubt whether Brazil's presalt will ever be extracted.

Last year, ANP (Brazil's National Petroleum Agency), had LCRs of between 37 and 80 percent during the exploration phase and between 55 and 85 percent in the development phase. For the presalt area, the government even announced LCRs of up to 95 percent for certain types of goods and services by 2020.

The problem is that there is a fine balance of what international companies are willing to accept in LCRs and others not. If LCRs are too strict, companies might pull out. If they are too loose, they are not taken seriously. In fact, in Brazil, Petrobras even filled a request to reduce local content requirements because the local industry has not been able to meet them, creating supply bottlenecks and deterring foreign investors.

On the other hand, there is only so much that local content requirements can do in developing countries — especially when it comes to the oil and gas industry. Expectations might be too high, and international oil companies might not be able to meet them, even if they wanted to.

This lies mostly in the nature of the industry. The exploration, development and production of oil and gas is capital and not labor-intensive, and there is usually a high skill gap between local and international companies. Even if the local industry catches up, production is often uncertain, and one big oil gush might not lead to another one.

According to a 2013 World Bank report, most of the opportunities for local employment are actually after production has been taking place, such as in the construction of transport systems for oil and gas and storage facilities.

Finally, one should not forget that international companies still work on a profit basis in the end. They can provide a good incentive for local industries to develop in a way that they can be internationally competitive, but they are not charities.