Local Content in the Oil and Gas Industry of Nigeria: Challenges, Prospects and the Way Forward
Chapter One
Objectives of the study
There is no doubt that the ultimate objective of any oil-producing, developing country is to control and operate all phases of its industry. This explains why successive governments since the country’s return to democracy have deemed it an urgent need to positively develop the level of participation of Nigerians in the oil and gas industry. Indeed, the Federal Government of Nigeria have initiated several policies and enacted some legislations towards the statutorization of such golden initiative. This paper critically examines the various local contents in the petroleum industry in Nigeria, particularly the key statutory and/or policy framework regulating same.
CHAPTER TWO
LITERATURE REVIEW
In a bid to stem the tide of frequent use of expatriate workers to handle jobs that would have been ordinarily carried out by indigenous workers, the federal government in 2010 enacted the Local Content Act to promote indigenous participation and empowerment in the oil and gas industry in Nigeria. The adoption of the local content policy in the oil and gas industry is seen as a strategy to boost the participation of indigenous oil firms in the supply chain of the sector and also to create more employment opportunities for the local workforce.
Many nations in their quest to build local capacity and create employment for the locals have formulated local content policy to maximise the benefits from their oil endowment, by so doing improve the lives of their citizens as well as the economy. In like manner adaptation of local content in the oil and Gas sector in Nigeria has also helped in the improvement of the nation’s economy. This is an improvement as this was not the case in the past where the oil and gas industry was dominated by major international oil companies (IOCs) that came with their large numbers of expatriate workers deployed to carry out projects in various onshore and offshore locations in the country. Expatriates were brought in as engineers and doctors amidst prevailing unemployment in the country and where operators were declaring huge profits without improving the working conditions of local staff.
This preponderance of expatriate workers has resulted in a paucity of jobs, skills development, capacity building and under-utilisation of the indigenous workforce and in the long run, a lack of sustained national economic development. Hence, this paper examines the development of local content in the oil and gas industry in Nigeria, identifies the problems and prospects of Nigerian local content and proffer solutions on how to effectively address the problems.
Conceptual Analysis
Local Content
The term “local content” has been defined by Ogbeifun as the engagement of Nigerians as employees, the participation of Nigerian investors in the industry and the use of Nigerian contractors in the execution of contracts. Obuaya provided his definition in line with the idea of value addition. He defines local content as a set of deliberate orientation and actions to build domestic capacity relevant for service and product delivery comparable within that industry and an opportunity to locally build a sustainable culture of service quality and capabilities exceeding customers’ expectations and comparable to international standards through key local personnel and management. Though simple, Obuaya’s definitions reflect on some important indices to examining the concept of local content such as ‘deliberate orientation’, ‘capacity building’, ‘sustainable capability’, ‘product deliverability systems’ and ‘comparability.`
Section 106 of the Nigerian Oil and Gas Industry Content Development Act also defines the term ‘Nigerian content’ to mean “the quantum of composite value added or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilisation of Nigerian human and material resources and services in the Nigerian oil and gas industry. Local content is about securing direct and indirect opportunities for employment and procurement to home nationals, at the same time as fostering the development of local skills, technology transfer, and use of local manpower and local manufacturing in capital projects.
CHAPTER THREE
LEGAL FRAMEWORK FOR NIGERIAN CONTENT DEVELOPMENT
Some of the laws regulating Nigerian Content Development are:
The Immigration Act
The Act provides that no person, other than a citizen of Nigeria, shall accept employment (not being employment with the Federal Government or a State Government) without the consent in writing of the Director of Immigration; or on his own account or in partnership with any other person, practice a profession or establish or take over any trade or business whatsoever or register or take over any company for any such purpose, without the consent in writing of the Minister given on such conditions as to the locality of operation and persons to be employed by or on behalf of such person, as the Minister may prescribe. Any person desirous of entering Nigeria for any of the above mentioned purposes must produce the consent to an immigration officer; and the failure to do so shall be an offence under the Act, and any person who commits such an offence shall be liable on conviction to deportation as a prohibited immigrant. The essence of the above provisions is to prevent the indiscriminate engagement of expatriates in positions where there are suitable Nigerian alternatives and these provisions apply even to activities in the petroleum industry.
Thus, the Act imposes the requirement of expatriate quota (EQ) and other permits before a foreigner can undertake such engagements in Nigeria and where same is to be granted, it may be coupled with such conditions as to the development of local expertise as the Minister may prescribe. Such permits are meant to last for a limited period of time and though may be renewed upon expiration, the application for renewal must show, inter alia, a detailed training programme for Nigerians in the field, list of Nigerians understudying the expatriate on a prescribed format showing date of employment, qualifications, Letter of No Objection from the Nigerian Content Monitoring Board for companies operating in the oil and gas sector and a list of Nigerian Senior/Management staff in the applicant’s employment showing names, designations, qualifications, salaries per annum, etc. Apart from the Nigerian Immigration Service, Other Agencies charged with the task of overseeing the EQ regime include the Nigerian Investment Promotion Commission, the Nigerian Local Content Board amongst others.
CHAPTER FOUR
PROBLEM AND PROSPECT OF LOCAL CONTENT IN THE OIL AND GAS INDUSTRY IN NIGERIA
Problems of Local Content Development in the Oil and Gas Industry in Nigeria
Lack of Infrastructural Base:
The infrastructure in Nigeria cannot presently support industrial growth, some of the infrastructural challenges include, insufficient power supply, poor transportation and telecommunication network, inexistent public utilities, just to mention a few. For instance, regular electricity supply required for the manufacturing and fabrication industry is yet to be given adequate attention as no effort is made to make the oil and gas industry a driver of sustainable electricity production. The time-framed given to authorise the continued importation of items where there is inadequate local capacity is unrealistic as all such items required to be produced locally will suffer set-backs as a result of inefficient power supply. This will lead to continuous importation of such items. While Canada and South Africa have standard infrastructure and notably efficient and steady power, good roads network, world class health and educational facilities which is good for foreign investments. Countries like Norway were a highly industrialised economy before oil was discovered, meaning that all infrastructures necessary for a society to function effectively were all in place. This contributed to the suitable development of their petroleum industry.
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATION
Conclusion
The overall objectives of local content development is attracting foreign direct investments, job creation, human capacity development, technology transfer and adding value to the economy. The differences between the successes of the countries reported in this paper and Nigeria include; poor infrastructure in Nigeria which cannot support industrial growth, poor investors’ climate which includes security and clean environment. Identifying the causes for the poor implementation of the Nigerian local content policy is important and the challenges will be taken into consideration while developing a framework for a more effective implementation. More so, Local Content Act plays a vital role in the advancement of the Nigerian Oil and Gas Industry and it also gives first consideration to Nigerian independent operators. This creates a platform for the Nigerian Company to contribute immensely towards the growth of the Nigerian economy. The Local Content Act, however, needs to be fully implemented by the Nigerian government as not all companies within the industry have embraced its provisions.
Recommendations
The following recommendations are made for effective implementation of the local content development programme
- Appropriate power needs to be generated so as to support industrial growth. Telecommunication and all other public utility infrastructure will need to be subsequently developed, a good investment climate should be encouraged and transparency in both the government and private sector should be pursued in other to create investor confidence.
- The Nigerian Content Development Fund established by the Act and managed by the Board should extend its hand to bailing out indigenous companies by operating a kind of revolving loan to indigenous companies to enable them actively participate in the oil and gas sector of the Nigerian economy.
- The Nigerian Oil and Gas Industry Content Act needs to be amended to clarify certain terms that were not defined under the Act which many operators now exploit to embark on all manner of contract staffing and casualisation, contrary to the intents of the Act. The huge discretionary powers of the Minister of Petroleum also need to be checked to avoid abuse. 4. Furthermore, there is a need for private-public partnership to reinforce the implementation of human capital development agenda for the Niger Delta. Emphasis should be placed on the provision of modern technological facilities and social welfare package that can transform the region from its present situation to an industrial area.
- There is need for an amendment of the Act to extend the scope of its application to other critical sectors of the Nigerian economy like construction industry, for instance, construction of Railway lines, roads and dams.
References
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- Araco, B. (2010): “World Bank says less than 1% Nigerian businesses have access to credit”. BusinessDay, 1 September, pp.1, 5
- Bello, O. (2010): “Local content: Firms risk losing over $5bn to lack of patronage”, BusinessDay, 6 September, pp.1,4,6
- Bello, O. (2010): “Jonathan inaugurates Nigerian content governing council, orders strict compliance”, Business-Day, 6 September, p.6
- BP Statistical Review of World Energy, June 2010, p.6, htpp//www.bp.com/statistics
- Coker, C. (2008): “Local content as the springboard for sustainable economic transformation of Nigeria”, NOG, October, pp.28-29.
- Chikezie, C. (2010): “Making the local content law work”, NOG, May-June, 2010, pp.11, 17.
- Ellis, C. (2008): “Opportunities are immense with 90% of Nigeria’s revenue from oil and gas”. NOG, October, pp. 23-24.
- Gaius-Obaseki, I. (2002): “Technology transfer: a model for Nigeria’s oil industry”, NOG, October, pp29-30.
- Obasa, R. (2006): “Nigerian content: Removing the knowing-doing gap”. NOG, July, pp. 13-15.
- Obasa, R. (2009): “Extended enterprise can fast-track local content development”, NOG, March, pp. 3-4.
