Local Content: A vehicle of hope or an Eldorado

Local Content: A Vehicle of Hope or an El Dorado

By Sunny Oputa

Call it resource nationalism or local content. This socio-economic term is not nascent. It has been as old as human civilization and it is not just akin to the African economic sector. Local content in its simple terms is the value added in local oil industries by creating opportunities and encouraging indigenous oil companies to actively participate in the exploration, production, manufacturing, fabrication, procurement and allied service sectors of the oil business.

Local content if well comprehended is a win-win situation that will promote partnership among national oil companies, local companies and international organization. And it will create good business environment, through corporate social responsibility, harmony and insure maximum profit for all. The main driver of local content is the vital need to cure or ameliorate the effect of “Dutch Disease” in oil rich - nations, and ensure that the people of these resource-rich countries enjoy increase economic benefits from the domestic oil and gas industry.

The modern trend to fuse local content in national oil industries predates the period of the exploration of the North Sea in Europe and United Kingdom’s didactic policy in 1970 meant to assess local content by setting up Offshore Supplies Office to monitor and audit supplies and contracts handled by companies in order to insure that indigenous companies get sizeable share of the contracts. The takeoff of Norway’s offshore oil industry in 1962 ushered in a huge growth. In 1965, the Norwegian Petroleum Law was enacted and in 1972, Article 54 of the Royal Decree of 1972 enshrined the local content law and mandated that government should vigorously pursue the goal of insuring that Norwegian goods and services be given preference in the running of the oil and gas industry, provided they were competitive in terms of price, quality, schedule and service.

Right from the establishment of Petrobras in 1953, and the emergence of Brazil’s offshore oil industry in the 1960s with the discovery of the Guaricema field, Petrobras, the world leader in deep-water drilling has remained the dominant player in the Brazilian oil industry From the very point that Malaysian oil industry began in the 1950s, the objectives of Malaysia’s oil and gas policy have been to maximize local benefits through the development of local capabilities and industrial base to support the growing onshore and offshore oil and gas industry.

Petrobras (Brazili) and Petronas (Malysian) are two successful national oil companies that most national oil companies in Africa tend to model after.

Currently, the issue of empowering local oil industry with local content policy has began to spread in Africa like a wild harmattan fire. In Egypt, Algeria, Libya, Equatorial Guinea, Nigeria, Angola, Gabon and the new frontiers that are hoping to join the league of oil producing nations of Africa such as Ghana, local content is the love that is in the air right now.

The discovery of the Kwanza basin helped to commence production in Angola, followed by the discovery and development of oil fields off the coast of Cabinda in the 1960s. From beginning, the Angolan petroleum sector is dominated by international companies. Sonangol, the national oil company only worked towards establishing partnerships with the international oil companies through Production Sharing Agreements (PSAs) and holding joint venture stakes in few blocks.

Angolanization, the term given to the local content policy of Angola, promotes human capital development with the objective of hiring local people in positions they are qualified in the oil industry and also insuring capacity building of it human capital base through training and education. Another key part of the policy is the development of a local supply market in Angola which encourages sourcing materials locally or collaborating with local suppliers in the sourcing or procurement of materials in the sector. Analysts believe that part of the growth experienced in Angolans oil and gas sector is as a result of the success of its angolanization program and the freedom given to the national oil company to operate independently without much government encumbrances.

Nigerian Content, according to the NNPC, the national oil and gas company is “the quantum of composite value added or created in the Nigerian economy through the utilization of Nigerian human and material resources for the provision of goods and services to the petroleum industry within acceptable quality, health, safety and environment standards in order to stimulate the development of indigenous capabilities.”

The government of Nigeria has made huge investment up to $10 billion USD per annum in this sector and working towards achieving 70% local content goal by the end of 2010 which many see as not possible due to some internal set backs and the delay in signing the local content bill which has been passed by the countries National Assembly into Law and the prevalent political cogs holding back the takeoff velocity of the Petroleum Industry Bill (PIB) of this frontline producer in Africa and the world’s eleventh highest producer.

To solve the problem of employment and capacity building and ginger progress in the Nigerian Content, the Nigerian National Petroleum Corporation (NNPC) has put in a place a comprehensive Nigerian Content development strategy in the industry.

Considerable developments have been seen in the Front-End Engineering side, contract award and procurement. The fabrication sector is one of the viable arms that have shown big promise through the marvelous accomplishments of companies such as Niger Dock, Dorman Long Engineering and Freezone who have continuously shown through the quality and delivery time of certain complex projects which they achieved that Nigeria’s local companies can sustain the development of the industry.

As the trend in local content continue to permeate all African economies, Equatorial Guinea another effective producer in the Gulf of Guinea and Gabon are s about launching their local content policies.

While the buzz of local content continues to build up, the alleviation of the effects of Dutch Disease” has not been realized as expected in the resource-rich nations. Some countries have claims of increase in GDP and standard of living but when you approach an average citizen he will make a sigh and say: “it is only the few rich that continue to get richer.” It explains that local content policy has not really started to work effectively and the people have not understood how to participate in it to reap the benefits, Dearth of jobs and unemployment is still rife in many African countries with unemployment rate reaching a 22% average.

Local contractors are not well equipped with the level of training, expertise, and technology to carry out certain jobs. Reliance on foreign companies is still high and only those who have been able to break forth and get into partnership with international companies have gained access to the arena. Problem of attracting loans is another big cog in the wheel. Local banks are either not liquid enough to give loans or are caged with multifaceted wrangling that disabled them from granting good loans. Despite all odds, local content is been visualized by many industry insiders and local players as the potential vehicle that will transform the national economy and maximize benefits of resources. However, there are some levels of pessimisms due to the nature of political volatility and instability in most African nations that the execution of some aspects of local content policies might suffer arm-twisting thereby making it and El-Dorado of a kind.

Energy & Corporate Africa

Local Content: A Vehicle of Hope or an El Dorado