In this post we will be looking at the meaning of Nigerian Local Content Acts, Why Nigerian local content policies must be harmonized, its implications and impacts.
INTRODUCTION
In 2010, the Nigerian Oil and Gas Industry Content Act, or the Local Content Act as it is commonly called, became law. The act had been 10 years in the making and prescribes minimum thresholds for the use of local services and materials with the overarching objectives of ensuring on-going job creation and improving skills of the local labor force as well as participation and ownership for local Nigerians in the country’s developing oil and gas industry. In this way it will ensure investment and growth in an industry crucial to Nigeria’s ongoing economic growth. Since the act came into force its impact has been striking. The Nigerian Content Development and Monitoring Board (NCDMB) reports that from 2009 to the end of 2013 the act’s implementation generated $5 billion of investments for the Nigerian economy, and led to the creation of 38,000 jobs in the country’s oil and gas industry. The board indicates that billions of dollars which otherwise would have been invested in foreign markets is being invested in Nigeria. This is generating significant new revenue for the economy and offers the chance for the Nigerian market to expand and develop. It also has an impact on Nigeria’s GDP growth, and if this continues, Nigeria looks set to follow Brazil’s pattern of economic success and will join the G20 within the next two decades. April 2021 marked the 11th year since the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, otherwise known as the local content law was enacted. It was one of the most dreaded days in the offices of the managers of the nation’s economy; the letter contained the information stating that the NNPC would not be contributing to the FAAC for the months of April and May. This is due to the shortfall of N111, 966,456,903.74, the national oil company recorded in February 2021. This present predicament arose from the fact that NNPC, the country’s apex fuel importer-supplier, was recording a shortage of N56 for every liter of PMS being imported into Nigeria currently. According to the memo, as the federal government and labor were still negotiating the pump price of fuel, the shortfall came from the landing cost of fuel that skyrocketed by “.
WHAT IS NIGERIAN LOCAL CONTENT ACT?
The Local Content Act is a pivotal mechanism that enables Nigerian Companies to contribute enormously towards the growth of the Nigerian economy by encouraging value addition, job opportunities, and also the award of various oil contracts and projects. It can also be seen as policy measures, implemented at the state, sub-state or regional level, but assert that they require foreign or domestic investors to source a certain percentage of intermediate goods from local manufacturers or producers. Local content policies usually target (local) industrial and technological development, value creation or addition, wealth increase, employment creation and the development of backward, forward and sideways linkages along the value chain.
ITS IMPLICATIONS.
As policymakers usually implement such policies to purse economic and socio-political objectives and to enhance linkages with the domestic economy, the following seven local content policy targets are the most common which a foreign shareholding must agree to:
- Local employment, domestic labour market development and transfer of skills/know how.
- Local value creation or addition, increased local linkages and domestic industry development.
- Economic diversification.
- Promotion of innovation, technology, research and development, enhancement of technology transfer and creation/increase of local technological capabilities.
- Ensure local ownership of important industries
- Revenue from minerals
- Local community projects
The Act states that Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licenses, oil-lifting licenses and in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of such conditions as may be specified. “There shall be exclusive consideration to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute such work…,” it states. In essence, it is estimated that before attention shifted to the need to encourage in-country participation, the glaring lack of technical know-how led to importation of expats who dominated the oil and gas landscape.
IMPACT.
As expected, these foreigners are usually remunerated in hard currency and it has been estimated that this could have led to the loss of as much as $380 capital in flight, with a paltry 5 per cent Nigerian participation and loss of at least 2 million jobs. This manifestly led to less revenue accruing to the government; job losses; lack of skills/ technological know-how transfer; high cost of products; long project cycle and over-dependency on foreign countries, which also translated to national security challenges. It is said that this conscious effort in the last 11 years has saved the country from unwarranted embarrassment on several occasions when there were emergencies. For instance, there was no noticeable disruptions in the operations of the oil and gas industry during the coronavirus-induced lockdown last year, which could have raised national security issues, even with a large percentage of expatriates having left Nigeria for their home countries. Although the NCDMB, which is the implementing body of the local content act, took off on a slow note, with the usual teething issues in the early years, it appears to have since fully throttled, especially under the current management led by Wabote, described as very focused and a competent hand. From 5 per cent when the implementation of the NOGICD Act commenced, in 2017, the number hit 28 per cent in 2017, and as at 2020 was put at 31 per cent. Taking advantage of the local content act, in the upstream sub-sector, many Nigerian oil and gas players have now bought over stakes in multinational oil companies, further deepening the local content ecosystem. The following are some of the impact of local content policy:
- Economic benefits
- Infant industry.
- Market power
- Social impact.
- Environmental benefits/green industry
- Technology transfer.
WHY NIGERIAN LOCAL CONTENT POLICIES MUST BE HARMONIZED.
Amidst the clamor for increased indigenous participation across all sectors of the Nigerian economy, there is need to harmonize all policies geared towards protecting local contents. Experts had also emphasized the role of a strong and pragmatic local content policy in value creation. While the idea of local content policy originated from the oil and gas industry, there have been calls for its application across the economy, this will help in building capacity to attract foreign earnings and Foreign Direct Investment (FDI) to Nigeria. Stakeholders should focus on developing indigenous capacity at various levels so Nigeria would not look up to other countries for vaccination. Another aspect where local content will be of immense benefit is defense”, this speaks to our need for defense hardware and infrastructure.
CONCLUTION.
It is quite a glaring fact that government policymakers must adopt a more dynamic approach to ensuring the sustainability of local content development, to further ensure the security of a better future for the country’s Oil and Gas industry. It is however expected that with sound economic management, policy re-engineering, good governance, and a social value system that rewards hard work and creativity, there will be a significant number of companies committed to Nigerian content and pursuing local content programs.