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Africa Rising: African Countries Create New Rules in the Oil Game

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Africa is home to important natural resources, in particular oil and minerals. But, the population does not really benefit from this wealth, which is exploited by foreign companies. In order to reverse this trend, African governments are developing policies to ensure that the exploitation of natural resources will benefit their citizens. “Local content” has become the new slogan in Africa, meaning that a certain percentage of the local population should be involved in the oil and gas industry. This is meant to create jobs and sustain economic growth. Though this concept has become popular in Africa, some experts fear that foreign companies will reject the emphasis put on local workforce.






By Clair MacDougall

September 27, 2011



Citizens in countries throughout Africa have long been angered over the lack of benefits reaped from multinationals exploiting minerals from their seas and land. In recent years, African governments – authoritarian and democratic alike – have come under increasing pressure to develop policies to ensure the exploitation of oil and minerals provide long-term benefits to their citizens, through creating jobs and growth in industries.

At an oil conference in Accra, Ghana, held last week, African countries made it clear that oil industry players would be required to meet "local content laws," which includes hiring a certain percentage of workers locally, if they wanted to tap Africa’s oil reserves.

“Nigeria has a great future … and corporates who want to be part of that future will have to consider Nigerian local content because it’s not going to be game as usual from now on,” said General Manager of the Nigerian Content Development Board Wole Akinyosoye.

The term "local content" has become a catch word among key players in the oil and gas industry, and policies can mean anything from the inclusion of quotas for local employment from senior managerial staff to workers out on the oil rigs, percentages of local ownership and control of operations in oil fields, to contracts being awarded to local companies for the provision of equipment, goods, and services. Countries such as Brazil, Norway, Malaysia, and Trinidad and Tobago are all countries that have used local-content laws to create jobs and fuel domestic economic growth.

Buzz word to create jobs

But the concept has only become popular in Africa in recent years due to the new discoveries and the rising price of oil, according to Willie Olsen a senior adviser with INSTOK Norwegian Oil and Gas Partners.

“Local content in this part of the world is very politicized and there is a high degree of meeting expectations and the word local content has become a buzz word in recent years due to higher oil prices,” says Mr. Olsen.

“But at the same time it is clear that the aim is to create more jobs and develop the industrial base and you understand why this policy comes and you have to ask will the policies work?” he says.

Nigeria is the loudest and most controversial voice on local content and Africa’s biggest oil player, producing 2.3 million barrels of crude per day, according to the latest report of the International Energy Agency. Last year after the government passed the Nigerian Oil and Gas Industry Local Content Development Act, oil majors voiced their objections.

The local bill gives Nigerian independent operators first consideration in the awarding of oil blocks, oil field licenses, and it specifies that exclusive consideration should be given to Nigerian-owned service providers. The law also requires that oil companies and industry service providers be required to train Nigerians.

The legislation also specifies the percentage of fabrication and construction, materials, drilling services, the use of transport, information technology, and that finance and insurance be locally owned or based. Many analysts regard Nigeria’s local-content requirements as some of the highest in the world ranging from between 75 and 100 percent in many areas. Implementation in Nigeria will be overseen by a local-content monitoring board to be set up next year and percentages will be expected to gradually increase.

But will firms be scared away?

But some analysts are concerned that this emphasis on local could scare off oil companies and investors. Olsen says that he thinks it unlikely that Nigeria would accomplish its local-content goals.

“I think the biggest issue with the high local-content environment – with the competition for the resources, will the firms go to West Africa or will they go to countries with huge opportunities and less restrictions?” says Olsen. “I don’t think oil companies will go, but it could lead to higher costs and lead to some of the main contractors setting up shop in other countries that are easier to operate in.”

At a conference held by Nigerian Association of Petroleum Explorationists (NAPE) last year after Nigeria’s local-content laws were passed, Mark Ward, managing director of ExxonMobil Nigeria asserted that the implementation of the government policy was hindering the development of new deepwater oil projects.

Ward was quoted in the Nigerian newspaper 234Next as saying that the government needed to engage more with international oil companies in their development of local-content requirements.

“Nigerian content development needs to be paced, realistic, and collaborative,” said Ward. “Imposition could stifle both the total number of in-country projects and the development pace of projects.”

What about other countries?

Other countries such as Angola have also passed controversial legislation regarding local content and Gabon and the newest African oil producer Ghana are also in the final stages of drafting their own local-content bills. Ghana's draft bill sets forth a target of 90 percent local content by 2020 but will be subject to revision. Currently oil companies are required to have 10 percent of their goods and services provided by Ghanaians, and the requirement will increase to 20 percent next year.

Olsen thinks it is unlikely that Ghana will achieve its 2020 local-content goals but thinks that it possibly could achieve them in the gas industry. Finance Minister John Duffour recently announced that the government would borrow $800 million from the state-owned China Development Bank to develop its natural gas infrastructure. At a meeting last month, Ghana's Executive Director at the World Bank, Javad Talat Duffour said the gas industry -- in contrast to the oil industry -- would be "in the hands of Ghanaians."

Olsen says that while the desire for local content for African countries was understandable, the lack of consistency in legislation from country to country could cause problems.

“The dilemma is that every country in West Africa is going their own route,” says Olsen.


 

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