AN EXCITING IMPACT OF LOCAL CONTENT POLICY IN AFRICA
Despite the fact that the exploitation of oil and gas resources in Africa has been taking place for a long time, it was only in the last few decades that African states started paying a serious attention to developing local content policies and frameworks in the industry. The aim is to transform the enclave oil and gas sector into a development generating industry that will address the problems of local skills and capacity development, employment generation and industrial development.
Most African states, have over the years, derive only financial benefits from the exportation of the resources. Technology transfer and local capacity development remain low. The benefits of the oil and gas industry to human capital and the local economy are barely being felt and the level of industrial development was lagging behind. The limited impact of the oil and gas on the national economy has been attributed to the absence of linkages between the oil and gas sector and the rest of the economy. Moreover, the redistribution of the oil and gas revenue windfalls has proved to be very inefficient which continues to generate conflicts in some oil and gas producing countries in Africa.
Local content policy is a development strategy aimed at increasing the benefits from the oil and gas sector and translating them to other sectors of the economy through local value addition and national industry development. Local content is defined as the extent to which the output of the oil and gas industry sector generates further benefits to the domestic economy beyond the direct contribution of its value-added through productive linkages with other sectors. These linkages are created when the oil and gas industry purchases inputs that are supplied domestically instead of importing them, national labour is hired or local skills development and knowledge transference are promoted. Local content policy frameworks vary from country to country and may include regulatory interventions to increase local employment and national industry participation (Natural Resource Governance Institute 2015) or to enhance skills development among local employees. Local content outcomes are understood as the positive results achieved in a country in terms of generation of local employment, skills development investments and participation of the national industry along the oil and gas value chain.
To this effect, many governments have undertaken reforms aimed at developing and deepening economic linkages between the oil and gas sector and the rest of the economy. To attain this objective, an increasing number of countries have introduced or have reinforced local content policy frameworks with a view to stimulate the use of local factors of production, such as labour, capital, supplies of goods and services, to create value in the domestic economy and hence expand the industrial sector. While this strategy has been widely adopted in Africa over the past two decades, not much has been written to highlight the positive impact of the policy in the continent through the participation of indigenous companies in offshore deepwater upstream sector, mostly exclusive to foreign companies.
Exciting Impact from Ghana
In Africa, the members of the African Petroleum Producers Organisation (APPO) embraced a comprehensive local content strategy for the oil and gas sector which includes the development of specific frameworks, special capacity building programmes and institutional creation of implementation and monitoring bodies, amongst others. Some of these countries such as Angola, Nigeria and Ghana have been registering significant positive effects of local content policy implementation in recent years.
The exciting impact of local content policies can be seen in the recent deepwater oil and gas discovery by an indigenous company in Ghana (a member of APPO) in less than a decade of oil discovery and production. An independent indigenous oil and gas company, Springfield Group, made a significant deepwater discovery offshore Ghana. The discovery is historic because it is the first ever by an indigenous and independent African energy group to make such a find. Furthermore, the block that is expected to yield the oil will be Ghana’s largest, surpassing the country’s Jubilee field operated by the UK’s Tullow Oil. Ghana has forecast production of 250,000 barrels of oil a day by next year. If achieved, this would make the country the fourthlargest oil producer in Sub-Saharan Africa. The contribution from the Springfield Group could further consolidate the country’s position in the continent’s oil and gas sector.
Springfield was awarded the WCTP Block 2 in 2016, covering 673 square km. The company has an 84% stake in the license, while the remaining equity is held by Ghana National Petroleum Corporation (GNPC) and GNPC’s Exploration subsidiary company. Using the Stena Forth rig, Springfield had drilled two wells and hit oil in both. Of the 1.2 billion in proven reserves, 30% to 35% would be recoverable, according to company sources. There were also commercially viable quantities of gas. Speaking joyfully about this discovery, Kevin Okyere, Springfield’s CEO was so excited and emphasized the fact that his company was the first African company to drill in deep water and to find oil. He added that “Nigeria, Africa’s giant oil and gas producer, has had oil for a long time and no indigenous company there has ever done this”.
This achievement was made possible by the commitment of the Ghana’s government to providing enabling policy environment for oil and gas operators in the country. Policies and enabling laws were formulated in Ghana which stipulated that companies must comply with specified minimum local content levels for goods and services: target are set at 10% at start, 50% at 5 years and 60-90% at 10 years. Motivated by the increase in local content from 49% to 63% between 2009 and 2010. Moreover, companies must show they will give ‘first consideration’ to locally produced goods and services provided these meet international standards and the specification of the industry. Preference should be awarded to Ghanaian companies if the latter’s bid does not exceed the lowest bid by more than 10%, provided that the company has the capacity to execute.
Sustainable Local Content Policies in Africa
The sustainability of local content policy frameworks in Africa is critical to a durable positive impact on the economies of African countries. Policy makers should consider short and long-term benefits when designing local content policies. The achievement of short-term positive outcomes might be easier to attain through certain mechanisms such as the establishment of workforce and procurement quotas and scholarships requirements. However, building linkages through local content policies is a measure that can bring about longer-term benefits to the country’s economy.
Emphasis should not only be on the generation of jobs but on the economic diversification that will reduce their dependence on oil revenues. Therefore, a sustainable local content policy should focus on capacity building that will increase the procurement of national goods and services and thereby increase national industry participation that will reduce dependence on oil revenues. The governments of African oil and gas producing countries should establish Enterprise Centres to ensure the widest possible reach in terms of capacity building amongst SMEs and companies, thereby equipping them with the skills and competencies to engage in joint ventures and create more jobs. These were some of the conclusions that emanated from the third edition of the African Local Content (ALC) Sustainability Conference that took place in Accra, Ghana from 10-11 October 2019. The conference developed by AMETRADE and supported by the African Petroleum Organisation (APPO) is held every year to highlight the challenges of local content policy implementation in the oil and producing African countries, showcase success stories and learn from international best practices in local content policy frameworks.
In conclusion, the news of an African indigenous company deepwater discovery is a cheering one for policy makers and industry professionals in Africa. It shows that commitment to local content policy implementation can achieve intended outcomes and spur economic diversification and inclusive growth. Therefore, there is the need to continue to implement policies that will strengthen local social and skills development, local supplier and enterprise development and management empowerment to ensure a sustainable local content policy implementation that will positively impact on national industry participation and economic development.