Oil Gas Local Content Policy: Challenging the Limelight of Nigeria’s Technology

As the trade policies have a direct bearing in the national development process, the forward-looking liberal policies of the nineties have definitely encouraged promoting trade in Nigeria. Adoption of realistic exchange rates, simplifying procedures and instituting support mechanisms has contributed to the growth of trade.

However, to sustain the trade promotion in a meaningful manner, both the tariff and trade policies would be reviewed in the context of the country’s accession to the World Trade Organization (WTO) and New Partnership for African Development (NEPAD) Agreement and her preferential trade with her largest trading partner, Nigeria. The customs tariff rates would be rationalized in such as way that it would neither obstruct the growth of country’s international trade, nor jeopardize effective protection given to various industrial sectors nor reduce the competitive edge in the global and regional trade. Removal of the structural rigidities in the international trade such as less diversified the trading regime, in terms of destinations and products, has become the main challenge for sustaining the gains so far in trade front.

The Nigeria’s Local Content policies are based on the following elements: integrated home-made and investment policies with overall development policy, consultative and participative mechanism between main stakeholder i.e. private sector, government and civil societies, Strengthened intra-governmental policy coordination mechanism and Other Sectoral Policies

In addition, various sectoral development policies are designed to cater the need for private sector development in consonance with macroeconomic policy. Major policy initiatives are taken to open the hitherto restricted sectors to private investments; for example, the banking and non banking financial sector, the aviation sector and so on. Easier entry policy in banking & other financial sector not only increased the number of these institutions & the financing base in the country, but also contributed to easy access to finance, innovating new instruments, and improving quality services through increased competition & professionalism.

Similarly, under an open sky policy, the private sector played lead role in aviation business. Pursuant to the respective liberal policies adopted in different service sub-sectors, the private sector has been playing dominating role on them. The liberal thermal-power policy could promote private investments and similar policies in other utilities sectors such as telecom and drinking water are expected to encourage private investments in these sectors. Tourism, one of the leading sectors of the economy and the trade sector virtually have been initiated, developed, and operated by the private sector albeit with favourable government policies and support. The private sector through the participation in Tourism Board has been actively involved in the formulation & implementation of the tourism policy. Independent Power Plan (IPP) is being implemented basically to transfer producing electricity system into transmitted electricity system through active participation of private sector in the whole process and Information Technology Policy, Local Content Policy has encouraged private initiatives in information technology sector.

Again, various reforms have been initiated to improve the quality of services in tax administration, make the administration taxpayer friendly and increase the revenue yields required for meeting expenses of various development activities. Sweeping changes have occurred in the tax policy in recent years, as it changed from the regime of high tax incentives for directing private sector investment in predefined priority areas to the regime of equal treatments to all sectors. In early stage of private sector development, tax incentives were taken as the instruments for attracting private investments whereas in recent years maintaining neutrality and rationalizing tax rates have been the main agenda of tax reformers in the country. Despite significant reforms, there still persists the problem of inefficiency, narrow base and procedural rigidity and non-clarity in the tax system, which requires further reforms in policy, legislation and procedures. In addition, creation of a taxpayer friendly environment as well as competent and professional tax administration capable of functioning efficiently in the changed context of global economic integration has become the need of the time.

The federal government has introduced value Added tax (VAT) in the process of taxation reform. The performance of the VAT regime at the beginning although was not satisfactory however, very recently the government has reorganized the tax administration creating a new Inland Revenue Department as well as enacting a new Income tax legislation. These steps will bring positive impact in creating investment and taxpayers-friendly environment.

In any development process, the availability of adequate financial resources for productive investment is a primary requisite and in market economies financial institutions and markets provide the opportunity and facilities to save as well as channel these savings to productive private sector investment in an efficient way. A free flow of information and the existence of a clear and effective regulatory framework are of utmost importance. Various reforms in financial and capital market sector have been initiated in Nigeria since late eighties under the liberal economic frameworks. The easy entry policy in the financial sector contributed to increase the number and widen finance base of financial institutions in the country. The prudential norms have been in place to ensure the efficient and effective uses of resources available in these institutions and market forces are allowed to determine the interest rates.

However, the gap between deposit and lending rates, lack of easy accessibility to the finances, narrow capital base of the Local Content policy; as long as the local investor is concerned, accumulation of high amount of non-performing loans from financial institution, particularly in CBN-monitored commercial banks and concentration of activities of newly established regulations on locally manufactured facilities still persist as part of the problems in the SME. Nonetheless, the joint venture banks and new financial institutions have been performing more efficiently but their capacity is limited. Thus a substantive financial sector reform program incorporating packages for the revival of two CBN-regulated commercial banks and other private institutions shall be undertaken to make the sector more vibrant and enabling them to play a motivating and contributing role for the development of the private sector.

Investments have been made to build new infrastructures as well as improve the condition of already developed; as a result significant improvement in the infrastructure development has taken place viz. transport network, communications and other support services. This is a speculated belief that the federal government local content policy, would niche. The private sector is also encouraged to invest on infrastructure project under B-O-T and B-O-O-T schemes, as part of the move to show-case their effort to erecting the sand-mark for the age-long local content policy. Despite these initiatives, requisite infrastructure support service has not reached in many areas. The infrastructure shall be improved on a continuous basis to ensure high quality of services to attract more private investments in the economy.

Various formulae having representation from the local content policy have been instituted to promote dialogues between government and the private sector while formulating the macroeconomic and sectoral policies. The major consultative bodies to this end were the inclusion of the Nigeria Investment Promotion Council, Nigeria Environment Society, Nigeria Standard Organization, Nigeria engineering Regulation Council, (COREN), Revenue & Fiscal Mobilization Commission, and Export Promotion Council etc. Apart from these, there are many other agencies in which private sector representation is created to enable the local content to play and contribute in policy dialogue process in a meaningful way. The most notable is the Nigeria Tourism Board, in which local manufacturers representation has been in the majority.

Apart from these, public private partnership (PPP) approach has been recognized and used as a beneficial approach to implement development activities and provide services to people. Local agencies and in other sectors, PPP approach is increasingly being adopted. This is a manifestation of not only recognition of the role of the private sector in Nigerian economy but also a commitment on the part of the government to push forward the process of development by putting together all resources. There is a suspicion among the general people that private sector is motivated by profit only and the people in the general also feel that public goods and public utilities services should remain in the domain of the government responsibilities. However, increased involvement of the private sector involvement in power, telecommunication and civil aviation has reflected the positive signals to foster the private sector development and to gain the public confidence.

There are many challenges to be addressed to make local content policy viable and conducive for propelling the economic growth. By and large ensuring the investment friendly environment is the key challenge before us. Specifically some of major challenges are: Diversification of export trade in terms of both destination and product, Establishment of inter-linkages between trade and industry. Equity in the distribution of benefits of liberalized trade policy between small and cottage industries, and large industries, Maintaining balance between labor interest and private sector development, Mobilization of public resources for infrastructure development, Strengthening institutional effectiveness to provide support for local content development, Stability and predictability of the policy environment, High dependency on unorganized commercial sector, Inadequacy in entrepreneurship and professional maturity in the private sector, Establishment of inter-industrial linkages, Identification of private sector investment, Establishment of standard accounting practices and transparency in business transaction, Procedural simplification to minimize transaction cost, Establishment of mechanism for risk management in time with international practices and trend, Transparency in the regulatory mechanism of the government, Consistency and confidence in the economic policies, Comprehensive tax reform to widen tax income tax revenue and objectivity in administration, Participation of worker and deprived section of the society in the economic life through generating employment opportunities, Developing good corporate governance leading towards instilling professionalism in the private sector activities.

In order to ensure local content participation in the oil and gas development to fullest extent to the local workforce and economy by overcoming the challenges and addressing the issues following strategies need to be adopted; Ensuring stable policy environment and harmonizing various policies through regular consultation within the government and between the government and private sectors, Developing mutual trust and congenial environment by ensuring a sound corporate governance, Specifying details of rules and procedures to reduce possibilities of miss-interpretations, Overcoming procedural hassles by streamlining procedures, establishing clear and transparent systems and elaborating rules/guidelines/system to reduce chances for interpretation, Enhancing transparency, accountability and predictability in the service delivery system, Reorienting the role of the government as a facilitator by doing away with its involvement in commercial activities at a faster pace, Encouraging professionalism and good corporate governance practices though devising appropriate incentives structures, Promoting and developing schemes for enhancing skill and knowledge among entrepreneurs and investors, Extending one-window facility to the investors to overcome hassles and red tape, Reforming the financial sector in order to improve access to banking service.

The government should focus on redefining her role and subsequently reviewing local content policies which may call for initiating new phase of economic reform program and increasing the participation of the private sector in consultative processes, Ensuring improvised quality of governance through the development and institutionalization of a transparent system, wherein the scope for interpretations has been reduced, Strengthening institutions for making easy access to rural credits, Strengthening institutions through capacity building to address problems and challenges.
The priority areas should foster a process of dialogue between the expatriate and the local workforce and home-technology in policy formulations by building mutual trust, providing adequate security to the local industrialists and businessmen. The move will enhanced participation of the local personnel in all areas of oil and gas activities viz., exploration, construction and maintenance services, create efficient delivery of locally-made innovations at competitive prices. In order to ensure successful implementation of the suggested strategies the implementation modality should cover the followings: Create mechanism to oversee public-private partnership and fostering cooperation, Incorporate changes in policies, rules and laws, Clearly defined targets, goals and activities to all responsible agencies, Provide a strong leader to enable the mechanism to operate smoothly, Define responsibility centre and executing tasks/policies precisely on defined basis, Develop human resources well versed with the challenges of competitive environment.

Downstream liberalization is not an end in itself however it could enhance the capability of the local content to the asses of capital, technology and knowledge by which the overall objective of economic development could be achieved. Local Workforce and home-grown technology as the main actor in the process of upstream and downstream liberalization can inject more capital, acquire new and modern technology, generates additional resources for oil and gas development .Nigerian-made technology has to play a key role in the integration of the national economy with global economy. The process of integration possesses various opportunities and challenges and such challenges which are complex as well as needs competitiveness have to be dealt with joint effort of the government and local input inside the oil and gas field through appropriate institutional mechanism.

Science & Technology leaders, who wish to be entrepreneurs, should be actively encouraged to set up businesses as they will generate jobs. Nigerian industry must set as its goal producing articles designed in Nigeria and not be content to buy designs from overseas. Nigeria consultancy organizations must be engaged in all large infrastructure projects so that this experience is retained in Nigeria and built upon. A time has come to set up a National Commission for Science and Technology which can prepare long-term plans across the many disciplines and coordinate the activities spread over many institutions, both in the public and private sectors.

In general for the efficient functioning of market economies and private sector enterprises, the Local Content policy needs to be simple, unambiguous, consistent and transparent and framed with due consultation with the stakeholders; and also should keep the element of flexibility and track of development. However, the labour laws in the country, as perceived by the investors or the industrialists, have been very rigid and more labour biased, which prompted increasing uses of exorbitant foreign labours and capital-intensive technologies. A careful thought shall be given on giving greater flexibility in labour laws so that a balance between labor interest and private sector development would be stroke. Thus, labour laws shall be reviewed in such a way that safeguarding clauses for labour’s interest and controlling for possible labour’s exploitation would, in no way, be detrimental or obstructive to investment possibilities and the private sector development.

Since private sector services are often used as production inputs, the local content service negotiations should seek to lower barriers that currently increase manufacturing prices and prevent productivity gains. Removal of private sector services barriers in sectors such as telecommunications, transportation, and financial services might improve competitiveness in the goods sector, increases efficiency and productivity by enabling firms to track consumer demand, facilitate product distribution, and expand global reach. Access to efficient accounting and legal services can lower transaction costs. An effectively regulated financial services industry enables investors to distribute their resources in a manner that maximizes returns and spreads risks. Access to health and education services may benefit and build a country’s labour force and access to environmental services supports efforts to achieve sustainable economic development.

Written by
L.Chinedu Arizona-Ogwu
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