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

Local firms are ultimately and probably the most important driver of economic incomes and growth in developing countries. The study found that local technology is spreading faster in emerging economies than in rich nations, even though the technology gap remains wide. It also found that technological progress has helped raise incomes in the developing world and reduced the share of people living in poverty from 29 percent in 1990 to 18 percent in 2004.

It has long been recognized that investment in science and technology makes a vital contribution to economic growth in terms of higher growth rate of the economy’s productivity under such conditions; the neglect of R&D in developing countries will have serious repercussion on firms’ ability to absorb and evolve new technologies and participate in their development. This may have long-term implication for the developmental efforts of these countries. But two critical questions arise: one, what were the weaknesses that resulted in the poor performance of technology policies in these countries? And two, what measures should be adopted to plug in the loopholes in these policies to make them more effective in the globalize era of the 1990s?

Local content means the development of local skills, technology transfer, use of local manpower and local manufacturing. It has become an increasingly important issue that could support the FG to upgrade her manpower capacity, with results that benefit the government, private companies, and the Nigeria’s economy. However, the performance of this mission over the past decade has been a mix of successes and failures. Research performed to improve this performance by identifying the characteristics of successful public to private sector technology transfers identified several critical success factors. These include a “transfer culture” in the government laboratory and Nigerianized organization, shared personnel of the federal and local organizations throughout the transfer project life cycle; the local workforce services could be the major source of employment inside Nigeria economies, accounting for over 50 percent of jobs. Local technology services account for a much larger share of total economic output than either manufacturing or agriculture in this country. Home-grown services are the future of this country, as it is the fastest-growing component of their total GDP, particularly low-income Nigeria.

Nigeria, though embarked to the periodic development planning exercise as early as 1964, failed to realize the importance of private sector and market oriented policy in the process of overall development of the country till late eighties and this resulted to several economic distortions. However, a distinct departure took place in the overall development policy & strategies in the country, particularly after the restoration of multiparty polity in 1992 and consequently under the new policy paradigm, a liberal policy anticipating greater role of private initiatives in the economy has been in place replacing the controlled economic policies practiced under the Mixed Economic Approach. Since then, the private sector development policy has been reoriented to identifying & removing the barriers for private investments, and creating private sector friendly economic environment so that the private sector would play pivotal role in the economy. Thus shift in the role of the government from active participant to facilitator not only brought positive psychological change in the private sectors, but also added economic dynamism through the active participation of private sectors in all sectors, ranging from financial to aviation, to manufacturing, to trade, to tourism and other service sectors.

Nigeria provides a classic case of a developing country where despite the presence of a wide institutional infrastructure for producing trained manpower, generating new knowledge and providing science and technology (S&T) services, the industry became increasingly dependent on foreign technologies ever since the economy became liberalized under ex-president Obasanjo’s regime.

The Federal Government’s aspiration to achieve 70 per cent local content in the oil and gas sector by 2010 may not be feasible, following alleged poor compliance with the guidelines governing the Local Content policy by most International Oil Companies (IOCs) operating in the country. The Nigerian Content policy was initiated last year by the Olusegun Obasanjo administration to help develop local capacity building in the Nigerian oil and gas sector, with a view to ensuring that Nigerians participate actively in the operations in the sector. The government directed oil companies operating in the country to commence in-country fabrication of equipment as well as other major components used in oil exploration. The government had reasoned that the implementation of the content policy would serve as a means of dissuading capital flight – and thus aspired that 45 per cent of total contractual jobs in the industry had to be done in Nigeria and 70 per cent of the jobs done in-country by 2010.

The local content initiatives undertaken to create an enabling environment for increased private sector involvement in the country’s economy included reforms in oil and gas industrial policy & relevant legislation, adoption of transparent procedures for granting permission to set up industrial units, adoption of liberal sectored policies in consonance with overall economic policy and establishment of institutions supportive to the private initiatives.

In the early 1999’s new democratic government initiated a series of market oriented policy reforms to integrate the economy towards globalization and economic growth. A remarkable progress in terms of growth, investment and employment has been achieved. Private sector led growth was the main thrust of the policy reform initiatives taken during the millennium. The private sector response in the policy reform initiatives was dramatic. The average growth rate GDP increased from 4.8 percent in the pre reform period to 5.2 percent in the post reform period of 2002-06. The real fixed private investment increased from 4.7 percent in 1995-01 to 13.2 percent in post reform period of 2002-06. Employment in manufacturing increased by 36% in reform period and declined to 19% after 2006. Manufacturing value added increased from 5.3 percent to 13% in the reform period.

In the field of science and technology, Nigeria presents two completely contradictory faces. On the one hand, foreign observers look upon Nigeria as a bottomless container of S&T talent which in due course of time will, along with China, dominates the global scene in the second half of the 21st century. This perception is based on the success Nigeria has registered in the field of information technology in Nigeria and the achievement of African Americans in the United States. The opposite face is registered at Nigeria’s inability to solve problems of infrastructure, namely roads, water supply and sanitation and at the poor state of its schools and colleges. In bid to meet this target, Nigeria joined other countries in jumpstarting the services negotiation in the local content policy implementation. The Collective Services Requests are aimed at promoting this country’s economic growth, particularly in developing economies, by improving productivity, creating jobs and improving the quality and availability of goods, agriculture and services through oil and gas root-up.

Since the country’s own technological capabilities were limited, the dual trade policy placed a continuous pressure on firms for acquiring foreign technologies. To meet the industry demand, the government encouraged the transfer of foreign technology embodied in capital goods and turnkey plants by assigning low protection to the capital goods industry. Highly restrictive policies were adopted towards FDI and technology licensing. Technical agreements were allowed only in the cases where technical assistance was needed to run the turnkey projects. Capital goods imports were given preference over the alternative modes of technology acquisition for two reasons. Light industries required simple and standardized technologies that could easily be transferred through capital goods imports. It was felt that given the training and entrepreneurship of Koreans, it would be easy to assimilate and adapt foreign technologies embodied in capital goods through reverse engineering at the production end. Though the policy led to massive imports of foreign capital goods and owing to low protection retarded the growth of the local capital goods industries, it did facilitate a rapid acquisition of technology during this phase.

The process of assimilating and adapting foreign technologies was pushed by the need to attain international standard. An analysis of Nigeria’s development and public policy from the perspectives of five major fields of public policy put it that; Economic policy, including public policy toward industrial development, Social policy, including religion, education and women’s rights, Environmental policy, including possible conflict with economic development, Science-technology policy, including agricultural development, information technology and administering the electronics industry, Political reform, including local government and general elections have brighter input to contribute.

Inventions without business re-engineering are but improved means to an unimproved end. How then would you define business re-engineering? After a barrage of similar questions –How can technology be used to change a company’s corporate culture inside Nigeria? I’m going to be very, very picky. There are a lot of people who want the skills I’ve got. Inside Clifford road, in Aba, Nigeria many companies are facing similar challenges as the region transforms itself into a national technology powerhouse. The shortage of home-grown technical talent is fueling significant changes in the way Northern Nigeria area companies where approaches were made to the country’s best and brightest innovation.

Some firms, in an effort to get a leg up on each other, increasingly are seeking professional “anointed” touch at smaller, out-of-the-way establishment. They want to hire 900 college seniors in the next six months, also has been to university job fairs abroad in search of best-brains. Other high-tech but local companies are making job offers months before graduation, sometimes during the NYSC orientation camping. And they’re even looking at cultivating programmers out of students who haven’t majored in technology-related disciplines.

After Nigeria gained independence, it set up a series of laboratories under the imperial policy and also the Energy Commission. The EC has built up a strong base of S&T capabilities in the applications of nuclear energy for peaceful purposes, especially power, and for strategic purposes. This has been done in spite of the denial of interaction or cooperation with the advanced countries. The local content program, which was an offshoot of the energy program, has found a place among a small number of countries that can build and launch them. Success in the field of indigenous development of defense systems has been more modest. The laboratories have had limited success in underpinning our industries.

From Agricultural sector, the universities did much to make the first green revolution a success but new dynamism needs to be imparted in the Rivers State school-to-land program. Among industries, the pharmaceutical and biotech industries have done much better than others in financing R&D.

Nowadays, the most distressing feature of the Nigerian scene is that the academia is in a sad state of neglect. The infrastructure for R&D is either non-existent or outmoded. Faculty members are not infrequently recruited on non-academic considerations and most of them are burdened with teaching to the exclusion of research. The presidency recently announced a decision to establish some 6 new “local-fabrication” universities. It is to be hoped that Nigeria will have at least four or five world class universities in the next 15 years or so.

Many multinational companies such as Royal Dutch Shell, ENI spa, Total, Julius Berger, Daewoo and others have set up research centres in Port Harcourt, Abuja, Lagos, Calabar and elsewhere to carry out R&D related to their global activities. While S&T personnel in MNCs are well paid, the large number of them in government agencies and academia are at a serious disadvantage. It is essential to raise the emoluments of the S&T personnel and they should be in a category of their own, not linked to this phenomena. This situation has come about because these MNCs are able to recruit highly qualified manpower at wage levels substantially lower than what they would have to pay in their own countries. Such R&D, however, has little applicability to solving problems of Nigeria or serving to upgrade Nigeria industry to become more competitive or produce new marketable goods or services.

It is rather strange that our leading institution in advanced science, the Metallurgical Training Institute, Obosi near Onitsha, Anambra State was started by the Nigeria-German consortium over four decades ago. It is only now, under the leadership of the Federal ministry of Science and Technology; of similar aspirations were launched under the name “Petroleum Training Institute of Effurun, Warri, now in Delta State”. From Shagari thru Buhari’s leadership, the five manpower development institutions at Kaduna-Nigeria Defense Industries Corporation, at Ogun;- Nigeria Foundries Ltd, at Lagos, Niger Dock Shipyard, at Trans Amadi Port Harcourt,- Petroleum Thrust Development Fund Training School, and at Oron Akwa Ibom, Nigeria Maritime Academy were set up. Some 10 or 15 years ago, local expert development areas were set up at the UNN (the premier university was upgraded). Some new technology policy was proposed. The investment Nigeria is making in R&D is one of the lowest in the world. In 2005-2006, R&D outlay was 0.77 per cent of our GDP. The comparable figures for U.S. (and even South Korea) are 2.6 per cent and for China 1.3 per cent. Of the total expenditure on R&D, government funding was 31 per cent in U.S., 30 per cent in China, 25 per cent in South Korea and 75 per cent in Nigeria.

The dynamism Nigerian industry has shown in the past few years in mergers and acquisitions and in capacity growth has yet to be reflected in supporting R&D. The extremely unsatisfactory position of R&D in Nigeria is borne out by a look at the number of publications. In 2006, S&T publications were about 450,000 in the U.S., 78,000 in China and only 27,000 in Nigeria. It is interesting to see the change from 1997 to 2006 in the three countries – namely 18 per cent in the U.S., 350 per cent in China and 60 per cent in Nigeria. China is therefore trying to catch up at a rapid rate whereas Nigeria is proceeding at a leisurely pace.

The impetus of post reform growth trends could not be made sustainable after mid 2000’s due to slowdown in the reform process. After 2006 the real average GDP has declined, manufacturing value added and employment has fallen back and real private fixed investment has stagnated.

The continuity in the reform process was affected due to external and internal factors. In the external front, unfavourable weather condition for Agriculture, the African crisis and the changes in the policies of the key export market are attributable to the poor performance of the economy. Moreover, in the domestic front the poor implementation capabilities, the increasing resource gap, absence in the commitment at the policy level for further reform, lack of legislative frame work and the performance of the bureaucracy are the important contributors.

The local content Policy, 2002 embarked upon encouraging industrial development through the operation of market forces, substantive reduction in licensing, other government interventions and administrative hurdles, granting liberal tax incentives and strengthening support institutions. Opening up of different economic sectors to private investments and establishment of one window system for giving single point service to the investors are other major steps taken by the government to encourage private investments. Institutional, Infrastructural and Policy support from the Government are necessary to develop small and medium enterprises inside Nigeria. These SMEs are the source of income and employment opportunities, which directly support economic generation and are effective tool towards poverty alleviation.

Similarly transparent foreign investment policy providing unabated repatriation and easy visa facilities to the foreign investment has contributed to increasing the numbers & amounts of foreign investments in the country. In addition, the policy of non-nationalization of industries, inception of one window system for providing one- point service to the investors, provision of dispute settlement through mutual consultations and in accordance with arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL), and permission for 100% equity participation are other policy instruments aimed at inviting foreign investments in the country.

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