1.1 Introduction
Local content is the development of local skills, oil and gas technology transfer, and use of local manpower and local manufacturing (Oil and Gas, 2010). The need for resource-rich Nigeria to assume control of the exploration, exploitation and production activities in the oil and gas sector and to harness the potentials of this most strategic industry in order to generate more value-added, seems to be receiving much desired attention from all the stakeholders. According to industry experts, the main reason for this situation is attributed to the problem of low local content, which is a situation where most of the service contracts are awarded to foreign firms because local indigenous firms allegedly lack the requisite skills, technical expertise, manpower and production capacity and capability to compete favourably (Aneke, 2002; Ariweriokuma, 2009).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Since the late 1950s till date, the Oil and Gas Industry has continued to serve as the main stay of the Nigerian economy. The industry has widely been acknowledged as the nation’s live-wire and literatures abound on its role and significance to the nation (Agusto, 2002; Atakpu, 2007). The Nigerian Oil and Gas Development Law 2010 defines local content as the quantum of composite value added to or created in Nigeria through utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety and environmental standards. It is framed within the context of growth of Nigerian entrepreneurship and the domestication of assets to fully realize Nigeria's strategic developmental goals. The scheme, which has the potential to create over 30,000 jobs in the next 5 years, is geared to increasing the domestic share of the $18 billion annual spending on oil and gas from 45% to 70%, in addition to enhancing the multiplier effects on the economy, through refining and petrochemicals.
For a country with over four decades' experience in oil and gas exploration and production activities and proven recoverable reserves of about 37 billion barrels, her inability to use the resource wealth as a means for national development and poverty reduction has perhaps been the greatest challenge facing successive administrations. These challenges have their expression in how Nigeria can derive maximum benefits from oil and gas operations through optimal use of local competences and resources as practiced in Indonesia, Brazil, Norway and Venezuela, for example. Although these countries started oil exploration and production activities after Nigeria they have largely recorded remarkable success in their efforts to grow the local content in this strategic industry. The oil and gas industry is, however, a major contributor to the Nigerian economy. It accounts for about 90% of the federal government’s annual revenue (Nwosu et al., 2006).
The industry is, however, dominated by foreign interests and major activities like exploration, drilling, production, well intervention and service provision remain primarily controlled and managed by foreign multi-national companies, and only minor contracts have been awarded to local contractors (ibid). In order to increase local industry’s participation in the oil and gas industry of Nigeria, local content requirements (LCR) have been made legally mandatory, which implies that foreign companies involved in exploring and exploiting the resources in Nigeria, are forced to include indigenous companies. With a few exceptions, the foreign companies are large multinational enterprises (MNEs). For example, 95% of Nigeria’s oil and gas production is generated by only five companies; Shell, Exxon, Chevron, Total and Agip (Frynas and Paulo, 2007). Historically, the involvement by foreign companies in developing countries has been motivated by a desire to exploit natural resources and abundant labor pools (Hansen et al., 2009).
The local content policy action started in 1971 through the establishment of the Nigerian National Oil Corporation, (NOC). NOC was established as a vehicle for the promotion of Nigeria's indigenization policy in the petroleum sector. It later became Nigerian National Petroleum Corporation (NNPC) in 1977 through NOC's merger with the petroleum ministry. NNPC flagged off the actual local content initiative through acquisition of interests in the operations of the IOCs. These interests grew to about 70%, with the responsibility of controlling all acreages and other activities. Although conscious efforts were made in the past through Regulation 26 of the 1969 Petroleum Act, enforcement of local content policy, the springboard for sustainable economic transformation of Nigeria, was mere paper work. For an industry that contributes 80% of Nigerian government revenues and 95% of its foreign exchange this is entirely unacceptable to the Nigerian government hence the clamor for change.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Challenges, Prospects and the Way Forward of Local Content in the Oil and Gas Industry.
1.3 Statement of Problems
Investigation revealed that Nigeria's rising profile in oil and gas production was rather fast and steady such that she soon became a formidable force within OPEC. Oil exploration, which started onshore has tremendously improved the nation's daily production capacity to about 2.3 million barrels per day, and raised her proven reserves to about 37 billion barrels. However, despite Nigeria's ever-growing profile and wealth, the country remains one of the poorest, and technologically backward, nations in the world. This is basically because the much-taunted wealth has not translated into improved welfare. One reason for this is that over 90 percent of the yearly industry expenditures escape the domestic economy as capital flight.
1.4 Aim and Objectives of Study
The aim of the study is to find out the Challenges, Prospects and the Way Forward of Local Content in the Oil and Gas Industry of Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To find out the challenges faced by the local content in the oil and gas industry in Nigeria;
- To anticipate the prospect of the local content in the oil and gas industry in Nigeria; and
- To proffer a way out to the problems highlighted.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What are the challenges faced by the local content in the oil and gas industry in Nigeria?
- What is the prospect of the local content in the oil and gas industry in Nigeria?
- What is the way out to the problems highlighted?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There are no significant challenges faced by the local content in the oil and gas industry in Nigeria
- H1: There are significant challenges faced by the local content in the oil and gas industry in Nigeria
1.7 Significance of Study
The study will expose the stakeholders involve in oil and gas policy making, the government at various levels, and the society at large to what local content in oil and gas means, will also expose them to the challenges face by the oil and gas industry in Nigeria, the prospect of the industry and the way out to the problems.
Also, the conclusion made in this research will serve as a guide to the policy makers in Nigeria to formulate a reasonable policy that will take the industry forward. And finally this research will serve as a guide to other researcher who will embark on the same research in the nearest future.
1.8 Scope of Study
The scope of the research is focused on the Challenges, Prospects and the Way Forward of Local Content in the Oil and Gas Industry of Nigeria.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Local Content: Is the development of local skills, oil and gas technology transfer, and use of local manpower and local manufacturing. For a more practical definition, one could say that local content is building a workforce that is skilled and building a competitive supplier base (Oil and Gas, 2010).
Oil and Gas Industry: A company that participates in every aspect of the oil or gas business, which includes the discovering, obtaining, producing, refining, and distributing oil and gas. An integrated organization usually organizes its different tasks and operations into the categories upstream and downstream.
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