A Re-Examination of the Local Content Act in Nigeria’s Survival During the Covid-19 Pandemic; Accessing the Economic Downturn and the Relevance of the Local Content Act
By Monday Chinaecherem
INTRODUCTION
To set the scene, we will need to rewind to the first reported case of COVID-19 in Wuhan, China, in December 2019. The disastrous occurrence of the COVID-19 pandemic dealt a crushing blow to different facets of industries around the world, the Nigerian oil and gas industry, particularly; sharp decline in both price and demand for crude, industrial slowdown of operations, travel restrictions, abrupt shutting of borders and ports, reduction of available workforce- resulting to low scale of production, disruption in the actualization of the Sustainable Development Goal (SDG) as adopted at the UN Climate Change Conference in Paris. These among many others became the inexorable experiences that preceded the COVID-19 pandemic.
This exigency invariably led to the disruption of the overall economy, considering how crucial revenues from the scale of crude oil are to the substance of the Nigerian economy. Record shows that the oil industry contributed 9.77% in Q3 2019, then 5.87% in Q4 2020, (Statista 2023). This undeniably proves that there had been an overwhelming downturn in Nigerian content when the COVID-19 pandemic raged. This article simply scrutinizes how the Nigerian oil and gas industry survived during the COVID-19 pandemic.
AN OVERVIEW OF THE NIGERIAN CONTENT
The Nigerian Oil & Gas Industry Content Development Act, 2010 (the NOGICD Act), alternatively cited as the Local Content Act, governs all Nigerian content matters in the Nigerian oil and gas industry. Section 106 of the Act defines Nigerian content as “the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry.” The Nigerian Content Monitoring Board was established as pursuant to Section 69 of the NOGICD Act, 2010; to supervise, coordinate, administer, monitor, and manage the development of Nigerian content in the Nigerian Oil and Gas Industry- Section 70(c) of the NOGICD Act.
The sole purpose of the NOGICD Act is to promote indigenous participation in Nigeria’s oil and gas industry and improve the economic and social well-being of Nigeria. This is because, before the Act, the oil and gas sector had minimal impact on Nigeria’s economy, primarily because International Oil Companies (IOCs) heavily exploited our natural resources. To prevent the IOCs from killing the goose that lay the golden egg for Nigeria, the Act then stipulates that oil blocks, and oil field licenses, should be awarded to Nigerians, thereby making the oil companies being managed by Nigerians to focus on developing infrastructure and technology in Nigeria, and encouraging profits to be recovered and reinvested into Nigeria’s economy- this is simply what is been referred to as the ‘Nigerian Content’. Since the promulgation of the NOGICD Act, about $9 billion has been retained yearly, from the average $20 billion spent in the oil and gas industry.
Also, Section 28 of the NOGICD Act promotes indigenous human capacity. Since the commencement of the Human Capacity Development Initiative (HCDI), the rate of unemployment has drastically reduced; over 50,000 direct jobs have been created in the local economy since the promulgation of the Act, thereby reducing brain drain and the reliance on foreign operators. The Act also charges the operators to provide training for Nigerians and provide a succession plan for a Nigerian to understudy an expatriate for a maximum period of 4 years, after which the position will be reserved for Nigerians; this is evident because 96% of Shell’s employees are Nigerians.
THE IMPACT OF THE COVID-19 PANDEMIC ON THE NIGERIAN CONTENT
The dire consequence of COVID-19 pandemic on Nigerian content was quite catastrophic. The pandemic led to a slowdown in production and mobility nationwide resulting in a sharp decline in demand for oil and gas. Nigeria, as an oil-producing state, is heavily dependent on oil. About 65% of government revenue proceeds from the sale of crude oil. Crude oil also brings in 90% of revenue from foreign exchange. In April 2020, at the peak of the pandemic, oil demand dropped by approximately 9.3 million barrels per day (b/d) compared to the previous year, representing a decline of around 9% as there were imminent closure of sub-contractors’ businesses involved in the leasing and supply of equipment. Even the natural gas market; Liquefied Natural Gas (LNG), Compressed Natural Gas (CNG), and Liquefied Petroleum Gas (LPG), experienced unprecedented disruptions; delays in project developments, logistical challenges, troubles relating to the supply chain, and the cancellations of some vital contracts with relevant stakeholders.
The limitation on gatherings also affected training programs and professional development opportunities for the workforce. Operators faced financial challenges as a result, they had to lay off the workforce to cut costs and survive the economic downturn.
Further, the onset of Covid-19 also brought about a strident decline in investors’ appetite for fossil fuel projects in Nigeria, several oil companies shelved new projects and permanently shut down high-cost operations in response to the oil price collapse. Many Corporate Social Responsibility (CSR) projects that would have led to the development of relevant areas were abruptly disrupted. These CSR projects include road networks, provision of quality water supply, electrification, provision of classroom facilities and construction of standard markets, represent some of the benefits that usually accrue to host communities from projects. For instance, the building project of the ‘Oil and Gas Museum and Research Centre’, initiated with the aim of enhancing tourism, research and technology development, employment and integration of oil and gas host communities into the mainstream developmental narrative of Nigeria were all scraped off owing to the emergence of the covid-19 pandemic.
RELEVANCE OF THE LOCAL CONTENT ACT DURING THE COVID-19 PANDEMIC
The impacts of local content implementation cannot be overemphasized. Interestingly, it has been proven that countries with developed local content frameworks and good implementation like Kuwait, Qatar, Saudi Arabia, have achieved higher levels of positive outcomes during the covid-19 pandemic, unlike countries with weak local content implementation. These among other factors aided Nigeria to survive during the Covid-19 pandemic.
The Significance of Technology Transfer
A major objective of the Local Content Act is to domestically trap oil and gas industry expenditures within the Nigerian economy, to reduce the massive capital flight that usually results from heavy reliance on foreign products and services within the industry. Accordingly, Section 43 and 45 of The NOGICD Act establishes legal obligations that will encourage the patronage of Nigerian products and services in the industry with a view to promoting local participation and the transfer of technologies, while also diversifying the sources of investment in the industry, so as to harness the industry for a rapid and sustainable national economic growth. Thus, the Act aims to promote value-addition to the Nigerian economy through the use of local raw materials, products and services while also stimulating the growth of indigenous capacity in the industry. This played a crucial role in the Nigerian content during the pandemic, as it greatly enhanced local content participation. Since the NOGICD Act prohibits the importation of material resources and enjoined companies to use material resources being produced in Nigeria. This made the Board able to cope when borders were closed and the importation of goods difficult. Even when foreigners started returning to their home countries during the pandemic, the technology transfer worked magic because local companies have acquired capabilities to match their foreign counterparts in the delivery of oil and gas projects to the highest quality and standards.
The Relevance of Oil and Gas E-Marketplace
Section 54(a) NOGICD Act implores the Board to establish an “Oil and Gas e-market Place”- a virtual platform where transactions relating to goods and services in the oil and gas industry are carried out. This played a crucial role in enabling operators to adapt to the pandemic’s challenges; by reducing the need for physical functions and travel expenses, operators could save operational costs, and the industry could also conduct virtual training sessions and workshops for the upskilling of their workforce remotely.
Collaboration and Digitalisation of Operations
Section 57 of NOGICD Act makes provisions for ‘collaboration’ in the Nigerian oil and gas industry concerning; upcoming projects in the oil and gas industry, information on available local capabilities, and other policy proposals that may be relevant to Nigerian content development. The collaboration of the NCDMB and the National Information Technology Development Agency (NITDA) greatly enhanced the development of Nigerian content during the COVID-19 pandemic via the promotion of in-country manufacture of motherboards and electronic components, development of mobile and personal computer applications as well as the optimization of the use of locally developed virtual meeting platforms.
Remarkably, records show that the compliance with the NOGICD Act during the pandemic saved Nigeria US$2 billion in the Engineering Procurement and Construction (EPC) contract for Nigeria LNG Train 7 Project, a massive rebound in demand for crude oil from China, the completion of the enthralling 17-story Nigerian Content Tower which increased the Nigerian Content Intervention (NCI) Fund from US$200million to US$350million, and the commissioning of the first modular refinery, which NCDMB catalyzed under a private/ public partnership with Waltersmith.
Conclusion
In order to further augment market conditions and provide opportunities for growth and resilience during periods of oil price volatility and shift in energy demand, diversification of portfolios becomes severely pertinent. By investing in a variety of indigenous assets such as; renewable energy, petrochemicals, and other energy related businesses, local companies in the industry can maintain a steady and stable revenue stream. This can also enhance the development of the Nigerian content amidst perhaps during certain exigencies.
REFERENCES
- The Nigerian Content Act (2010) https://www.ncdmb.gov.ng/images/GUIDELINES/NCACT.pdf
- Practical aspects of the implementation of the Nigerian Oil and Gas Industry Content Development Act 2010 https://www.dentonsacaslaw.com/en/insights/articles/2022/april/20/implementation-of-the-nigerian-oil-and-gas-industry-content-development-act-2010
- An Overview of The Nigerian Oil and Gas Industry Content Development Act 2010- https://www.mondaq.com/nigeria/oil-gas–electricity/99294/an-overview-of-the-nigerian-oil-and-gas-industry-content-development-act-2010
- The impact of Coronavirus(COVID-19)and the global oil price shock on the fiscal position of oil-exporting developing countries- https://www.oecd.org/coronavirus/policy-responses/the-impact-of-coronavirus-covid-19-and-the-global-oil-price-shock-on-the-fiscal-position-of-oil-exporting-developing-countries-8bafbd95/
- Nigeria local content regulator lauds $500m Ikike oil field Project- https://businessday.ng/energy/article/nigeria-local-content-regulator-lauds-500m-ikike-oil-field-project/#google_vignette
- Nigerian Local Content Act and Science Education for Sustainable Development in Nigeria- Https://Www.Academia.Edu/42668274/Nigerian_Local_Content_Act_And_Science_Education_For_Sustainable_Development_In_Nigeria
About the Author
Monday Chinaecherem is of the Faculty of Law University of Nigeria, Nigeria. He can be reached on 07042131206 or mondaychinaecherem2@gmail.com
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