The Local Content Law And Its Effect On Job Creation

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The Local Content Law And Its Effect On Job Creation


Abstract


The study explored the Local Content Law and its effect on Job Creation and having Capital Oil and Gas Nigeria Ltd as its case study. The Survey technique was adopted in the study. Structured questionnaires were used for data collection, data collected were analyzed using the statistical tools of frequency counts, charts and simple percentage for the demographic data while inferential statistics of chi-square (X2) was used to test all the stated hypotheses at 0.05 level of significance. A total number of Eighty Nine (89) copies of questionnaires were administered to the respondents. The objective of the study was to investigate the effect of Local Content Law on Job Creation; vis-à-vis government legislation and protectionist policies. After all relevant data were gathered and analyzed Two (2) hypotheses were tested and the entire alternative hypotheses were accepted. The result of the first hypotheses showed that there is a significant relationship between local content law and job creation in Nigeria. The findings of the second hypothesis also revealed that government policies/legislations have an effect on the growth of SMEs in Nigeria. The study recommends that the present state of unemployment in Nigeria is a clear indication that a responsible and dynamic approach to sustainable local content development needs to be adopted by government policy makers and upstream operators to guarantee a better future for the nation’s teeming population. Technological development does not occur just by chance; rather it is a product of a nation’s sound economic management, policy reengineering, good governance and a social value system that rewards hard work and creativity.


Chapter One


Introduction

1.1 Background to the Study

The role of the Local Content Law (LCA) in the creation of job in the face of the rather sky-rocketing mass unemployment in Nigeria cannot be overemphasized. Now, the Oil and Gas Industry (OGI) in Nigeria plays a crucial role to the sustenance of the nation and fuels her economic and development activities. The industry has been widely described as the nation’s live wire and literature abounds on its role and significance in Nigeria (Agusto, 2002; Atakpu, 2007; Odulari, 2008). Nonetheless, an estimated $8 billion is spent annually on servicing the industry in operations such as fabrication, engineering procurement, construction (EPC), Front End Engineering Design (FEED), conceptual designs and seismic studies. This figure is projected to hit $15 billion within the next few years (Business Day, 2008). Regrettably, despite these huge sums of money spent in servicing the industry, only a very little proportion of the accruable profit is spent in Nigeria.

Majority of the amounts are repatriated abroad, where most of the equipment is manufactured; and providing employment opportunities for citizens of other countries. The major reason for this situation has been attributed to low local content (LC), which is a situation where most of the service contracts are awarded to foreign firms because local indigenous firms lack the requisite skills, technical expertise, manpower and production capacity and capability to compete favourably. Oladele (2001) posited that low LC in the Nigerian OGI results from: Deficient capitalisation arising from the tendency of Nigerian entrepreneurs to operate as ‘one man’ businesses; Capital and structural deficiencies associated with poor training and low managerial ability; and Inability to attract funds due to lack of suitable collateral and positive corporate image.

Historically, Nigerians have had very little share of the country’s oil wealth and there was an urgent need to reverse this trend in the wake of the country’s return to democracy. To address this anomaly, the Federal Government of Nigeria in the early 2000s introduced the Local Content (LC) policy, christened

Nigerian Content (NC) and it was primarily aimed at enhancing increased participation of local indigenous firms in OGI. The policy was targeted at transforming the industry through the development of in-country capacity and indigenous capabilities in the area of manpower development, facilities and infrastructure towards ensuring that a higher representation of local indigenous companies participate actively in the industry (Lawal, 2006; MacPepple, 2002 and Nwapa, 2007) in the drive to create employment opportunities for Nigerians.

The term Local Content (LC) as aptly christened ‘Nigerian Content’ has been defined as ‘The quantum composite value added or created in the Nigerian economy through the utilization of Nigerian human and material resources for the provision of goods and services to the petroleum industry’ (NNPC Website). The concept of local concept is global and not restricted to Nigerian, as it has previously been undertaken in several other oil-producing countries. Warner (2007) views LC from an angle of ‘community content’ while stating that “Ultimately, community content is about realising a competitive advantage for an oil and gas development company in the eyes of both the local population and the country’s guardians of economic policy.”

According to the National Manpower Board, (2009) the Nigeria labour market could barely absorb 10% of the over 3.8 million persons turned out by the Nigeria educational system on a yearly basis. In brief, the employment trends in Nigeria indicate that, without a concerted effort to tackle the problems of unemployment and underemployment the situation could get worse.

Job creation is one of the developmental problems that face every developing economy in the 21st century (Patterson et al, 2006), and Nigeria is not exempted. Non availability of jobs is felt more by the youths, leading to youth unemployment. Trafficking in persons and child labor can be attributed to poverty and joblessness among the youths. For a few who are able to find their way out of the country to work in other countries, their departure has depleted the quality of human capital resources in the country.

The Nigeria Local Content Law is aimed at reforming the petroleum industry into becoming the economic hub for promoting higher SMEs participation, job creation and base for industrial growth; as well as for checking capital flight away from the country (Binniyat et al, 2008; Chukwu, 2005 and Gilbert, 2007). It is against this backdrop that this study is inspired to investigate “the Local Content Law and its effect on Job Creation” with a special reference to Capital Oil and Gas Nig. LTD.


1.2 Statement of the Problem

The journey to industrialization is not just limited to the oil and gas sub sector. The entire footwear and leather sector is virtually wiped away. Even the print media is feeding on imported newsprint as the local newsprint companies like Oku- Iboku, Iwopin and Jebba remain a mere shadow of a once vibrant sector. In the construction industry many local firms have closed shop and the big multinationals are reducing workforce in large numbers as the leadership of the union reported over 12,000 job losses recently. The prosperous petroleum sector is built virtually on extraction and not value addition as Kaduna, Warri and Port Harcourt refineries remain comatose.

The entire oil industry regrettably lives on contract and casual employment. In fact, no sector is spared; Air Transport, Shop and Distributive, Steel, Engineering and Automobile. The Railway sector despite monumental investment in recent years is yet to show the promise of revival. The Industrial decay is just monumental.

The Manufacturers Association of Nigeria (MAN) in her 2009 annual report provided a graphic detail of factory closures across all geo-political zones with eight hundred and thirty four (834) factory closures and over 100,000 job losses that year alone (Ariweriokuma, 2009).

According to industry experts, the main reason for this situation is attributed to the problem of low local content (LC), 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). Oladele (2001) suggested that low LC in the Nigeria is due to: Deficient capitalisation arising from the tendency of Nigerian entrepreneurs to operate as ‘one man’ businesses. Hence, this research study will assess “the Local Content Law and its effect on Job Creation” with a special reference to Capital Oil and Gas Nig. LTD.


1.3 Research Questions

The study is motivated by the following questions:

  1. Has the enactment and the execution of the Local Content Legislation in Nigeria’s petroleum sector been effective in economic growth?
  2. Does the Local Content Law have any significance on job creation in capital oil and gas limited?
  3. How are Nigerians currently participating in the Upstream Petroleum Industry

1.4 Research Objectives

The study seeks to provide a comprehensive assessment of local content law and its significance for job creation. Specifically, the study seeks;

  1. To assess effectiveness in the enactment and the execution of the Local Content Legislation in Nigeria’s petroleum sector in fulfilling its intended objectives.
  2. To examine the significance of Local Content Law on job creation in capital oil and gas limited.
  3. To investigate the extent to which Nigerians are participating in the Upstream Oil and Gas Industry.

1.5 Research Hypotheses:

The researcher intends to test the following hypotheses at 0.05 level of significance;

Hypothesis One:
  • Ho There is no significant relationship between Local Content Law and Job Creation in Nigeria.
  • Hi: There is a significant relationship between Local Content Law and Job Creation in Nigeria.

1.6 Scope of the Study

The study concentrates on energy oils PLC which encompasses mainly the upstream activities within the petroleum sector. The upstream sector is responsible for exploration, development and production of petroleum from the fields. The study expounds on the Upstream Oil and Gas Sector. This period of investigation comprises some years before the implementation of the LCL, 2013 (LI 2204) and some years after its implementation. This helps to make a comprehensive analysis of the growth in Job creation in the Petroleum sector of Nigeria over these years.


1.7 Significance of the Study

The purpose of the study is to examine the effectiveness of the Local Content law in the Nigerian economy, as well as examine if the law has any significant influence on the amount of jobs created. The findings of this study will help in advising policy makers on the practicality of local content law in benefiting the Nigerian populace. The study also seeks to add to the academic literature on the nexus between local content law and job creation which is not common in the existing works. In effect, the study intends to enlighten policy makers about if it is worth pursuing LCL if its significance on job creation which is one of the agents of economic growth turns out to be grievously detrimental and outweigh its gains.


1.8 Organization of Chapters

The research was organized into four chapters. The first chapter is the introduction. Chapter two looks at the background of the of local content law in Nigeria, the history and development of upstream oil and gas industry. Chapter three examines the methodology used in the study, chapter four examines the local content law and its significance on job creation in capital oil limited. Finally, chapter five comprises the summary of findings, conclusions and recommendations.


Chapter Five


Summary of Findings, Conclusions and Recommendations

5.1 Summary of Findings

The study sought to provide a comprehensive assessment of local content law and its significance for job creation in the oil and gas industry in Nigeria. The following objectives were developed to arrive at conclusive results: to assess effectiveness in the implementation of the Local Content Legislation in Nigeria’s oil and gas sector in fulfilling intended goals and objectives. Also, the study probe further to evaluate the significance of Local Content Law on job creation in the Oil and Gas Industry in Nigeria, to investigate the extent to which Nigerians participate in the Upstream Oil and Gas Industry and to find out if there are other best practices of local content in the Upstream Oil and Gas Industry. From this the following results were found:

Effectiveness in the implementation of Local Content Legislation in Nigeria’s oil and gas sector

The findings revealed that respondents were privy to the existing local content law regulations and its relevance to achieving efficiency and effective management of the oil and gas sector in Nigeria. Again, the researcher found out that procedures were effectively laid down in implementing the local content legislation in the oil and gas sector in Nigeria. These procedures had been developed from the Research and Development, legislative instruments backed by the laws of Nigeria and involved training and succession and the periodic assessment of Compliance by the Petroleum Commission. Although some positions with the major MNCs have been successfully been transitioned to Nigerians, for example, the Managing Director positions in Tullow Nigeria and Kosmos Energy are now occupied by Nigerians, Expatriates till hold critical positions that can be easily be filled by Nigerians.

These implementation programmes, according to law makers were feasible as Forty percent (40%) of the law makers strongly agreed to the assertion made on processes in implementing the Local Content Legislation
Further, with the introduction of the local content law on foreign investment in Nigeria, the impact of the law was also examined. The analysis revealed that forty percent (40%) of the law makers believed that foreign investment had increased, this is constant with the findings of Ojide et al investigating the impacts of Foreign Direct Investment in oil sector in Nigeria and its attendant impact on economic growth. The study indicated that employment have increased tremendously as a result of the introduction of the local content law in Nigeria. This is because the findings again revealed that the clause in the local law that disclosed that foreign companies are supposed to form a joint venture partnership with an indigenous company before they are allowed to operate affected the interest of the foreign investors.

Extent to which Nigerians participate in the Upstream Oil and Gas Industry

The findings revealed that Nigerians are currently participating in the upstream oil and gas industry through employment, JV partnership, supply of goods and services and through sub- contracting. Again, the findings revealed that the employment aspect of the local content law was working very well. This was so with the indigenous in block acquisition as well as the policies on JVs, CSRs and capacity building of individuals were working very well.

However, with the improvement of an aspect of the local content law fifty-five percent (55%) of the law makers believed that the financing of local companies to partake in JV partnership is an aspect of the local content law that needs improvement as it results to most Nigeriaian companies fronting for foreign companies which is not beneficial to the Nigeriaian economy.

Best practices of local content in the Upstream Oil and Gas Industry known to Nigerians

Finally, with the other best practices of the local content in the upstream oil and gas industry, the findings revealed that thirty-six percent (36%) of the law makers were aware of the Norwegian local content law with a report of eighty-three percent (83%) cases. Twenty- nine percent (29%) of the lawmakers were aware of the Nigerian Local Content law with sixty-seven percent (67%) reported cases. Followed by fourteen percent (14%) who were aware of the local content requirement with thirty-three percent (33%) reported cases. And another fourteen percent (14%) who were aware of the local content for Kenya with another thirty- three percent (33%) reported cases. Finally, seven percent (7%) of the law makers were aware of the provision of financial assistance to indigenous Nigeriaian companies with seventeen percent (17%) reported cases. This in effect fosters best behaviours within the industry.


5.2 Conclusions

The discovery of oil and gas at the Jubilee Field in 2007 has heightened expectations for the transformation of the economy by the oil revenues; while others have expressed caution due to the negative effect of oil in other oil producing African countries like Nigeria and Angola. The oil find has since increased investor interest and attracted huge financial inflows for development attracting more MNCs to engage in the oil and gas business. This establishes the link between oil and development.

As the local content law appears to remain a significant issue in driving the development of Nigeria and increase the influx of foreign investment, the study sought to provide a comprehensive assessment of local content law and its significance for job creation in the oil and gas industry in Nigeria. Therefore, the following objectives were developed to arrive at conclusive results: to assess effectiveness in the implementation of the Local Content Legislation in Nigeria’s oil and gas sector in fulfilling intended goals and objectives. Also, the study probed further to evaluate the significance of Local Content Law on job creation in the Oil and Gas Industry in Nigeria, to investigate the extent to which Nigerians participate in the Upstream Oil and Gas Industry and to find out if there are other best practice of local content in the Upstream Oil and Gas Industry.

With the use of a qualitative methodology through the aid of a well-structured open and closed questionnaire, the study found out that respondents were privy to the existing local content law regulations and its relevance to achieving efficiency and effective management of the oil and gas sector in Nigeria. Again, the researcher found out that procedures were effectively laid down on how to implement the local content legislation in the oil and gas sector in Nigeria. These procedures had been developed from the Research and Development, legislative instruments backed by the laws of Nigeria and involved training and succession, periodic assessment of compliance by the Petroleum Commission. Further, the findings revealed that the introduction of the local content law increased the level of foreign investment in Nigeria

The findings revealed local participating in the upstream oil and gas industry has improved through various mechanisms such as employment, JV partnership, supply of goods and services through sub-contracting. Finally, with the other best practices of the local content in the upstream oil and gas industry, the findings revealed that significant number of respondents were privy to the Norwegian local content law, Nigerian Local Content and the local content for Kenya. These in effect fosters best behaviours within the industry as Nigeria’s Local Content Law is quite similar to the Norwegian and the Nigerian Local Content Policies.

In summary, the study based on the hypothesis that “There has not been any significant fulfilment of the intended goals and objectives of the Local Content Legislation in Nigeria’s Oil and Gas Industry”. This study sought to agree to the hypothesis since the inception of the local content law, the local content fund has only been proposed and therefore the maximum penetration and involvement by the indigenous companies in Nigeria still struggle to compete vigorously with foreign investors thus end up in fronting most foreign companies. Also, some Expatriates still hold critical positions in MNCs even though there are qualified Nigerians who could occupy those positions. An example of such jobs is the Drilling Manager; GNPC Scholarships has sent a number of Nigerians abroad for training purposes in Universities such as Aberdeen University, Heriot-Watt University, Robert Gordon University and Dundee University, those Nigerians can easily occupy these critical positions since they have been trained by world class oil and gas universities.

As the Local Content Law is currently under review, it suggests government’s initiate to strengthen the law implementation to safeguard foreign investments, job creation, technological transfer and effectively regulate the activities of the industry and enhance progress within the sector and thus increasing investments.


5.3 Recommendations

From the study findings, the researcher suggests the following recommendation for law implementation.

  1. Establishment of local content funds to support indigenous SMEs to enhance their competitiveness vigorously in the industry with their foreign counterpart thus increasing the participation of Nigerians in the oil and gas industry and eliminating fronting of foreign companies is vital.
  2. The local content law should be strengthened such that foreign investors and local industry players so that unnecessary expectation would be reduced to avoid any conflict between participants. Also, locals should be encouraged to take advantage of this law so as to improve upon the competitiveness within the industry. This would reduce the over dominance of the foreign investors and increase economic growth.
  3. A temporal Petroleum Commission license should be introduced for short term opportunities i.e. to make it more attractive for smaller foreign investors as administrative charges for setting up are quite expensive, therefore, foreign investors could work on a onetime opportunity for a duration that is less than a year. Having more smaller foreign investors means that more Nigerians companies would get the opportunity to work with these companies and gain more expertise rather than these smaller investors working through the foreign companies already existing in the country.
  4. There should be mechanisms in place to monitor the training and succession programmes of MNCs to ensure Expatriates that have occupied critical positions for number of years should be transitioned to qualified Nigerians.
  5. As this study focused heavily on a comprehensive assessment of local content law and its significance for job creation in capital oil and gas limited in Nigeria, it is imperative that future studies would also consider touching the impact of the local content law on economic growth and development within the country.

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Frequently Asked Questions


What are the strategies of local government for job creation?

Local strategies include: provision of local economic data, marketing, tax incentives, industrial protection zones, enterprise zones, and redevelopment areas to target tax benefits and subsidies to businesses in disadvantaged areas. Business- and Sector-Based Strategies. Which types of firms to target for job creation is an unsettled question.

Why are small firms’ job creation rates so high?

…al argue that high job creation rates among small firms were primarily explained by the birth of new firms. Furthermore, they acknowledge the type of economic growth that was occurring during 1992-2004, a time when small and innovative technology start-ups played a significant role in the booming Internet-based economy.

Does macroeconomic job creation address job growth unequally?

Principally, macroeconomic job creation does not address how job growth happens unequally across geographic locations, industry sectors, and worker populations. To address this, the other three themes in this report describe more focused job creation strategies.

What are the primary ways to influence job creation?

The primary ways to influence job creation at these levels are: interest rate reductions, government hiring and purchases, infrastructure investments, short-time compensation programs, worker subsidies, and federal hiring credits.

How can the government stimulate job creation?

Job creation can be stimulated through a stable macroeconomic framework, but also structural policies which encourage innovation, skills, and business development. In order for new jobs to be created, businesses need access to skilled people, to business networks, to finance, and to space to start up and expand.

What is the local employment services strategy?

It highlights the strategies to strengthen local employment services and training providers to meet the increased demand for job placement and skills upgrading, particularly for the most disadvantaged workers (youth, low-skilled, women) or business development to serve the hardest hit firms and sectors (tourism, culture, hospitality).

What is the proper role of government in creating jobs?

Because of this, small businesses account for 65% of all new jobs created. 2 The proper role of government is to provide a supportive environment for growth. Even a healthy economy is subject to the bubbles and busts of the business cycle. When the economy contracts into a recession, the government must create solutions to unemployment.

How does the government create jobs during a recession?

When the economy contracts into a recession, the government must create solutions to unemployment. It may use expansive monetary policy, expansive fiscal policy, or both to stimulate job growth. Here are the eight job creation strategies that give the most bang for the buck.

How does business size affect job creation and employment?

Business size, more than entrepreneurial business success, accounts for most new job creation. b. Small firms are the last to hire in times of economic recovery. c. Larger firms hire at a faster rate than smaller firms. d. Large companies are the last to lay off workers during economic downswings.

What is the difference between small firms and large firms?

Small firms are the last to hire in times of economic recovery. c. Larger firms hire at a faster rate than smaller firms. d. Large companies are the last to lay off workers during economic downswings. a. A car rental agency Which of the following is an example of a business in the service industry?

Do big startups create more jobs?

The SBA study also looked at business formation data from 1994-2006 to conclude that larger startups, with 20-500 employees, have the greatest effect on job creation in Years 1-5, before moderating.

Is wage growth slowing down?

On the other hand, according to the Center for Economic and Policy Research, wage growth has been weak-only 2. 6% year-over-year, and this month’s drop in unemployment was due to 236,000 Americans leaving the workforce, not from employers creating jobs.

How does job creation affect GDP growth?

Market Realist – Job creation and GDP growth go hand-in-hand. The graph above compares the annual gross domestic product, or GDP, growth rate with the yearly change in jobs created over the last 50 years. As you can see, the job markets and the economy tend to move in a similar pattern.

Does the pace of job creation affect the working-age population?

Furthermore, the pace of job creation affects the growth of the working-age population itself, since countries adding jobs fastest will tend to attract more immigrants. Over the past two decades, net growth of employment varied widely among advanced countries.

Do macroeconomic strategies help create jobs?

The first theme, “Macroeconomic Strategies” looks at macroeconomic strategies that promote net new job creation. These strategies may help create jobs at the aggregate level, but we believe they fall short on a number of levels.

How does economic growth affect employment elasticity of employment?

Empirical studies highlight that economic growth tends to be positively associated with job creation. Khan (2007) finds that employment elasticity of GDP growth in developing countries to be 0.7.

What are the 4 steps of the importance of job creation?

Steps of the importance of job creation 1 To reduce poverty. When we create jobs and make sure that the jobs created are great. … 2 Tax payers. The more people work is the more they pay tax, and when we pay tax, is the more the government will have money to fund welfare and … 3 To reduce unemployment. … 4 Economic stability. …

What is the best way to create jobs?

The primary ways to influence job creation at these levels are: interest rate reductions, government hiring and purchases, infrastructure investments, short-time compensation programs, worker subsidies, and federal hiring credits. Place-Based Strategies.

What is the relationship between job creation and economic growth?

Job creation and economic growth are related. Job creation is necessary because, the more people work the more the economy become stable. Economic stability is needed before people can start making big investments in themselves and their children. So, when we create jobs.

Why do we need to create jobs?

Job creation is necessary because, the more people work the more the economy become stable. Economic stability is needed before people can start making big investments in themselves and their children. So, when we create jobs. 

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