30 International Energy Law Review

that local content policy and regulations are unlikely to

Towards Sustainable
Local Content
Development in the
Nigerian Oil and Gas
Industry: an Appraisal
of the Legal
Framework and
Challenges—Pt I
*
Uchenna Jerome Orji
Barrister and Solicitor of the Supreme
Court of Nigeria
Award criteria; Economic development; Legal history;
Nigeria; Oil and gas industry; Recruitment; Technology
transfer; Vocational training
Initial efforts to develop policies and laws to promote
local content or indigenous participation in the Nigerian
oil and gas industry commenced around the late 1950s
and have continued until the present day. This article (in
two parts) examines: (1) the development of local content
regimes in the Nigerian oil and gas industry prior to 2010,
highlighting several factors that have hindered the
realisation of their objectives; (2) the provisions of the
Nigerian Oil and Gas Industry Content Development Act
2010 together with the challenges facing the objectives
of the Act; and (3) measures to enhance a sustained
achievement of those objectives. The article concludes
succeed in isolation without critical elements such as a
strong rule of law culture and a sincere patriotic
re-awakening towards promoting a sustained patronage
of local products and services.
1. Introduction
Attempts to develop legal and policy frameworks to
promote the development of a critical mass of indigenous
capacity to enhance local commercial and labour
participation, or “local content”, in the Nigerian Oil and
Gas industry (the Industry) do not have a recent history.
Available records disclose that Nigeria’s attempts to
develop such frameworks date back to 1959—a year
before the country gained her independence from British
colonial rule.1 However, it appears that, within the past
50 years, most attempts to promote the development of
indigenous capacity or local content in the Industry have
failed to achieve the desired objectives of “indigenising”
the Industry and facilitating the diversification of the
Nigerian economy. As such, despite the strategic
importance of the Industry as the major source of revenue
to Nigeria,2 the Industry does not appear to have been
effectively integrated into the mainstream of the Nigerian
economy. On the other hand, Nigeria’s dependence on
the Industry as a major source of revenue has been one
of the proximate causes of poor economic diversification
and endemic corruption in national governance.3 This has
now resulted in the increasing destruction of other critical
economic sectors,4 such as the agricultural and
manufacturing, due to what has been described as the
“Dutch Disease”5 or “Resource Curse” phenomena.6
Accordingly, it has been noted that:
“Petroleum has transformed Nigeria from the
diversified, agro-based economy that it was up until
the sixties to the mono-resource, petroleum based
economy that it has become since the 1970s. While

*
LLB (Hons), University of Nigeria; LLM, University of Ibadan; PhD candidate, Nnamdi Azikiwe University, Nigeria. Email: jeromuch@yahoo.com.
1
See below for further discussions.
2
According to the US Energy Information Administration (EIA), the Nigerian economy is heavily dependent on the oil sector, which accounts for over 95 per cent of export
earnings and about 40 per cent of government revenues. See EIA, Country Analysis Briefs—Nigeria (October 16, 2012) p.1, available at http://www.eia.doe.gov [Accessed
December 21, 2013].
3
For example, Nigeria is estimated to have earned over US $600 billion from oil and gas revenues between 1970 and 2008; however, nearly two-thirds of these earnings
are believed to have been corruptly mismanaged by the various Nigerian governments. See N. Igiebor, “The Search for Statesmen: 10 Years of Democracy in Nigeria
(1999–2009)” Tell, June 8, 2009, No.23, p.6. See also CEE Bankwatch Network, The Reality behind EU Energy Security-the Case of Nigeria (CEE Bankwatch Networ:
Liben, Czech Republic, September 2011), p.4. See Arthur Bainomugisha et al, Escaping the Oil Curse and Making Poverty History: a Review of the Oil and Gas Policy
and Legal Framework for Uganda (ACODE Policy Research Series, No.20, 2006), p.iv.
4
For example, the Nigerian private economic sector is noted to be “weak and parasitic”, feeding on crumbs from oil-induced government expenditure at all levels. See
Chukwuma Agu et al, “Does Multilateralism Crowd out Intra-Group Trade? Evidence from Some Developing Regions” (2009) 4 Journal of International Commercial Law
and Technology 214.
5
The term “Dutch disease” originated from the economic instability that was experienced in the Netherlands during the 1960s following massive revenues realised from
the country’s exploitation of oil in the North Sea.
6
“Dutch disease” or “Resource curse” are terms commonly used to refer to “a phenomenon in which the discovery of substantial natural resource wealth negatively affects
a nation’s economy. The discovery often causes sudden appreciation in the value of the nation’s currency which, in turn, decreases the nation’s competitiveness in the
international commodity markets. This reduces the country’s exports of manufactured and agricultural commodities and increases its imports. At the same time, the natural
resource sector draws a substantial share of domestic resources such as labor and materials, increasing their cost to other sectors. Moreover, when the initially booming
resource sector eventually declines, the non-resource-based sectors may find it difficult to recover.” See A. Mähler, Nigeria: A Prime Example of the Resource Curse?
Revisiting the Oil Violence Link in the Niger Delta (German Institute of Global and Area Studies Working Papers: Germany, 2010), p.120. Also, according to a study by
the Foundation for Environmental Security and Sustainability, and also by the US Agency for International Development, “Dutch disease” or “Resource curse” refers to
the fact that, “while oil and gas reserves represent a potential financial windfall for developing countries, such assets frequently tend to create problems or exacerbate existing
ones. If a country has poorly developed financial, judicial, and governance systems, oil- and gas-generated revenues regularly worsen problems such as corruption, lack of
governmental accountability and income disparities.” Hence, “it is not the resource itself that is the curse, but the persistent over reliance upon it and the deleterious effects
of that reliance on a developing country’s political economy”. See Foundation for Environmental Security and Sustainability, Oil and Gas and Conflict Development
Challenges and Policy Approaches (Foundation for Environmental Security and Sustainability and United States Agency for International Development: United States,
January 2006), pp.7–8. See Gylfason Thorvaldur, “Natural Resources and Economic Growth: From Dependence to Diversification” (September 2001), available at http:/
/www.hi.is/~gylfason/pdf/ beirut.pdf.

[2014] I.E.L.R., Issue 1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors
 Towards Sustainable Local Content Development in the Nigerian Oil and Gas Industry 31

Nigeria has earned billions of dollars exporting oil the author seeks to examine legal and policy regimes
and natural gas, the industry has not generated the promoting local content or indigenous participation in
type of multiplier effects necessary to facilitate the Industry with a special focus on the Content
sustainable national development and economic Development Act. The article is divided into two parts,
growth. The ‘Dutch Disease’ phenomenon, which with the second part appearing in the next issue of the
traditionally afflicts natural resource dominated International Energy Law Review (I.E.LR). In the first
economies, has ravaged the Nigerian political part, the author renders a brief historical overview of the
economy.”7 development of legal and policy regimes to facilitate
indigenous participation in the Industry, while
Thus, despite huge amounts of revenue derived from
highlighting some of the obstacles that have hindered the
several years of exploiting petroleum resources, Nigeria
attainment of the objectives of such regimes. This is
still has one of the highest rates of poverty and one of the
followed by an analysis of the provisions of the Content
lowest human index levels in the world,8 with the Industry
Development Act. In the second part, the author highlights
contributing a low share of about 14.75 per cent to the
several challenges that may hinder the achievement of
national gross domestic product (GDP).9 On the other
the Act’s objectives and proposes some measures that
hand, agriculture contributes about 33.69 per cent to
may be adopted to address those challenges in order to
Nigeria’s GDP.10 Accordingly, it has been noted that, out
ensure a sustained achievement of the objectives of the
of the estimated $12 billion spent annually on servicing
Act in the Industry. The author concludes that local
the upstream sector of the Industry, “over 80 percent by
content policy and regulation may not succeed in isolation
value of work is carried out abroad, resulting therefore
of critical elements such as a strong rule of law culture
in an insignificant contribution to national GDP”.11 This
and a sincere patriotic re-awakening towards promoting
state of affairs has led to the description of the Industry
a sustained patronage of local products and services.
as an “enclave economy”. In this respect, it has been
pointed out that:
2. A brief historical overview of legal and
“Although the oil and gas industry accounts for 90 policy instruments promoting the
percent of Nigeria’s revenue, it contributes less than development of local content in the
38 percent to the Nation’s GDP. In real terms the Industry
upstream industry has for decades functioned as an
enclave economy with minimal impact on the wider The need to establish legal and policy instruments to
economy. The primary reason is the absence of legal enhance local content development, or indigenous
or statutory frameworks for Nigeria to harvest the participation, in the Industry first filtered into the arena
technological, industrial and economic intangible of national public discourse during the Federal
capital assets being generated by oil and gas Parliamentary Debate on the Petroleum Profit Tax Bill
activities for diffusion into the local economy.”12 in 1959. This was just a year before Nigeria gained her
independence from British colonial rule. Honorable Jaja
The description of the Industry as an “enclave economy” Wachukwu, a member of the Federal House of
is further justified by the fact that over 95 per cent of Representatives, while debating the Petroleum Profit Tax
Nigeria’s oil and gas production is generated by only five Bill before the Legislative House, had digressed to present
foreign companies: Shell, Exxon, Chevron, Total and this issue to members of the Federal House of
Agip.13 To address the above state of affairs, a Representatives.15 The Honorable Representative noted
comprehensive legal framework on local content thus:
development in the oil and gas industry was recently
added to the existing body of laws in this area in 2010.
In this respect, the Nigerian National Assembly enacted
a Bill entitled the Nigerian Oil and Gas Industry Content
Development Act (the Content Development Act),14 which
received the assent of the President of the Federal
Republic of Nigeria on March 29, 2010. In this article,
7
See Wumi Iledare and Rotimi Suberu, “Oil and Gas Resources in the Federal Republic of Nigeria”, Conference Proceedings The Management of Oil and Oil and Gas in
Federal Systems (World Bank and Forum of Federations: Washington, DC, March, 2010), p.11.
8
According to the UN Human Development Report of 2011, which applies the multidimensional poverty index (MPI), almost two-thirds of Nigerians live below the income
poverty line of US $1.25 per day. See UN Development Programme (UNDP), Human Development Report 2011—Sustainability and Equity: A Better Future for All (United
Nations, Geneva, 2011), p.5, available at http://hdrsats.undp.org.org/images/explanations/NGA.pdf.
9
See National Bureau of Statistics, Gross Domestic Product for Nigeria—2012 and Estimate for Q1, 2013 (National Bureau of Statistics: Abuja, 2013), p.5. See Ayo-Oluwa
Aderibigbe et al, “Turmoil, Austerity & Reforms” 2011 Market and Economy Review—Nigeria (WSTC Financial Services Ltd: Lagos, Nigeria, January 2012), p.4.
10
See National Bureau of Statistics, Gross Domestic Product for Nigeria—2012 and Estimate for Q1, 2013 (National Bureau of Statistics: Abuja, 2013), p.15.
11
See Kabir A. Mohammed, “Nigerian Content Development: The Petroleum Technology Development Fund Initiatives” (2009) 2 Petroleum Technology Development
Journal 2.
12
See L.P. Akindelano, “Review of Nigeria’s Local Content Legislation”, p.1, available at http://www.akindelano.com [Accessed January 7, 2014].
13
See US Energy Information Administration (EIA), Country Analysis Briefs—Nigeria (October 16, 2012) pp.8–9, available at: http://www.eia.doe.gov [Accessed December
21, 2013]. See Jedrzej George Frynas and Manuel Paulo, “A New Scramble for African Oil? Historical, Political, and Business Perspectives” (2007) African Affair 245.
14
In this article, “Content Development Act”, “the Act” and the “Nigerian Oil and Gas Industry Content Development Act” shall be used interchangeably where the context
allows.
15
See Chibuzo A. Ogbuagu, Nigeria: Development Policies and Programmes (University of Calabar Press: Calabar, 1995), pp.6–67.

[2014] I.E.L.R., Issue 1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors