Gap Analysis of Local Content Initiatives

within the Oil and Gas Industries:

A Case Study of Nigeria Business Environments

Adewale Oloruntobi
(M00430178)

September 2014

A thesis submitted in partial fulfillment of the requirements of Middlesex University, for the award of Master of
Business Administration (MBA) in Oil and Gas.
Abstract

The Nigerian petroleum industry is considered the largest in the West African Nations. Despite that the
oil industry in Nigeria plays an integral role in the development of the economy, and coupled with the
substantial investment that have been made in the sector, the industry has not provided full benefits to
the Nigerian’s citizens. This has been attributed to the fact that the required potentials to fully
implement local content policy in the industry is relatively low, owing to the fact that approximately 60%
of key activities in the oil industry, such as production, exploration, drilling, and service provision are
primarily managed by multi-national oil companies.

Nigeria is considered as one of the largest producer and exporter of crude oil in Africa, but yet the
citizenry are yet to benefit fully from the proceeds from the extraction. The introduction of local content
policy has equally failed to bring the desired and anticipated benefits from the initiatives as recorded in
other countries like Norway, United Arab Emirates, Qatar, Saudi Arabia, Oman etc. who implemented
similar policy. According to Tomsik (2006), local content idea is designed to benefit local indigenes and
promote developmental capabilities in the areas of employment opportunities, supplier patronage,
industrial and economy development. Nevertheless, despite numerous benefits that surround local
content policy initiatives, there are several challenges that hinder the free flow of the implementation in
Nigeria. These challenges include corruption, weak governance, insufficient locally financial support,
crooked local and foreign operators, lack of suitable infrastructures, underdeveloped local contractors,
non-existence of reliable R&D centers and technical expertise deficiency among others.

It is based on above findings that this research work is intended to critically and coherently examine the
gap analysis of Nigerian local content initiatives within its O&G business environments. The study will
investigate the Nigerian local content initiatives, examine the potential and real outcome of the initiative
and analyse the possible gaps created as a result major challenges facing the policy in Nigeria. This will
finally lead to provision of appropriate recommendations on how those challenges can be managed. The
work will depend on statistic combination of qualitative and quantitative research approaches in the
collection and analysis of the collected data. The choice of this combination approaches and techniques
rests on the fact that it will enables the primary investigator to collect in-depth and comprehensive
information on the research topic, hence guaranteeing reliability, as well as, validity of the collected
information.

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Results from the research shown about 46.7% of the respondent indicating that the Nigerian local
content initiatives is yet to record 70% success rate in its implementation due to multiple challenges
facing the execution. The few elements that cause the greatest percentage of the challenges are
identified by the respondents as unstable macro-environment, poor infrastructures and lack of strong
financial base. The solutions to the challenges faced by Nigerian Local Content Policy are not limited to
the government alone, but also require some commitments, contributions and supports from the
various stakeholders in the industry, such as skill developments, building of basic infrastructures, job
creations etc.

Keywords: Local content policy, Nigeria, challenges, Gap analysis.

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 Table of Contents

Abstract.......................................................................................................................................................1

Table of Contents........................................................................................................................................3

List of Figures...............................................................................................................................................5

List of Tables................................................................................................................................................6

CHAPTER ONE:............................................................................................................................................6
1.0 INTRODUCTION/BACKGROUND.......................................................................................................7
1.1 Nigerian Economy and Oil Industry.............................................................................................7
1.2 Analysis of Nigeria Marketing Environment.................................................................................9
1.2.1 SWOT Analysis.....................................................................................................................9
1.2.2 PESTEL Analysis:.................................................................................................................11
1.3 Local Content Initiatives in Oil and Gas Industry........................................................................13
1.4 Statement of the Problem.........................................................................................................14
1.5 Aim of the Study........................................................................................................................14
1.6 Objectives of the Study..............................................................................................................15
1.7 Research Questions...................................................................................................................15
1.8 Research rationale.....................................................................................................................15

CHAPTER TWO:.........................................................................................................................................16
2.0 LITERATURE REVIEW......................................................................................................................16
2.1 Introduction:..............................................................................................................................16
2.1.1 Nigeria Background Information:.......................................................................................16
2.1.2 Review of local content initiatives in Nigeria:....................................................................17
2.1.3 Identifying Potential Outcome of Local Content Initiatives:..............................................18
2.1.4 Identifying Real Outcome of Local Content Initiatives:......................................................19
2.2 Local content challenges:...........................................................................................................20
2.3 Nigeria Local Content Initiatives: Gap Overview:.......................................................................22

CHAPTER THREE:.......................................................................................................................................25
3.0 METHODOLOGY.............................................................................................................................25
3.1 Introduction:..............................................................................................................................25
3.2 Research Methodologies:..........................................................................................................25
3.2.1 Case studies.......................................................................................................................26
3.2.2 Interviews:.........................................................................................................................26
3.2.3 Sampling Strategy..............................................................................................................28
3.2.4 Structure of the Interview..................................................................................................28
3.2.5 Study Limitations...............................................................................................................28
3.2.6 Data Collection...................................................................................................................29

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 3.2.7 Data Analysis......................................................................................................................29

CHAPTER FOUR:........................................................................................................................................30
4.0 RESULTS AND FINDINGS................................................................................................................30
4.1 Assessment of Nigeria’s Local content initiatives......................................................................30
4.2 Benefits of Local content initiatives in Nigeria...........................................................................31
4.3 Performance Analysis of the Nigerian local content initiatives..................................................31
4.4 Major challenges facing Nigeria’s Local content policy..............................................................34
4.4.1 Pareto Analysis:.................................................................................................................37
4.5 SWOT Analysis of Nigerian Local Content Initiatives..................................................................38
4.6 Force Field Analysis: Enhancing implementation of Local content initiatives in Nigeria............39
4.6.1 Analysis the forces affecting implementation of local content initiatives in Nigeria:.........40
4.7 Nigerian Local Content Gap Analysis:........................................................................................42
4.7.1 Remedies to Bridge the Gap between the Current and the Ideal or Future State.....................43

CHAPTER FIVE:..........................................................................................................................................45
5.0 RECOMMENDATIONS AND CONCLUSION......................................................................................45
5.1 Recommendations.....................................................................................................................45
5.2 Conclusion.................................................................................................................................48

6.0 REFERENCE....................................................................................................................................50

Appendix 1:...............................................................................................................................................54

Appendix 2:...............................................................................................................................................60

Appendix 3:...............................................................................................................................................61

Appendix 4:...............................................................................................................................................63

Appendix 5:...............................................................................................................................................65

Appendix 6:...............................................................................................................................................66

Appendix 7:...............................................................................................................................................68

Appendix 8:...............................................................................................................................................70

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 List of Figures

Figure 1.0: Conceptual model for Local Content Development in Oil and Gas Industry............................20

Figure 2.0: Nigerian Local Content Success Rate (%).................................................................................30

Figure 3.0: Performance Analysis of the Nigerian local content initiatives...............................................32

Figure 4.0: Nigerian Local Content Challenges..........................................................................................34

Figure 5.0: PARETO ANALYSIS - Nigerian Local Content Challenges..........................................................38

Figure 6.0: SWOT Analysis of Nigerian Local Content................................................................................39

Figure 7.0: The importance (rating) of driving and restraining forces in the implementation of Local
Content Initiatives in Nigeria.....................................................................................................................40

Figure 8.0: The influence (rating) of driving and restraining forces in the implementation of Local
Content Initiatives in Nigeria.....................................................................................................................41

Figure 9.0: Nigerian Local Content Gap Analysis.......................................................................................43

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 List of Tables

Table 1.0: Performance Analysis of the Nigerian Local Content Initiatives...............................................32

Table 2.0: The Nigerian Local Content Challenges....................................................................................34

Table 3.0: Factors responsible for poor implementation of local content initiatives in Nigeria...............37

Table 4.0: Force Field Analysis: Improving Nigerian Local Content Initiatives...........................................41

Table 5.0: The Nigerian Local Content Gap Analysis.................................................................................42

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CHAPTER ONE:
1.0 INTRODUCTION/BACKGROUND
The federal republic of Nigeria is one of the most populated countries having approximately 160
million people. The key producing oil region in Nigeria is Niger Delta, which for a long time has
been bedeviled by poverty and underdevelopment, despite the huge amount of funds
generated from the exploration of oil in the region. This, in turn, confirms the ineffectiveness of
the local content policy, which has not been able to help the local citizens. The major oil
generating regions are managed by multi-national corporations living the local people unable to
fully benefit from the enormous funds generated from oil explorations in the region. Despite
that the management of oil has largely remain an affair of the multi-national companies, it is
unfortunate that even the little efforts by the multi-national to initiate development in the
region have remain futile because of the activities of the militant and continued insurgent that
have significantly impede major development in the region (Bressand, 2009 p.194). Besides,
Klueh et al (2009) argued that the current economic trends in Nigeria indicates that
approximately $2.8 billion worth business are under the control of the foreign firms while
Nigerians only manage an estimated 8.3% of the entire expenditures in the sector.
The fact that Nigeria produce huge volume of oil, yet its local people benefit less have triggered
heated debate among the citizens, stakeholders and local politicians. This has made Nigerian
government to reconsider its stand concerning the need for absolute implementation of the
local content policy so that the revenue generated from oil could benefit the local citizens more.
Based on Tomsik (2006) contention, full implementation of Nigerian Local Content Policy is
intended to generate more benefits to the local people and enhance capacity development
including employment opportunities, workforce and suppliers developments. However, despite
the myriad benefits associated with implementation of the Local Content Policy in Nigeria, it is
worth noting that several challenges have hindered effectual implementation of the Policy.

1.1 Nigerian Economy and Oil Industry

The Oil and Gas industry in Nigeria showcase a pivotal role in the development of the country’s
economy. According to Atakpu (2007) an estimated 90% of the nation’s foreign exchange
earnings are derived from the hydrocarbon industry. The sale of crude oil contributes about 65%
of the Nigerian government’s budget. Admittedly, Nigeria holds approximately 19.2 billion cubic
metres, as well as, an estimated 36 billion barrels of crude oil (Atakpu, 2007). Since 1956,
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 Nigeria has realised more than $600billion from oil sales and petroleum industry has remain the
backbone of the economy (Atakpu, 2007). Activities in the Oil and Gas industry can be
categorised into two: upstream and downstream. The upstream involve operations in the
production and exploration of oil (Nwosu et al, 2007) and the Nigerian government remain key
investors in this sector. The activities are coordinated by NNPC with tremendous shares in
pertinent upstream activities. On the other hand, the downstream entail refining products
emanating from crude oil, as well as, distributing those products to the ultimate consumer.
Within the downstream activities, there are three critical functional areas - refining, distribution,
and marketing of the petroleum products. The downstream are crucial to the government and
the country in general, because the petroleum generated from the downstream activities
provides energy to different sectors, such as manufacturing, transport industries etc. which are
the key drivers of the economy (Obasi, 2003).
The detection of oil in commercial quantities at Oloibiri in 1956 and additional discoveries in
Boma and Afam initiated Nigeria to be considered as a major oil exporting country (Federal
Ministry of Petroleum Resources, 2003). Despite that Nigeria is ranked among the top oil
producing countries in the world, it is unfortunate that they have not been able to fully benefit
from the oil proceeds. A significant portion of oil is under the control of the multi-national
companies. Furthermore, inadequate equitable distribution of the wealth generated from the oil
industry augmented with serious environment degradation resulting from several exploration
activities in Nigeria have been signalled as potential problems affecting the oil industry.
Moreover, the use of expatriates to control the oil industry has further worsened the problem,
due to inefficacious implementation of local content policy in Nigeria.
In other to liberalise Nigeria oil and gas industry and deregulate the downstream sector for the
indigenous entrepreneur to enjoy vast control of proceeds from the sector that has consistently
contributes 80% of its revenues and about 95% of its foreign exchange. This understanding led
to the establishment of the local content policy in 2000. More so, the enforcement of local
content policy and the catalyst for sustainable economic revolution in Nigeria had remained a
mere gimmick, despite conscious efforts that were displayed in the past in the course of
Regulation 26 of the 1969 Petroleum Act (Balouga, 2012).

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1.2 Analysis of Nigeria Marketing Environment

Nigeria is among the countries that heavily rely on oil. Despite the political instability, poor
governance, corruption, inadequate infrastructural facilities, and poor management that prevail
in the country, it has been classified as one of the fastest growing market not only in Africa, but
also in the world (CIA, 2010), coupled with tremendous increase in its GDP since 2007. “Nigerian
economy is expected to grow to $384 billion at the current price by 2018 at a CAGR of 6.8%
during 2013-2018” (Lucintel, 2013). Inflation and mismanagement of resources are being
prevented and government is initiating reforms and policies with the aim of enhancing the
country’s service sector.
While the country presents an attractive investment environment in various business sectors,
the inadequacy of infrastructural facilities and utilities are major hindrances to the
entrepreneurs when it comes to setting up their businesses. In addition, the availability of many
ethnic groups and varied languages makes the country a highly complex one when it comes to
the analysis of its marketing environment. In that respect, the management and business gurus
have devised strategies and tools to be used in the identification and analysis of the factors that
are critical in the success of business, as well as, those that adversely affects the business
environment. For the purpose of discovering external and internal factors of undertaking
business in Nigeria, many tools like SWOT and PESTLE analyses are widely utilized. These tools
assess unseen forces and expose the vulnerability of successes and failures against those
elements.

1.2.1 SWOT Analysis

To critically analyse the marketing environment, it is imperative to examine the strengths,

weaknesses, opportunities, and the threats associated with Nigerian marketing environment.

 Strengths:
There is plethora of factors that makes businesses highly successful in Nigeria (NNPC 2005).
For instance, there’s great potential for stability and growth, a factor that makes it a
prospective marketing environment for both local and international. Nigeria has attractive
business environment that attracts many investors into the country. Besides, its’ goodwill
augmented with its high expectations for future growth offer a great hope to the future
investors. Furthermore, the country has solid monetary system that’s responsible for

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 effectual management of the supply of money in the economy, hence preventing the
possibility of occurrence of inflation. There’s a huge hydrocarbon deposit and it’s considered
as the largest oil producing nation in Africa and eleventh crude oil producer in the world.
The petroleum sector plays a crucial role in the development of Nigeria’s economy, with
about 36 billion barrels reserves and providing approximately 80% of its foreign exchange
(Corporate Nigeria, Online). Telecommunication, aviation and mineral extraction are the
major strengths of the country, providing avenue for investment to prospective
entrepreneurs. The population of Nigeria is approximately 160 million and about 40% of the
population are young and energetic citizens, capable of providing labour for existing and
new businesses being established in the country.

 Weaknesses:
There are pertinent problems that threaten and hinder the competitiveness and
productivity in Nigeria. These include financial resources and power supply. The aforesaid
problems have significantly affected various businesses in the country, leading to relocation
to foreign countries, or even closing down of businesses. While Nigeria’s entrepreneurs
have inadequate capital to start and keep the business running, the government is not in
any way ready to offer financial assistance to entrepreneurs in the form of loans.

 Opportunities:
Despite the weaknesses above, there’re myriad opportunities in Nigeria’s marketing
environment. For instance, a high population density implies that demand for goods and
services will be relatively high. In addition, with the on-going political, economic and social
transformation, it is crystal clear that high opportunities for new businesses will emerge in
agriculture, manufacturing, banking, and financial sectors among others, which are
imperative when it comes to promoting business (Nigeria High Commission, Online) and
creating employment opportunities in the country.

 Threats
There are escalating rate of frauds, crimes, as well as, scams in the country with reported
weak and dysfunctional resources. In addition, Nigeria has witnessed increased number of
corruption, political-motivated deregulation, fuel scarcity, insurgents and violence among
other negative vices that have considerably affected the reputation of Nigeria as a

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 prospective business environment. The dominance of the Nigerian marketing environment
by foreign companies is another threat, thereby making competition tougher for small-scale
industries in Nigeria. Considering unavailability of basic infrastructures and weak industrial
base, the foreign industries may take over the local markets, and again interfering with the
competitiveness of the local industries.

1.2.2 PESTEL Analysis:

In other to analyse global business environment and provides a structure for investigating and
analysing the external marketing environment, PESTEL analysis can be employed. This tool
identifies the political, economic, social technological, ecological and the legal aspects of a
marketing environment.

 Political environment:
The stability of a given marketing environment has tremendous impacts on business
downfall, or growth. Generally, a country with a stable political environment have high
potential of recording increased inflow of foreign capital, as well as, promoting
accumulation of capital locally. Nigeria has witnessed a relatively stable political
environment since 1999, a factor that has increased the inflow of foreign direct investment
(FDI) in the country. More so, the trade regulations and public procurement policies in
Nigeria facilitates competitiveness. However, the escalating criminal insurgents threaten the
stability of the country and thus discourage foreign direct investment. Moreover, the
perception of the escalating levels of corruption in public procurement and governance
continue to exist, making the cost of conducting business in Nigeria extremely high.

 Economic environment:
This involves economic policies (fiscal and monetary) that are responsible for controlling, as
well as, regulating economic activities in the country. The policies always pose a
considerable influence on the prevailing business in the country. Nigeria is controlled by
capitalistic economic system in which the forces of demand and supply are responsible for
governing the market. The Nigeria economic environment has relatively fewer restrictions
and adopted trade liberalization under UNCTAD protocols. However, it is important to note
that anti-business policies, unbridled importation, smuggling, and dumping of cheap and
low-quality goods are posing a significant threat to the local industries.
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  Social environment:
Cultural factors define the norms, values, customs, goals, ethics, and other acceptable
behaviour pattern of individuals in a particular society. The behaviour coupled with attitude
of individuals in rural and urban areas also encompasses the cultural environment. Most
business organizations prefer trading with civilized and educated individuals as opposed to
trading with individuals from the rural areas. Moreover, for the business to flourish, it has to
respect the religious values of the community in which it operates. The size, as well as, the
behaviour of the population in which the business is located also affects the social
environment of the business. Nigeria has an active population or more than a 100 million
individuals hence making it a large internal market.

 Technological environment:
This is a factor that critically determines the destiny of a business. Computerised operations
and modern business organizations have been successful in minimising defects in products,
analysing customers, and speeding service delivery to the customers. Contemporary
organizations have acknowledged that research and development is pertinent in the growth
and stability of the organization. Most organizations have become highly pro-active in the
economy. The Nigerian government have realised the importance of technology in the
environment hence are currently providing an enabling environment for the adoption of
technology.

 Ecological environment
Nigeria is a party to several world treaties on green invention aimed at safeguarding
environment from unwarranted pollution. The need for preserving natural resources, as well
as, preventing unfriendly climate change has forced a significant number of states to enact
laws placing more responsibility on the manufacturing sectors. Such policies ascertain how
such companies ought to handle effluents and waste products. In addition, pollution
regulation has become highly stringent hence companies are needed to conduct
environmental effect assessment before they are actually granted licences to conduct their
activities in Nigeria.

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  Legal environment
Incessant corruption and undue government interference is ravaging Nigeria legal institution
portraying a drawbacks to country’s legal environment. Recently, different conflict
resolution organs have been empowered to handle trade related frauds. The objective of
this plan is to facilitate commercial dispute resolution apart from cutting-down on trade-
dispute. Arbitration centres have been established to spearhead arbitration of commercial
conflicts and bring together the warring parties. Business entities prefer mediation and
arbitration to judicial processes that are time consuming, corrupt and costly. In addition, the
government through the Nigerian Investment Promotion Commission has expedited
business registration through prompt licensing of potential ventures. This will foresee boom
of activities in the commercial sector and encourage entrepreneurial culture.

1.3 Local Content Initiatives in Oil and Gas Industry

Local content is defined as the development of technology transfer, local skills, and use of both
local manufacturing and manpower (Oil and Gas IQ, online). It can also be viewed as a capacity
building of highly competitive supplier base, as well as, a workforce that is highly skilled. The
fundamental aim of local content policies is to expand the benefits of extraction activities in the
country. The local content policies provide stakeholders with full access to economic
opportunities, irrespective of whether they are associated with participation in the supply chain
management, or employment. The local content policies may be bolstered through various
mechanisms, such as giving greater access to finance to the local businesses, preference
schemes for local businesses, developing human capital among others.
Arizona-Ogwu (2008) argues that in third world countries, local enterprises form a potent force
that drives development, as well as, economic activities in the country. Despite technology gaps
amid developing and developed countries that keep widening, studies shown that spread of the
local technologies in the third world countries are currently being fast-tracked. Technological
advancement has helped in the reduction of poverty level in developing countries from 29% in
1990 to about 18% by the year 2004 (Arizona-Ogwu, 2008).
The rentier government’s economies have progressively looked beyond revenues that they
accumulate from economic rent. The principal aim of accumulating revenues is to maximize the
creation of national value through exploration of hydrocarbon, which in turn, creates

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 employment, lead to technology transfer, knowledge acquisition, and value addition. However,
it is worth noting that despite government efforts to provide better trading environment, there
are forces hindering such efforts, and they include poor governance, commercial interest,
corruption, Health, Safety and Environment (HSE) violations, and increased militant insurgence
among others.
Indigenous sourcing and procurement of local services and goods is critical, because it constitute
multiplier for regional economic capability by playing a part in skills development, employment
creation, as well as, local enterprise and supplier development.
In Africa, many countries are currently considering full implementation of the local content
policy to ensure that oil industry provide maximum benefits to their citizens. Some of the
countries that recently established local content bills include Uganda and Ghana. Norway has
played a critical role in assisting many developing countries through indirect development of the
local content policy, through a program named Oil-for-Development (OfD), helping in assisting
developing countries to realize maximum benefits of the oil, and thereby promotes the welfare
of the citizen, encourages economic growth, in a manner that is sustainable environmentally
(NORAD, 2013).

1.4 Statement of the Problem

Stated as a question, this study seeks to explore gap analysis of local content initiatives within
the oil and gas industries: a case study of Nigeria business environments. While efforts have
been made by the government of Nigeria to fully implement the local content policy, it is
unfortunate that the policy has not yet been successfully implemented because of several
challenges; these are the gaps that this study seeks to fully ascertain to find out why it has been
extremely impossible for the government to attain its target of 70% local content compliance.

1.5 Aim of the Study

The principal aim of this project is to:

a. Conduct a pragmatic assessment of local content initiatives in Nigeria as a tool that support
business improvement.
b. Identify gaps between current and ideal states in the implementation of Local Content
initiatives in Nigeria and provide explicit and thorough explanation why the gap exists.
c. Document recommendations that can be used to mitigate and bridge the gaps.
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1.6 Objectives of the Study

The primary objective of this study is to:

a. Conduct performance assessment of local content initiatives within the Nigeria O&G
business environment.
b. Examine major challenges facing Nigerian local content policy.
c. Provide recommendation on how the key challenges can be managed.

1.7 Research Questions

To answer both the broader and specific objectives questions, this thesis strives to provide
answers to the following research questions.
a. What is gap analysis of local content initiatives within the oil and gas industries?
b. What are the major challenges facing Nigerian Local content policy?
c. What are the potential and real income initiatives of the local content policy?
d. What are the appropriate recommendations for fixing local content policy challenges in
Nigeria?

1.8 Research rationale

The suitability of this research work is motivated from the discovery of deficiencies created by
local content initiatives in Nigerian oil and gas industry and the passion to finding solutions to
such challenges using different business models. This study is important to different cohorts of
the population. To the academia, the study offers a synthesized material for providing a reliable
recipe, particularly to student pursuing a course in this study area, and focusing on Nigeria as
their case study. In addition, this study would be critical to the government of Nigeria and the
policy makers. The recommendations developed in this paper will provide a potent framework
for initiating policies that would, in turn, help the government to breakdown the challenges
currently facing local content initiatives in Nigeria.

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CHAPTER TWO:

2.0 LITERATURE REVIEW

2.1 Introduction:
Generally, lots of studies have examined the Nigerian local content policy, but very few have
explored the gaps inherent in the initiatives within the petroleum industries in Nigeria. This
study therefore, narrows the gap by investigating the research topic and review several
literatures with an attempt to provide reliable and valid answers to the research questions.

2.1.1 Nigeria Background Information:

Nigeria is among the most populous countries in Africa and endowed with about 19.2 billion
cubic meters of natural gas and approximately 36 billion barrels of oil reserves (Ugwishi, 2010).
Its political history indicated bad governance, incessant political instability, macro-economic
mismanagement, and inadequate infrastructures etc. Apart from hydrocarbon, Nigeria also has
deposits of tin, kaolin, gemstones, gold, iron, and bitumen which can earn the country foreign
exchange (Adebola et al., 2006). Despite the long-standing of Nigeria oil production, and as
economic hub of Africa, it’s still considered among the poorest countries in the world.
Inequitable distribution of wealth from oil and environmental degradation from exploration
activities have been signaled as significant factors affecting the country. Similar to Nigeria, many
oil rich countries has failed to translate their oil to higher living standards, economic
sustainability among other hindrances (Warner, 2007).
NNPC (2008) described Local content as a significant multiple value created or added in the
economy of Nigeria by utilizing the Nigerians material, as well as, human resources for the
purpose of providing goods and services to the oil industry. Obuya (2005) defines it in two ways.
Firstly, is building domestic capacity appropriate for product and service delivery equivalent in
that given industry, as well as, a privilege to develop a sustainable culture of competencies far-
above the expectations of customers through key local management and personnel. His second
definition is a deliberate actions and orientations. Warner (2007) views the local content from a
perspective of “community content”. He opined two varied policies that when utilized could
help in attaining higher local content where the local industries are given preferences to the
multi-national industries. The local content policy based on Warner (2007) can be implemented
through agreements amid multinational corporations and host countries such as in tender
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 appraisals, lower pre-qualifications, and lower tariffs on imported semi-finished goods that are
unavailable in the country, as well as, negotiated conditions. In addition, while preferences can
be given to local subcontractors in terms of price, availability, as well as, being able to meet both
financial and technical requirements (Ugwushi, 2010), the local suppliers can be supported with
provision of financial aids, such as short-term loans, credit guarantees, and venture capital;
investing heavily in physical infrastructures like utilities and building, as well as, contractors,
payments of subsidies with the aim of overcoming higher cost incurred; and enhancing reliability
and quality of the indigenous firms. The aforementioned, strategies when utilized can help the
government of Nigeria to expand the local content capacity.

2.1.2 Review of local content initiatives in Nigeria:

The Nigeria O&G Industry is continuously improving and this has been attributed to the initiative
of the Nigerian Government geared towards expanding the local content policy, which indirectly
ensures that local people and indigenous companies enjoys greater participation in the O&G
assets in the country. Growing participation of indigenous companies in the O&G industry has
been influenced by number of factors, including enactment of various laws, as well as,
regulations administered by national, state and the local governments, which is a reflection of
the interests of the state and country.
Through the Nigerian Constitutional and Petroleum Act (PA), government agencies have been
able to monitor, regulate and ensure that exploration and production of O&G are maintained
within a given standard. These agencies include the Department of Petroleum Resources (DPR),
the Ministry of Petroleum Resources (MPR), and the Nigerian National Petroleum Corporation
(NNPC).
In other to enhance indigenous participation in the oil industry, the Nigerian government
established the O&G Industry Content Development Act 2010. This act have contributed
significantly towards the development of indigenous capabilities and participation within the
industry, an initiative that is set to achieve at least 70% target in the use of local labor,
resources, and materials. The Nigerian O&G Development law defines local content policy as the
“quantum of composite value that is either added, or created in the Republic of Nigeria by
utilizing services, as well as, resources in the Nigeria’s petroleum industry, something that
indirectly triggers development of the local capability without necessarily compromising health,

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 quality, safety, and above all, environmental standards”. The local content policy has been
framed in the context of growth and development of Nigeria’s entrepreneurship and
indigenization of the country’s assets to completely realize the strategic development goals of
the country. The Nigeria’s O&G industry has the potential of generating approximately 3,000
jobs if local content policy is fully implemented (Obuaya, 2005).
The genesis of the local content policy commenced in 1971 through the introduction of Nigerian
Oil Corporation (NOC). The main reason behind NOC establishment is to promote Nigeria’s
indigenization policy in the Oil sector. The NOC later transformed to Nigerian National
Petroleum Corporation (NNPC) in 1977. Eventually, NNPC did away with the actual local content
initiative through acquisition of interest within the operations of IOCs. Despite that efforts had
been made initially using 1969 petroleum Act and the regulation 26, implementation of local
content policy for spearheading equitable sustainable development in Nigeria was merely a
paper work.
In spite of government impressive objectives that triggered the implementation of local content
policy, such as the expansion of downstream and upstream sectors, increasing the participation
and employment of local people in the industry, improving local firms capabilities and the
diversification of investment sources in the sector in such a way that funds would come from
local sources, it is unfortunate that the expected goals of the initiative have remained
unachieved.

2.1.3 Identifying Potential Outcome of Local Content Initiatives:

Despite that Nigerian local content initiatives have not achieved its full potentials, it is worth
noting that there are prospective outcome of the local content that will basically be realized in
Nigeria. These include creation of job opportunities, reducing the influence of multi-national
corporations, supporting development of indigenous company and encouraging the
implementation of both economic, as well as, social programs bearing in mind the expectations
of the local community. The availability of social and economic programs will enable the country
to enhance its health, energy, industrial safety, as well as, improvement of standards of
education. This will support local entrepreneurship hence further stimulating economic growth
in the country. Through local content initiatives, the country is positioned to provide real
support to small and medium sized businesses operating in the country.

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 Local content initiatives contribute to the growth and development of local economy base, it
rejuvenates infant industries and many industrialised economies that have instituted local
content policy framework in their countries have significantly stimulated economic growth
(Kudzai, 2008). More so, the policy do compels infant industries to develop both domestic
production and managerial skills. However, Takacs (1994) argued that the local content policy
induce the multi-nationals like IOC to make use of the domestically produced inputs. This, in
turn, could increase price, demand, as well as, domestic firm’s output. Veloso (2001) is of the
opinion that if technology gap components that are being pumped into domestic production is
comparatively wide; the outcome of the local content policy is likely to be inefficacious. Veloso
(2001) further argue that full implementation of Local content can create low productivity, as
well as, inefficiency of firms in the host country. The situation may be worsened if domestic
industries are unqualified and uncompetitive with unskilled supply of labour. This is a typical
case of Nigeria; the Nigerian government will need to heavily invest in technology, human
capital, as well as, expansion of productive ability of indigenous firms. The implementation of
local content initiatives in a duopolistic market can however lead to considerable reduction in
the global output (Davidson et al, 1985).

2.1.4 Identifying Real Outcome of Local Content Initiatives:

To begin with, it is important to note that petroleum producing countries have always triggered
employment and investment opportunities in the country. However, it is worth noting that the
real valuable contribution to long-term growth emanates from the government’s ability to
stimulate more benefits to the local economy through constructive association with other
sectors of the economy. The intervention by the government in the petroleum sector to
promote broad-based economic growth and development is not a new phenomenon. The
degree of intervention has existed for quite a longer time, ranging from import restrictions, as
well as, direct state intervention to a more complex policies geared towards creating forward
and backward links. Even though the aforementioned policies have the capability of triggering
broad-based economic growth and development, it is unfortunate that their application in
countries rich in natural resources such as Nigeria have always achieved mixed results.
Real outcomes associated with introduction of the local content policy include stimulation of a
broad-based economic growth and development, leading to national success, poverty

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 alleviation, social promotion and sustainable economic growth. While broad-based economic
development has been considered as the real outcome of the local content initiatives, other
scholars, such as Veloso (2001)) argues that the implementation of local content initiatives has
always attained mixed results. Several reasons have been put forward to proof the assertion of
mixed results. For instance, the utilization of technological capacity of the oil sector together
with specialized inputs always limits the ability to develop link to the local economy. According
to Takacs (1994), limited economies barely supply the required services. Moreover, growing oil
sector augmented with highly determined local content targets are likely to worsen the supply
of bottlenecks that arouse from the increased cumulative final demand. This, in turn, would
indirectly have an impact on output trends and employment in other economic sectors.

2.2 Local content challenges:

Before examining the key challenges of the local content policy in the context of Nigeria, it is
prudent to examine the general challenges that are associated with the local content policy.
Nigerian local content development model has come in to include every significant aspect that
resulted to the advancement of local content development model within the O&G industry.
Those pertinent factors as represented in fig. 1.0 which include; local infrastructure, local
policies, local capabilities as well as local environment influenced the local development
variables.

Local Content Model

Figure 1.0: Conceptual model for Local Content Development in Oil and Gas Industry. Source: Abolfazi, and Behrouz (2012).

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 a. Local capability:
Admittedly, the presence of experienced and skilled workforce is critical in the development
of a powerful indigenous industry. The government of any country has the primary
responsibility of ensuring that its citizens acquire quality and higher education. Furthermore,
development of a highly competitive services and products is a pre-requisite in ensuring that
the local content policy remains fully operational. This may be achieved by engaging in
extensive research and development programs for the industries involved in the local supply
of oil.

b. Industrial base:
It is important to note that developing local content policy in the oil sector ought to be
based on the local domestic capabilities existing within the fabrication, manufacturing, and
services. In that regard, it is worth noting that a local content policy ought to contain
measures that facilitate preferential treatment of the domestic companies. Such
preferential treatment when granted on a temporary basis would ensure sustainable
industrial growth.

c. Local Infrastructural:
Availability of infrastructural facilities in the country is critical in facilitating the local content
policy. Therefore, it is worth noting that unavailability or lowly developed infrastructures in
the country, such as railways, roads, telecommunication services, water supply, and air
transport hinders effective functioning of local content policy. The government should,
therefore, ensure that the country’s infrastructural facilities are highly developed to
encourage local content.

d. Local Policies:
Local policies are represented in most sectors of the economy and consist of the public and
industrial policies that are formulated in order to achieve sustainable development. The
input provided by the public to the production processes entail a number of coordinated
policies thus they are more extensive than what they are thought to be. Public policies tend
to produce a macroeconomic environment that tends to be more forecasted and provides
legal systems and institutions that can be relied upon. The result is increased trust in the
financial systems thus offering incentives that can be used to improve business environment

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 to attract more investment. In turn, this enhances the social structure of the country as it
will offer individuals with room for participation and involvement.
Public policies can carry out various tasks such as formulating the company’s registries aid to
enforce laws, contracts as well as companies strategies. Therefore, there is need for the
government to increase the skills and knowledge base of its people so as to provide
domestic companies with the right conditions to develop. Industrial policies on the other
hand, make an important part of government policies. It is so because its main emphasis is
on efforts that could help the domestic companies to competitively and effectively compete
with their foreign counterparts in the oil production process.

e. Local Environment:
The local environment forms the basis upon which local policies, capabilities, infrastructure
and interaction with other factors can be formulated. The macroeconomic environment is
one of the most important variables as it dictates the investment decisions. It entails issues
such as the exchange and interest rates of the host country that are to be considered in
order to set prices. Some governmental policies have been found to influence the
environment towards business development. That is because encouraged competition tends
to create a competitive industry.
The ideology of local environment can be applied so that it focuses on developing and
promoting local content within the oil industry, so as to assist private investors to develop
export market and create a competitive environment. The industry should create an
environment that will ensure participation of both local and international firms. Studies
have shown that some of the local content requirement stipulated in other sectors tends to
create an environment that discourages competition.

2.3 Nigeria Local Content Initiatives: Gap Overview:

Research has shown that O&G production in Nigeria rose rampantly and steadily that it became
influential within OPEC. The discovery of more oil deposits within the country has increased
production to about 2.3 barrels a day and further, increased the existing reserves to about 37
billion barrels. Despite this wealth, the country is still rated among the poorest globally, and
studies further illustrated that it lags behind in terms of technology, basic amenities and
infrastructures, due to the fact that the wealth that is obtained from oil proceeds has not been

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 geared towards improving the well-being of the citizens. Previous studies indicated that about
90 percent of the industries’ expenditure do not account for the domestic economy as it is
considered as capital flight. That explains why in spite of increase number of oil companies, their
earnings still account for less than five percent of the aggregate budget of the oil companies
(Balouga, 2012).
Studies have equally shown that Nigerian banks cannot make significant impacts on the local
development as they lack proper financial base. Most Nigerian banks that are considered big can
only make little financial contribution. In most cases, they take the risk of funding companies as
the businesses themselves might not be promising since they are usually not structured
properly. Sometimes it may be difficult to track the person who has been funded since some of
those who apply to be funded may not be those who are given the contract. More so, there is
incapability to exert pull on funds because of lack of appropriate collateral and encouraging
corporate image (Oladele, 2001). Most of the companies are usually small and cannot be able to
qualify to be given loans. Furthermore very few of them can complete projects without looking
for technical/expertise or financial aid from foreign partners. Other challenges that the banks
faced that could discourage investment include lack of sustainable industrial base as a result of
lack of power, water and other basic infrastructure to support it.
Furthermore, the country’s capital market remains underdeveloped and the SMEs have also not
thrived, which according to research have been found to be the backbone of most economics.
Results have shown that above 70% of the contracts given to investors are executed out of the
country, therefore causing the failure of the country in achieving the objective of content
development. In addition, there is no connection between policy and strategy formulation and
implementation. Many governmental initiatives fail due to lack of this connection and usually
caused by lack of political willingness to instigate change coupled with absence of support from
major stake holders. The result of this is that the future of Nigerians will be left in the care of
foreign investors who may be interested in improving the returns in their home countries.
Moreover, starting up medium businesses is too involving to undertake owing to unnecessary
and rigorous processes which discourages potential entrepreneurs. Some local content
requirements overwhelm the capacity of industries thereby impacting negatively on social and
economic progress of the country. Furthermore, there is lack of mutual understanding between

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 local stakeholders and foreign investors leading to partnering deficiency between local
contractors and technically inclined oversee companies (Aneke, 2002 & Heum et al., 2003).
Apart from above, Omenikolo and Amadi (2010) assumed that the bottlenecks faced in
managing local content in the extractive industry include; Deficiency of ideas by government
agencies particularly to influence local content besides poor development of transportion,
communication and energy services that impedes extraction. Based on Nwapa (2007), managing
the local content in extraction industry is hindered by; Failure of global perspectives and
strategies to conform to the entire local content process which is compounded by shortage of
required production experience. Additionally, local residents lack the much needed skills to
match the new productions requirements in the companies involved.

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CHAPTER THREE:

3.0 METHODOLOGY

3.1 Introduction:
Effectual methodologies are critical research tools through which the primary investigator
gathers relevant information to be used in the compilation of research study. Appropriate
research methodology is vital if the researcher intends to collect quality information. This
section examines various research methodologies, as well as, the general research instruments
used for purposes of this study. The objective of this study adopts direct telephone interview,
application of survey questionnaire, combining qualitative and quantitative approaches in
delivering the project work. Data will be obtained from the following sources;

a. Review of various past and present literatures that have examined the study research
questions.
b. Conduct structured and open-ended questionnaire interviews with local content experts to
obtain primary information for the research.
c. Conduct semi-structured telephone interview with company’s executives with in-depth
knowledge about the Nigerian Local Content policy.

3.2 Research Methodologies:

The concept of combining qualitative and quantitative approaches has inspired lots of attention
and deliberation (Greene & Caracelli, 1997a; Sandelowski, 1995; Swanson, 1992; Tashakkori &
Teddlie, 1998). Many writers progressively have applied combination approaches to expand the
knowledge and enhance the scope of their research project. Often, qualitative research
methodologies are concerned with, and providing answers to research questions such as how,
why and in what way a given phenomenon happened. It entails resolute sampling to boost
knowledge of information-driven case (Patton, 1990). In other words, quantitative approach
provide answers numerically to such questions like how many, how often and how significant
etc.
The choice of qualitative and quantitative research methodologies in this project rests on the
fact that the combined approaches enable the primary investigator to acquire rich and in-depth
information concerning the primary research questions. In addition, through well-structured and

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 open-ended interviews, the researcher would be able to understand the perception and feelings
of the study selected respondents. Among key elements describing what is generally
acknowledged as qualitative from quantitative analysis is the brand of sampling utilized. In this
study, the primary investigator relied heavily on direct interviews, structured survey
questionnaires and case studies in an attempt to find valid and reliable information concerning
the study research questions.

3.2.1 Case studies

A case study is defined as an exhaustive study of a given situation as opposed to sweeping

statistical survey. Case studies are always used to bridge down a relatively broader filed of
research to a one easily researchable topic. The data used in this research was partially
obtained from numerous case-studies conducted about Nigerian Oil and Gas industry. The
choice of a case study was guided by the exploratory nature of the study. According to Dooley
(2002), “a case study research is an approach which satisfactorily improves the understanding of
complex study issues”. In addition, Dooley argue that case study is capable of supporting what
was known previously, while stressing an in-depth contextual analysis of the scarce conditions
and their correlations (Dooley, 2002).
Yin (1993) identified two varied case study designs - single and multiple, and could be used for
explanatory, descriptive, and exploratory purposes. Single case studies majorly examine the
examination of a solitary individual or group. On the other hand, multiple case studies utilize
replication process involving deliberate choice of case studies, which are likely to exhibit similar
results. The choice of two case study design was for purposes of increasing validity, as well as,
reliability of the study. Besides case studies, the primary investigator also made use of
secondary content analysis which entailed review of the past and present literatures that are
relevant to the study topic. This entailed the review of journal articles, working papers, and
periodicals among others. The choice of secondary content analysis was guided by the fact that
it is a less expensive method for collecting data. Just like secondary content analysis, case
studies were used simply for reviewing relevant information related to the study topic.

3.2.2 Interviews:

The researcher explores combination of qualitative and quantitative interviews. Whereas

researchers usually applied semi-structured and open-ended interviews for qualitative studies
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 especially when investigating a topic, the structured interviews are applied to quantitative
analysis especially when seeking for definite information. Interviews refer to a one-on-one
conversation between two or more people with the main aim of acquiring relevant information
to the study research questions (Bryman 2011). It’s very popular and often used methods of
collecting information from the selected people. There are different ways of interviewing people
ranging from informal “chats” to a highly structured and formal interview, which are always
taped and transcribed. Admittedly, different techniques of interviews often educe different
types of information. Basically, conducting an interview is always an interpersonal process
hence the need for the primary investigator to understand possible assumptions and behavior in
the context of interviewing. Before conducting an interview, it is prudent that the primary
investigator informs the interviewees on why the study is being conducted, as well as, assures
them that the information they provide would be kept highly confidential. Doing this would
instill confidence in the interviewees making them to provide reliable and valid information.

The primary role of this study was to explore gap analysis of Local Content Initiatives within the
oil and Gas Industries in Nigeria. Well-structured and open-ended interviews always critically
and coherently examine the study topic from an interviewee’s viewpoint, in addition, to
recognizing the reasons behind their varied perceptions. Interviews enable the researcher to
obtain rich and detailed information about the topic under study. Moreover, the principle of
flexibility and negotiability linked to the interview swayed the researcher to choose combined
qualitative and quantitative interviews as a method of gathering information for this thesis.
 In this research direct telephone interview and self-administered questionnaire interview
methods were chosen with well-structured and open-ended questions. The choice of these
interviews was to take care of all selected participants whether near or far-away to take part
in the interviews. Before conducting the interview, the entire study participants were given
reasons why they had been chosen for the interview, as well as, why the interview was
being conducted. The questionnaire interview was developed and delivered to participants
through a survey poll creator - “eSurveyCreator” to ease collection and analysis of
responses. Before conducting the interview, the selected participants were pre-informed, as
well as, rest assured that the information they provide would be kept highly confidential.

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 The main reason for assuring the participants that their information would be kept
confidential was to instil confidence in them and to make them provide sincere response.

3.2.3 Sampling Strategy

The study aim is to conduct gap analysis of Nigerian Local Content Initiatives within the O&G
Industries. It’s necessary to use convenient sampling to ensure available and accessible. To
guarantee that interview is highly effectual, the researcher informed the participants prior to
interview for purposes of familiarizing with the interviewees. The researcher identified local
content experts from various sectors and requested to participate in the research. The reason
for selection for questionnaire-interview and research aim was explained to participants. The
following criteria were used to identify the participants (1) Accessibility (2) Aged 30 and above
(3) Familiarity with local content initiatives. While 31 participants were selected to participate in
the questionnaire-survey and about 16 participants responded and complete the survey, 10
additional participants were interviewed over the telephone, resulting to 26 participants in total
who participated in the interviews. The questions examined during the interview are
documented in Appendices 1 and 2.

3.2.4 Structure of the Interview

This study adopted a well-structured and semi-structured approach with open-ended questions.
The interviews embrace the combinations of a structured and semi-structured approach. The
choice for combined method was guided by the opinion of collecting rich and detailed
information that sufficiently addresses the research objectives.

3.2.5 Study Limitations

There are some limitations encountered while conducting this study. Due to combination of
work and study, limited time was available to conduct a thorough and extensive research. The
authors acknowledged the constraints in this research work, like lesser sample size and the high
number of unresponsive participants which could increase the chances of errors, in addition to
inability to get sufficient number of local content subject matter experts to participate willingly
in the interviews is serious challenge faced in the course of this study, especially when the
researcher stays thousands of kilometers away from potential interview participants.

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 Considering the study’s limitations, one could consider risks to internal and external validity of
the research, which for instance could be sample selection process, number of respondents etc.
The sample questions are not from a random selection method and the results from the study
could not be considered as universal response from larger population in the oil industry.
However, conducting telephone interviews with few of the local content experts are a bit
straightforward and manageable, but administering the self-questionnaires to participants is a
lot more difficult and challenging. Few of the questions on the questionnaire are skipped by the
respondents either to lack of understanding of the questions or due to impatient.

3.2.6 Data Collection

While the questionnaires were delivered between 25th July and 29th August, 2014, the
telephone interview was conducted between 15th and 20th September, 2014. Feedbacks were
collected and collated in a survey pool creator as they were received. The responses will be
organized into opinions, numerical and graphical values for data analysis.

3.2.7 Data Analysis

Questionnaire interviews, telephone interviews and case studies were the main sources of data
for this research work. While the interviews delivered broad and descriptive data, the analysis
entails summary of data according to study questions, and exploring the importance and
influence of driving forces behind major challenges facing successful implementation of Nigerian
local content initiatives. Firstly, the answers from the questionnaire’s 28 questions are collated;
the patterns and trends will be evaluated based on participants’ responses. The percentages of
responses from the feedbacks will be evaluated against each question. Secondly, part of the
questionnaires will be examined to determine influencing and limiting factors that sway the
implementation of the local content initiatives using Force Field Analysis. Thirdly, due to an
open-ended style of the questionnaires, responses from participants will be collated and
grouped together with opinions and similarities being cross-referenced. Finally, a telephone
interview conducted with additional 10 participants will be evaluated to determine the gaps that
exist in the implementation of the local content initiatives in Nigeria.

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CHAPTER FOUR:

4.0 RESULTS AND FINDINGS

Considering the aims and objectives of the study and research questions, the findings from
questionnaire interviews integrated with the findings from case studies and secondary content
analysis addresses:
 The assessment of Nigerian local content initiatives.
 The major challenges facing Nigeria’s Local content policy.
 The forces responsible for the challenges facing Nigeria’s Local content policy.
 Evaluating the gaps that exist in the implementation of the Nigerian Local Content
initiatives.
 Recommendation on how the key challenges and gaps can be managed.

4.1 Assessment of Nigeria’s Local content initiatives

Feedback from respondents on the success rate of Nigeria local content implementation above
70% is characterized with mixed figures. Survey report showed high margin of about 46.7% of
respondents disagreeing to 70% success rate and just about 13.3% agreed while 40% of the
respondents are not sure if the success rate is up to 70% or less (Fig. 2.0).

Figure 2.0: Nigerian Local Content Success Rate (%)

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 According to respondents, the anticipated Nigerian local content initiatives is described as a
state whereby we have; industries in Nigeria being manned by at least 90% nationals, stable
local industries participation to drive industrial and technological improvement, local origins for
goods and services, stable macro-environment, provision of basic facilities and infrastructures,
adequate financial supports, local manpower development etc.
However, some respondents considered overall success of Nigerian local content initiatives to
have achieved only about 20-40% of its benefits, while few others described the ongoing
situation as still evolving, developing and as a step towards the right direction with potential to
improve over time. However, there are factors considered by majority of the respondents being
responsible for the current state of poor implementation of local content initiatives in Nigeria
which include; political instability, corruption, poor infrastructure and facilities, lack of financial
support from government and financial institutions, low human capital development and talent-
hunt, inadequate industrial base, weak and mismanagement of policy etc.

4.2 Benefits of Local content initiatives in Nigeria

The Nigerian populace and its national economy would benefit immensely from the local
content initiatives if the Acts is implemented to the letter. Without any prejudice, the
respondents identified the following as benefits of implementing local content acts in Nigeria.

 Development of local suppliers and utilization of indigenous materials.

 Guarantees indigenous industry’s active participation in the oil and gas value chains.
 Job creation and development of local capacities and competencies.
 Promotes technology transfer, industry boom and rapid industrialization.
 Enhances steady, measurable and sustainable economy growth, and on a long term reduces
OPEX and CAPEX costs.
 Supports and causes rapid transformation in other sectors of the national economy.

4.3 Performance Analysis of the Nigerian local content initiatives

This study evaluated the state of the Nigerian local content initiatives and assesses the progress
and the success since implementation regarding its dividends and benefits. The following are
identified as some of the benefits of implementing local content acts in Nigeria;

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  Job opportunities and regular employment of locals
 Sustainable training of indigenous workforce
 Development of local industries
 Enhances patronage of local goods and materials.
 Assess to sustainable financial support
 Creates sustainable business environment
 Enhances national development and good infrastructures

Each of the above listed benefits of local content policy was rated by the respondents based on
performance and the overall assessment of what the Nigerian local content initiatives has
achieved since its implementation (figure 3.0 & table 1.0).

Figure 3.0: Performance Analysis of the Nigerian local content initiatives

Table 1.0: Performance Analysis of the Nigerian Local Content Initiatives

Good Above Average Below Average Poor Very Poor

Local Content Initiative
Benefits Number of % of Number of % of Number of % of Number of % of Number of % of
Respondents Respondents Respondents Respondents Respondents Respondents Respondents Respondents Respondents Respondents
Employment of locals 1 6.7% 6 40% 3 20% 4 26.7% 1 6.7%

Training of locals 1 6.7% 2 13.3% 6 40% 4 26.7% 2 13.3%

Developing local industries 0 0% 3 20% 9 60% 1 6.7% 2 13.3%

Patronizing local goods 0 0% 3 20% 5 33.3% 5 33.3% 2 13.3%

Strong financial base 0 0% 2 13.3% 6 40% 2 13.3% 5 33.3%

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 Stable business
1 6.7% 3 20% 3 20% 6 40% 2 13.3%
environment
Good infrastructures 0 0% 0 0% 6 40% 5 33.3% 4 26.7%

a) Employment: The feedback from the study indicated that 40% of the respondents agreed
that job opportunities and employment of Nigerian local workforce is quite “above average”
and encouraging since the implementation of the local content policy in Nigeria. However,
about 26.7% of the respondents criticized this outcome and indicated that the performance
of local content initiatives on employment remain “poor”.

b) Training: Sustainable training of indigenous workforce on both technical and non-technical

vocational jobs is “below average” as indicated by 40% of the respondents. In addition,
about 26.7% of the respondents further downgraded the performance as being “poor” while
13.3% finally considered the performance rating to be “very poor”. This will definitely create
serious impact on the workforce capabilities, especially in the project-driven oil & gas
industry in Nigeria.

c) Local Industries: While the assessment of about 60% of the respondents on the impact of
the local content initiatives in enhancing the development of indigenous industries in
Nigerian is considered as “below average”, only about 20% indicated to be “above average”.

d) Local Goods and Materials: Only about 20%of the respondents considered the patronage of
local material as a result of local content implementation to be “above average”. While
majority representing 33.3% of the respondents differed and considered the ongoing
patronage of local goods to be “below average” about 33.3% of the respondents equally
considered it as being “poor”.

e) Financing: Assess to sustainable financial support was rated “below average” by 40% of the
respondents and more shocking is the 33.3% of the respondents that considered this
element as “very poor” while only 13.3% of the respondents saw it to be “above average”.
Nevertheless, this is an indication of weak financial structure to support local content
implementation in Nigeria.

f) Business Environment: Creating a sustainable business environment in Nigeria as a result of

implementing local content acts is far from being realized as 40% of the respondents

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 considered Nigerian business environment to be “poor” and unhealthy to investment. This
could be as a result of many factors such as insurgents, uncontrolled financial crime,
corruption, anti-business and weak policies etc. Interestingly, only about 6.7% of the
respondents considered Nigerian business environment as “good”.

g) Infrastructures: While 40% of the respondents labeled the ability of the implementation of
Nigerian local content acts to promote national development and basic infrastructures as
“below average”, about 33.3% rated the initiatives as being “poor” and appeared impotent
to achieve the expected development. This indicates that the objective of creating the
initiatives is far from being fetched. Spending hugely in infrastructure institutes one of the
major machineries to upsurge revenue, employment, productivity and subsequently, the
attractiveness of any economy.

4.4 Major challenges facing Nigeria’s Local content policy

Among many other challenges, the unstable macro-environment, poor infrastructure, lacks of
competent industrial base, weak financial base and low human capital are identified by survey
respondents as major challenges facing successful implementation of Nigerian Local content
initiatives (figure 4.0 & table 2.0).

Figure 4.0: Nigerian Local Content Challenges

Percentage of
Local Content Challenges Respondents
respondents
Human Capital 1 6.25
Poor Infrastructure 4 25

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 Unstable Macro-environment 6 37.5
Lacks of strong financial base 3 18.75
Lacks of competent industrial base 2 12.5
Totals 16 100

Table 2.0: The Nigerian Local Content Challenges

a) Unstable macro-environment:

This is considered as the foremost external factors that stimulate decision and invariably
affect performance and plans. About 37.5% of the respondents submitted that the instability
in the Nigerian macro-environment is a major factor that hinders the successful
implementation of its local content initiatives. A macro-environment study may center
deeply on the political factors in a country that experiences challenging business
environment. Elements such as high trade tariffs, poor regulations, stringent tax policies and
high interest rates, shortage of credit facilities, high-level corruption, insurgents, bad
leadership, financial crime, incessant demographics, low education and lack of technological
advancement are some of the components of a difficult micro-environment. These elements
are anti-business and could become serious impediment to national growth.

b) Poor infrastructure:

Infrastructural facilities are pre-requisite to efficacious local content policy. 25% of

questionnaire-interview respondents indicated this element as most challenging factor
affecting Nigerian local content policy. It’s difficult to completely cut-down the massive
control of the petroleum industry by the multi-national corporations due to inadequate
infrastructural facilities in most O&G producing countries. The existence of good
infrastructural facilities, such as housing, road network, information technology and
standards of education, plays an integral role in facilitating a broad-based economic growth.
Provision of excellent infrastructures and maintaining existing ones is pertinent in increasing
the local content capacity and facilitating economic growth and development (Klueh et al,
2007). Increasing local content capacity would lead to competitive growth and commercially
sustainable business potential for an added customer relationship.

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 c) Lacks of strong financial base:

About 18.8% of respondents indicated Nigerian poor financial base as one of the elements
that has contributed to major set-backs in the implementation of local content initiatives in
the country. The increasing cost of capital, inadequate financial supports and complicated
procedures for acquiring loans has indeed negatively affects the ability of local firms to fully
participate and compete in the extraction of oil and gas in the country. Government should
inculcate positive attitude in interested firms and address inadequacy in capital.

d) Lack of industrial base:

About 13% of the respondents also considered this element as one of the factors
responsible for the failure of local content initiatives in Nigeria. Local content policy creates
a market-leveled playing ground causing local companies to favorably compete in the
economy thereby stimulating industrial development. Lack of industrial base prevents local
domestic capabilities and effective operation of the local content policy. There should be
policies and provisions that facilitate privileged treatment of the domestic companies to
ensure sustainable industrial growth in manufacturing and technology. The inability to
achieve this will continue to create huge investment for the foreign countries in the form of
services and acquisition of equipment from oversees. Sometimes, local content
requirements overwhelm the capacity of industries thereby impacting negatively on social
and economic progress of the country.

e) Under-develop human capital:

Respondents considered this element as least of the factors responsible for poor
implementation of local content initiatives in Nigeria. 6.3% of respondents shown this
element as factor responsible for possible drawbacks in the Nigerian local content
initiatives. Obviously, there is need to develop learning institutions which we aim at
equipping young learners with necessary skills and knowledge. Based on Nwapa’s (2007)
theorem, managing local content is hindered by shortage of locals and lack of much needed
skills to match new production requirements in the O&G industry.

However, apart from the above, the respondents flashed other elements as serious threat to the
local content implementation in Nigeria which includes;
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  Corruption and misappropriation of resources.
 External influence by foreign nations.
 Political and economy instability.
 Weak policy implementation.

4.4.1 Pareto Analysis:

A simplistic diagram from the data extracted from respondents showing relative frequency of
causes of poor implementation of local content initiatives in Nigeria to enable clear
identification of about 20% of the elements that are causing 80% of the challenges of Nigerian
local content initiatives. From respondents’ submissions, there are many factors hindering the
implementation of local content initiatives in Nigeria (Table 4.0), and based on the identification
of their causes, it will be prudent to identify the few most significant factors that represents
most important categories of the elements that hinders local content implementation in Nigeria
using Pareto analysis principle (figure 5.0).

Table 3.0: Factors responsible for poor implementation of local content initiatives in Nigeria
Number of
S/N Local Content Challenges Causes
Respondents
Knowledge gap, incessant demographics, under-
1 Under-developed human Capital 1
employment, lack of skills
Bad governance, poor leadership, lack of funding,
2 Poor Infrastructure 4
mismanagement of resources, Corruption
Political instability, insurgents, crime, poor regulation,
3 Unstable Macro-environment 6
apathy
Financial crime, high capital cost, inflation, corruption,
4 Lacks of strong financial base 3
high tax rate
Unstable power generation, lacks of technology, over-
5 Lacks of competent industrial base 2
dependency
 

Applying the principle of Pareto will highlight those few challenging factors with severe impact
on the local content implementation in Nigeria and where efforts can be applied to realize the
utmost improvement.

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 Figure 5.0: PARETO ANALYSIS - Nigerian Local Content Challenges

Considering the analysis represented above in figure 5.0, an unstable macro-environment, poor
infrastructures and lacks of financial base are identified as the most significant elements that
contribute the greatest setbacks experienced in the implementation of Nigerian local content
initiatives. All efforts to address and resolve these challenges should be concentrated more on
the causes of these significant elements that are responsible for poor implementation of the
policy. While about 80% success rate in the implementation of Nigeria local content policy can
be achieved if the causes of these three major elements are properly addressed, the remaining
elements can be looked into one after another to achieve 100% success rate in the
implementation of local content initiatives in Nigeria.

4.5 SWOT Analysis of Nigerian Local Content Initiatives

The SWOT (strengths, weakness, opportunities and threats) analysis of the Nigerian local
content will assist in identifying and understanding the major elements affecting the optimum
implementation of the initiatives in the oil and gas industry in Nigeria. Based on the
respondents’ feedbacks, a SWOT analysis of the Nigerian local content initiatives is developed as
represented below (Figure 6.0). This tool is necessitated to better understand the local content

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 policy, address the weaknesses, prevent the threats, exploit the opportunities, capitalize on the
strengths and initiate strategies to achieve the objective of the initiatives.

Figure 6.0: SWOT Analysis of Nigerian Local Content

4.6 Force Field Analysis: Enhancing implementation of Local content initiatives in Nigeria

The ability to define and examine the origin and influence of forces responsible for the
challenges facing the implementation of local content policy in Nigeria enhances steps to be
taken to mitigate threats and instigate necessary changes. From the research study, the Nigerian
local content initiatives have suffered many challenges that have hindered effective
implementation of the local content policy. Using force field analysis (Lewin, 1951), the research
study has identified driving forces and restraining factors in the implementation of local content
policy in Nigeria.

a) Nigeria local content driving forces:

These are described as positive forces which are responsible for optimal implementation of
local content policy in Nigeria. These forces include:
 Policy regulation and implementation.
 Regular financial support.

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  Technological improvement and innovations.
 Job creations and capacity building.
 National development and economy stimulation.
 Privatization.

b) Nigeria local content restraining factors:

These are classified as negative forces that cause drawbacks in the implementation of local
content in Nigeria. These include;
 Corruption.
 Poor infrastructures.
 Unstable macro-environment.
 Lack of competent industrial base.
 Weak human capacity.
 Lack of strong financial base.
 Underdeveloped capital market.

4.6.1 Analysis the forces affecting implementation of local content initiatives in Nigeria:

During the questionnaire interview, all 16 respondents rated on the scale of 1-5, the importance
and the influence (control) of both the driving and restraining forces in improving local content
acts in Nigeria. The results are represented in figures 7.0 and 8.0 below.

Figure 7.0: The importance (rating) of driving and restraining forces in the implementation of Local Content Initiatives in Nigeria
(Inferred from Lewin, 1951)

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 Figure 8.0: The influence (rating) of driving and restraining forces in the implementation of Local Content Initiatives in Nigeria
(Inferred from Lewin, 1951)

Based on above ratings from respondents, the result is tabulated below for analysis.
See table 4.0.

Table 4.0: Force Field Analysis: Improving Nigerian Local Content Initiatives

Contro
Importance
Driving Force: l Total
(1-5)
(1-5)
Policy regulation and implementation 4.6 4.5 9.1
Regular financial support 3.4 3.6 7
Technological improvement and innovations 3 3.1 6.1
Jobs creation and capacity building 3.9 3.9 7.8
National development and economy stimulation 3.3 3.2 6.5
Privatization 2.8 2.5 5.3

Contro
Importance Legend:
Restraining Force: l Total
(1-5)
(1-5)
Corruption 4.7 4.8 9.5 Major critical factors that drives
Poor infrastructure 3.8 3.5 7.3   the success of local content
implementation in Nigeria.
Unstable macro-environment 3.4 3.3 6.7
Lack of competent industrial base 3 3.1 6.1
Weak human capacity 2.5 2.7 5.2
Key negative factors that hinders
Lack of strong financial base 4 4.3 8.3   successful implementation of
local content acts in Nigeria
Underdeveloped capital market 3 3 6

From above tabulation (Table 4.0), the higher the combined values (i.e the “importance” and
“control” rated values) the higher the requirement to pay more attention to such factors in the
implementation of local content initiatives in Nigeria. As indicated above from the respondents
rating; policy regulation and implementation, job creation and capacity building, and regular
financial support are major critical factors driving the successful implementation of Nigerian

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 local content initiatives. However, to achieve the required success in the implementation of
local content acts in Nigeria; corruption, poor financial base and lack of sufficient infrastructures
must be addressed and tackled. From this finding, what is so prevalent in Nigeria regarding local
content implementation is poor regulation, fuelled by corruption. Corruption is however the
bane of all regulations.

4.7 Nigerian Local Content Gap Analysis:

In the context of Nigerian Oil and Gas Industry, local content is viewed as the composite value
creation in the economy through utilization of local material and human resources in the O&G
exploration, development, transportation, exploitation, as well as, sale of the Nigerian crude oil
and gas resources. The assessment of this analysis is focused on supplier development,
workforce development and socio-economy development. The telephone interview appeared
more straightforward with high flexibility in addressing the Nigerian local content gaps and the
factors that are responsible with remedies against such gaps. From the respondent’s telephone
interview, the feedbacks are illustrated in Table 5.0 below, evaluating the Nigerian Local Content
initiatives current state, the anticipated, ideal or future state, the gaps and factors responsible
for the gap.

Factors Responsible for the

Focus Current State Ideal state Gap identified
Gap
High cost of finance, Low Steady accessibility to Poor access to finance and Lack of strong financial base, high
accessibility to funds, high financial supports from business support, low capability interest rate and complex policy for
interest rates and low financial institutions and and empowerment to compete locally based firm to access
availability of capital. low interest rates. with foreign companies. financial loan.
High % of local firms Unrelenting engagement of
Low participation of Low technological capacity, under-
Supplier participating in the supply foreign firms on major projects
indigenous firms in O&G developed industrial base, low
development chain of major and at the expense of local
major projects. financial capability to compete and
medium projects. companies.
lack of skilled workforce to execute
High patronage of Steady importation of foreign
projects. Low access to genuine
Poor patronage of local indigenous products to goods and continuous
parts and products, weak policy on
goods or products. support projects outsourcing of projects
importation of goods
requirement materials to foreign companies.
High preference for
Trainings and steady Low % of local workforce at Low self-development, Knowledge
expatriate workforce
Workforce employment of local management levels and high gap, instability in educational
especially in leadership
development workforce into all projects quota of experts managing system and lack of appropriate and
positions and major
and various positions. locals. required trainings.
projects etc.
Deficient amenities like good
Social and Poor standard of living
Improved social amenities roads, hospital, power Poor governance, mismanagement
economic and high deficient
and infrastructures generation, efficient and reliable and corruption.
development infrastructural facilities
transportation systems.
Table 5.0: The Nigerian Local Content Gap Analysis

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 In addition to above gaps identification, 60% of the respondents identified “supplier
development” as the greatest gap in the implementation of local content initiatives in Nigeria
(Figure 9.0). However, finding lasting solutions to the causes of these gaps will in long way assist
in mitigating their occurrence.

Figure 9.0: Nigerian Local Content Gap Analysis

4.7.1 Remedies to Bridge the Gap between the Current and the Ideal or Future State.
This is to documents the possible remedies that are critical in bridging the gap amid the current
and the future state of the local content initiatives in Nigeria. The recommendation is
categorized into solutions that can be provided by the government, the industries and even
both. The following are therefore some of the remedies that can be used to address the gap
identified above.

Expectation from government:

a) Addressing the perennial corruption that’s ravaging the nation’s economy and ensure safe
macro-environment that’s void of war, insurgents, crime, lawlessness, anti-fiscal policies etc.
This will stimulates economic and industrial growth in the country.
b) Monitor closely the implementation of local content initiatives policies and ensure full
compliance by local and international companies.

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 c) Invest more in major infrastructural development and improve the highly deficient
infrastructural facilities to support industrial growth and enhance the nation’s economy.
Expectation from the industries:
a) Facilitating the transfer of technological know-how from the expatriates to the locals
through strategic alliance, technical service contracts, establishment of joint ventures, and
on-the-job training oversees.
b) Diversification of services by indigenous companies to fully provide required expertise to the
industry’s enormous projects.
c) Developing a robust and competitive local supply chains to readily support the industry.
d) Promoting and supporting local sourcing and manufacturing of local goods.
e) Building local capacities and capabilities.

Joint expectation:
a) Government should assist the financial sectors to build a stronger financial base, while the
financial institution should reduce the associated cost of financing project and making loan
easily available to the indigenous firms. This would create a reliable industrial base and in
turn, increase the participation of the local firms in the exploration of Oil and Gas.
b) Both (government and industry) should develop excellent educational facilities to narrow
the gap amid Oil and Gas industry and the Academics, a factor that is critical in ensuring the
availability of the required skills in the Oil and Gas extraction Industry.
c) Developing a local capital market by developing opportunities to generate capital locally and
to accept indigenous equity participation thereby enhances local ownership and make it all-
encompassing.

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CHAPTER FIVE:

5.0 RECOMMENDATIONS AND CONCLUSION

This study examined gap analysis of local content initiatives in the Nigerian oil and gas
industries. It explored the challenges facing the local content policy, as well as, assessed the real
and potential results from local content initiatives implementation. The findings of both
potential and real outcomes of the local content initiatives are mixed. While some scholars
argued that local content initiatives could promote locally based industries, and triggers broad-
based economic development in the country, others like Davidson et al (1985) argued that local
content rules in a duopolistic market leads to a considerable reduction in the global output.

5.1 Recommendations
In view of the study, the following are the recommendations with regards to reducing the gap
caused by various challenges in the implementation of local content initiatives in the Nigeria Oil
and Gas industry.

a) Availability of funds:

One of the major factors that have influenced the inability of Nigerian local companies to
compete favourably with multi-national O&G companies from around the world is
inadequacy of required funding. Undoubtedly, thriving of efficacy of the local firms when it
comes to the exploration and production of oil and gas is to a large extent dependent on the
availability of capital. Therefore, to encourage the local content initiatives, it is important
that policy makers consider the need to come up with financial policy and institutions that’s
capable of empowering the local oil contractors. This would escalate the level of
participation of the local firms in the exploration and production of petroleum, which is
considered a rich natural resource in Nigeria.

In addition, the provision of low cost capital would enable local firms to successfully
participate and support oil and gas operations in Nigeria, thereby promoting local content
initiatives.

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 b) Skills development:

The lasting aim of sustainable development is the empowerment of people, enhance locals’
participation, foster skill transfer and fortify institutional development. The ability to acquire
vital skills and expertise indirectly stimulates technology transfer. Despite few Nigerians in
either professional or managerial positions, particularly in various companies steering the
affairs in both downstream and upstream, it would be prudent to see such improvement
trickle down to technology transfer, which is yet to be observed. In this regards, there is
need to create unique strategy to facilitate skills and technological know-how transfer. Job
creation and capacity development should be promoted and initiated at all level.
It is pertinent to have strategic policy that will enhance gradual change of the current local
content capacity attained through deliberately building the capacity of both local and
national skills for them to get access to opportunities deemed local capability development.
There is need to develop learning institutions aimed at equipping learners with the
necessary skills and knowledge.

c) Policy regulation:

“Robust and sturdy regulation can spur technological, organizational, institutional, and
social innovation, causing economic and trade advantages” (Ashford & Hall, 2011).
Regulation is considered as an effective and appropriate tool to monitor and protect
innovative concept. Ingenious regulation that implants new guidelines transforms
institutional structure of the industries. It is an essential factor in crafting satisfactory
conditions for invention that improves sustainability and produce motivations for the
growth of strong prime-industries, which haul improvement along sustainability (Jänicke &
Jacob, 2004). However, stringency, uncertainty, mode - specification versus performance,
focus - inputs versus product versus process and timing are critical elements of regulation
(Ashford, Ayers & Stone 1985).
There is critical need to do away with several inconsistencies ravaging the Nigerian 0local
content act. The blueprint of the local content initiatives should be respected and followed
without being bias particularly while awarding contracts in the oil industry. There should be
policies that ensure that downstream sub-sector is fully commercialised, as well as, opened
to the private sector participations. It is important for government to be more sincere in the

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 striking fiscal policy. Moreover, there should be measures to ensure that existing refineries
remain highly efficient to encourage dynamic participation of the private sector in the
refineries industry.
The Nigerian Content Consultative Forum and the Nigerian Content Development and
Monitoring Board (NCDMB) should be more innovative and take full control in the success of
the Nigerian local content acts.

d) Development of assets and basic infrastructures:

Lacks of basic infrastructures and reliable industrial base have threatened the local content
initiatives in Nigeria. The accessibility to sufficient basic infrastructure is significant to the
realization of sustainable socio-economy development. The quality of infrastructures rightly
upsets an economic growth capability and the possibility of an ingenuity to relate
successfully. Obviously, a deprived infrastructure obstructs the economic evolution of a
country and its international attractiveness. According to The World Bank (2013), sustaining
sufficient and capable infrastructure assists economies of a country to upturn efficiency,
particularly in industrial and service delivery. This will generate additional jobs and enhance
investment prospect, as well as, inspire the effective use of natural proceeds.
Investing in infrastructure is a continuing process. Modifications in technology and changes
in commercial environment will propel new requirements while maintaining, updating or
replacing present infrastructures. Infrastructure can be financed by both public and private
sectors. Government should instigate appropriate measures to encourage private
establishment in investing in infrastructures by establishing a long-term vision with respect
to planning, regulatory and financial supports.

e) Building strong industrial base:

The strategic objective of local content policy is to ensure local companies are effectively
involved in the Nigerian O&G value chains. The new entrants should be supported to do
businesses in the industry, develop their own assets and infrastructural facilities. Other
measures may include creation of tax holidays and reduction in the import duties to boost
the competitiveness of related local industries and to encourage their capabilities to expand.
Genuine privatisation programme could be considered to salvage dying industries.

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5.2 Conclusion
The detection of hydrocarbons in large quantities commenced the beginning of novel economic
era for the Nigerians. However, the decision of formulating a national petroleum policy with
prominence on local content is hampered by many challenges, thereby derailing the meaningful
implementation of the policy. Misappropriation of resources and misuse of power for personal
gain have retarded growth of the industry. Political instability, the absence of ultra-modern
facilities and economic recession has equally affected the industry. According to Oladele (2001),
Nigeria O&G industry is experiencing local content downturn because of lack of capitalization
that originates from the predisposition of Nigeria industrialists running businesses as one-man
show.

Based on the findings from this study, it is worth noting that the government has the greater
responsibility of initiating the required changes to facilitate and enhance the success of local
content initiatives in Nigeria. Some of the factors that have been documented as key challenges
in adopting local content initiatives among others include low industrial base, limited
infrastructural facilities, high cost of finance, and low technological advancement.
The preconditions for improving the local content include improvement of human capital and
industrial capabilities, enforcement of the rule of law, and the provision of attractive investment
atmosphere. Therefore, it is important that the aforementioned challenges are fixed on time.
Government and the industry should inculcate positive attitude in interested firms and resolve
inadequacy in capital.

In addition, because the factors affecting the effectiveness of the local content policy is likely to
change if the restraining forces are addressed with time, it is prudent that the government put
in place mechanism that would monitor the changes to enable the government fix them in good
time. Some of the factors considered in this research are pertinent in ensuring that the local
content initiatives remain highly effective include policy reengineering, economic management,
and social value system that reward creativity and productivity. Such policies when fully
implemented would help the country effectively to boost local content initiatives.

However, despite the limitations inherent in this study, there are feedbacks in the study to learn
from. For instance, the responsibility of both the government and the industry in enhancing
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 local content initiatives, and more so, the impact of the various challenges as identified in the
study and the recommendations for successful implementation of local content policy in Nigeria
are all valuable contents for reference.

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