1.1 CONTEXT OF THE STUDY
Despite its abundant oil resources, Nigeria is classified as the twentieth poorest nation in the world. Much of the country’s poverty and underdevelopment can be attributed to poor leadership, mishandling of resources, diverse political difficulties, and a lack of infrastructures (Adams et al., 2008). A few years ago, the country’s GDP per capita was below the level at independence forty years earlier, and income disparity was growing (Boscheck, 2007). Nonetheless, the oil and gas business is a significant contribution to the Nigerian economy. It accounts for around 90% of the annual federal revenue (Nwosu et al., 2006). However, foreign interests dominate the industry, and major activities including as exploration, drilling, production, well intervention, and service supply continue to be predominantly controlled and managed by foreign multinational corporations, with relatively modest contracts handed to local contractors (ibid). Afin d’accroître la participation de l’industrie locale dans l’industrie pétrolière et gazière nigériane, local content requirements (LCR) have been made legally obligatory, requiring foreign companies involved in the exploration and exploitation of natural resources in Nigeria to include local firms. The foreign companies are, with few exceptions, big global corporations (MNEs). For instance, five corporations contribute 95% of Nigeria’s oil and gas production: Shell, Exxon, Chevron, Total, and Agip (Frynas and Paulo, 2007). Foreign firms’ involvement in emerging nations has historically been motivated by a desire to exploit natural resources and abundant labor pools (Hansen et al., 2009).
The necessity for resource-rich Nigeria to assume control of exploration, exploitation, and production activities in the oil and gas sector and to exploit the potentials of this most strategic industry in order to generate more value-added appears to be receiving the desired attention from all the stakeholders. This need is also reflected in Nigeria’s desire to domesticate a substantial portion of the average $18 billion annual exploration and production expenditures and stem the flow of capital flight that has, over the years, made Nigeria a junior partner in her joint venture arrangements with the International Oil Companies (IOCs). For a country with over four decades of experience in oil and gas exploration and production activities and approximately 37 billion barrels of proven recoverable reserves, the greatest challenge facing successive administrations has likely been the inability to use the resource wealth for national development and poverty reduction. These issues are reflected in Nigeria’s ability to generate maximum profits from oil and gas operations by making optimal use of local competencies and resources, as is the case, for instance, in Indonesia, Brazil, Norway, and Venezuela. Although these nations began oil exploration and production after Nigeria, their attempts to increase the local content in this key industry have been generally successful. Why has Nigeria been unable to overcome its own issues is the question.
Local content is defined by the Nigerian Oil and Gas Development Law of 2010 as “the amount of composite value added to or created in Nigeria through utilization of Nigerian resources and services in the petroleum industry, resulting in the development of indigenous capability without compromising quality, health, safety, and environmental standards.” It is situated within the context of the expansion of Nigerian entrepreneurship and the domestication of assets in order to achieve Nigeria’s strategic developmental objectives. The plan, which has the potential to create over 30,000 employment over the next five years, is designed to increase the domestic portion of the yearly $18 billion spent on oil and gas from 45% to 70%, in addition to strengthening the multiplier effects of refining and petrochemicals on the economy. The local content policy action began in 1971 when the Nigerian National Oil Corporation was established (NOC). NOC was founded in order to promote Nigeria’s indigenization program in the petroleum industry. In 1977, the NOC merged with the ministry of petroleum to form the Nigerian National Petroleum Corporation (NNPC). The true local content program was launched by NNPC’s acquisition of interests in the activities of the IOCs. These holdings increased to approximately 70 percent, with the responsibility of managing all acreages and other activities. Although deliberate efforts were made in the past under Regulation 26 of the 1969 Petroleum Act, enforcement of the local content policy, the foundation for Nigeria’s sustainable economic development, was merely paper work. For an industry that generates 80% of Nigerian government revenue and 95% of its foreign exchange, this is inexcusable to the Nigerian government, hence the demand for change.
1.2 DESCRIPTION OF THE PROBLEM
Nigeria’s oil and gas production rose so rapidly and steadily that she quickly became a powerful force inside OPEC. Beginning on land, oil exploration has significantly increased the nation’s daily production capacity to over 2.3 million barrels per day and proven reserves to approximately 37 billion barrels. Nigeria is still one of the poorest and most technologically backward countries in the world, despite its growing prominence and prosperity. This is mostly due to the fact that the much-vaunted wealth has not translated into an improvement in welfare. Over ninety percent of annual industrial expenditures leave the domestic economy as capital flight, which is one cause for this. Despite the ever-increasing number of local oil service companies, their yearly gross earnings still represent for less than five percent of the industry’s total annual contracting budget.
1.3 OBJECTIVE OF THE RESEARCH
The primary objective of this study is to determine the issues, outlook, and future of local content in the Nigerian oil and gas industry. Specifically, this study aims to:
Determine the difficulties local content in the Nigerian oil and gas industry faces
Anticipate the possibility of local content in the Nigerian oil and gas industry
To propose a solution to the concerns outlined.
1.4 RESEARCH QUESTIONS
The following research questions were developed to steer the investigation to a legitimate and trustworthy result.
What difficulties does the local content in the Nigerian oil and gas industry face?
What are the prospects for local content in Nigeria’s oil and gas industry?
What is the solution to the identified problems?
1.5 Significance of the Research
The study will inform the stakeholders involved in oil and gas policy formulation, the government at various levels, and the general public of what local content in oil and gas entails. It will also inform them of the challenges faced by the oil and gas industry in Nigeria, as well as the industry’s outlook and potential solutions. In addition, the conclusion of this research will act as a guide for policymakers in Nigeria as they design a policy that will advance the industry. And finally, this study will serve as a guide for other researchers who conduct similar studies in the near future.
1.6 RADIUS OF THE STUDY
The oil and gas industry in Nigeria is the subject of this research; the difficulties and future prospects of the industry will be studied in depth.
1.7 RESEARCH METHODOLOGY
This study focuses mostly on the local content in Nigeria’s oil and gas industry. The study consequently employs one of the conventional ways of data collection, namely secondary sources. A significant proportion of the secondary sources used were gathered from published and unpublished works, such as archives, newspapers, talks, conference papers, magazines, the Internet, books, and journal articles, etc.