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Government support for Nigerian companies

Article - December 19, 2012
The Local Content Act supports growing participation of local companies in the oil sector
With an average oil production of 2.5 million barrels per day and proven reserves of 35 billion barrels, Nigeria is the largest oil producing country in Africa and the 11th largest worldwide.

The African state is also the fifth largest crude oil exporter to the US and  oil revenues account for more than 90 per cent of its receipts of foreign currencies. Nevertheless the contribution of the oil sector to the gross domestic product (GDP) is still relatively modest. According to energy reports in  2008, the oil sector only accounts for 38 per cent of the national GDP. The reason is the lack of domestic players in the oil industry because more than 80 per cent of goods and services necessary for oil production come from abroad.

Furthermore, the Nigerian oil and gas sector is dominated by multinationals, which handle their projects – on and offshore – with an army of expatriates. The results are deficits for the domestic workforce in terms of employment, education and the creation of capacity and usability, which have lead to weak economic development. The Nigerian government has implemented various policies to support the domestic workforce and infrastructure and usability of a significant part of economic derivatives from the oil and gas industry to combat these issues.

The Nigerian Content Division is a new department of the Nigerian National Petroleum Cooperation, which serves as a watchdog for the compliance with these new guidelines. Despite some easing of this tense situation, there was no significant improvement. In 2011 the government decided, under the leadership of President Goodluck Jonathan, to increase its efforts to support domestic industry and passed the Local Content Act.

According to this new legislation local companies have preference for the supply of goods and services to the oil and gas industry. Companies who want to acquire a licence for oil production in Nigeria have to present a Nigerian Content Plan. The plan must state how the applicant is going to fulfil the requirements of the Local Content Act, for example the first consideration of local goods, services and workforce. A licence can only be issued if the Nigerian Content Monitoring Board, which was founded specifically for the purpose of monitoring adherence to the Local Content Act, has approved the aforementioned plan.

The project operator is also obliged to perform research and development programmes in connection to the projects to support education, research and development in Nigeria. The Local Content Act marks a welcome progress and will support sustainable development in Nigeria. The long-term goal of these measures is to elevate Nigeria into the league of countries with successful Local Content Acts such as  Norway, Brazil and Angola.