Local Content Policy and SMEs Sector Promotion: The Nigerian Oil Industry Experience

Ugwushi Bellema Ihua

doi:10.5539/ijbm.v5n5p3

Abstract

This study investigates the impact of Nigeria’s oil and gas industry Local Content policy and its implications for promoting higher participation of indigenous small to medium-sized firms within the industry. Here we present finding from multiple case studies conducted on three small to medium-sized firms and five semi-structured interviews conducted with key informants, all operating within the industry. The findings from the study reveals that the local content policy has not yet achieved significant success in enhancing higher indigenous participation, use of local technology, higher contract awards to indigenous firms and stimulating joint venture arrangements between indigenous and foreign oil firms. Specifically, issues such as lack of the local content Act, cumbersome prequalification and entry requirements, ill-equipped educational institutions, laissez-faire attitude of multinationals, ineffective monitoring and control by regulators, and inadequate financing options for indigenous SMEs still hinder the policy efficacy.

Highlights

Since the late 1950s till date, the Oil and Gas Industry has continued to serve as the main stay of the Nigerian economy
They were selected because (1) the companies fit the conditions of having been in business for up to 3 years before the introduction of the Local Content (LC) policy and they had staff strength of less than 250 as provided by guidelines of the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) in Nigeria (Ihua, 2009); (2) Each individual key informant had over 10 years of professional practice within and outside the Nigerian oil industry, with a cumulative experience of about 70 years
It was found that from all the cases studied, the LC policy has resulted in increased contract awards to the companies; this cannot yet be considered as higher SMEs participation, because it only led to increased contract awards to existing companies, without significantly enhancing the participation of new entrants into the industry, as described by the key informants

Summary

Introduction

Since the late 1950s till date, the Oil and Gas Industry has continued to serve as the main stay of the Nigerian economy. It is reported that an estimated $8 billion is spent annually on servicing operations within the industry and this figure is projected to hit $15 billion within the few years (Business Day, 2008) Despite these huge sums of money spent in servicing the industry, only very little proportion of the accruable profit is available to indigenous oil servicing firms or spent in developing Nigeria’s industrial base. Majority of the amounts are paid to foreign firms for services such as Fabrication, Engineering Procurement Construction (EPC), Front End Engineering Design (FEED), conceptual designs and seismic studies This results in capital flight as the profits from the contracts are repatriated abroad, where most of the equipment are manufactured; providing employment opportunities for citizens of other countries, and in most cases developed countries

Methods

Results

Conclusion