Economy

Economic Diversification: Why FG Must Consolidate The Local Content Policy

Last Tuesday, a bill to establish the Nigeria Mineral Development Corporation (NMDC) scaled its second reading at the Senate. The bill, which is aimed at promoting investments in the mining sector, is sponsored by a former Nasarawa State governor, Tanko Al-makura (APC, Nasarawa South).

In the lead debate, Mr Al-makura said the legislation was in line with the Buhari-led administration to diversify the Nigerian economy.

The lawmaker also said the proposed agency would seek to develop upstream exploration and production, midstream mineral processing, and metallurgy and downstream logistics. This is including trade and export which will catalyse investment in the entire mining value chain in Nigeria.

In his words, “It is expected that the establishment of the NMDC will urgently address the challenges of Internally Generated Revenue (IGR) and ensure technology transfer and local content development in the Nigerian Solid Mineral Sector”.

It seems stakeholders are eager to prevent the local content challenges the country is facing in the oil and other sectors, essentially from raising its ugly head in the mining sector.

While some senators are planning to arrange some protective mechanisms in the mining sector, the House of Representatives is worried over the alleged penchant by the Chinese firms operating in the country who breach the local content Act 2010.

The lawmakers are currently probing into alleged breaches of the local content laws on the NNPC project for the engineering, procurement, construction, installation, testing, and commissioning of the 40 ×318.6 km Kaduna-Kano section of Ajaokuta-Kaduna-Kano gas pipelines project awarded to Brentex consortium.

The chief executive officer of an indigenous firm, Bablink resources Nigeria limited, Engr Bolaji Isiaka, while testifying before the house, stated that another company, Brentex consortium was breaching the terms of the agreement by refusing to engage his outfit, despite its experience and expertise, in the execution of the gas pipeline contract worth over $2.6 billion in a desperate bid to satisfy Chinese firms.

“What we want the Parliament to do is to force NNPC and the Chinese Company to come to the table and expunge the Chinese content from the contract to allow the local content policy to prevail”, Isiaka stressed.

Lack of local content as well as lack of capacity to shore up value chain, especially in the oil and gas industry has led to capital flights for over 50 years, amounting to almost $350b. This huge loss, according to the Nigerian Content Development Monitoring Board (NCDMB), necessitated the need to look inwards in the creation and promotion of products and services.

Discussions started sometime during the Obasanjo’s administration as to how to recover the missing funds and address loss of jobs. Accordingly, a policy on local content was enunciated which was domiciled with the Nigerian National Petroleum Corporation (NNPC) to implement and push the boundaries in order to claw back some of the money.

This target was a herculean task given that, at that time, there were challenges regarding the policy as most of the companies did not see any legal basis to operate effectively. At that period, oil services within the oil and gas industry were the exclusive preserve of the international service companies like Schlumberger, Halliburton, among others.

But the push and pull in the pursuit of local content in the oil and gas industry led to the establishment of the Content Development Act of 2010 which came with a number of provisions. This is with regard to what is required of participants, as implemented by NCDMB. At the moment, the NCDMB has a strategic 10-year road map where it wants local content attainment at 70 per cent in 2027. This strategy is hinged on capacity building and development, through alignments with sectoral linkages.

Through the 2010 Act, the industry has been able to move from less than 5 per cent to about 32 per cent in the pursuit of local content. Nigerians are now employed and given opportunity to participate in the oil and gas sector, and the value chain. Now, there are opportunities for investors because their investments are now protected. Domiciling NCDMB in the Ministry of Petroleum Resources has provided an opportunity to synergise with the industry within that ministry. Most of the International Oil Companies (IOCs) are now headed by Nigerians. For instance, the managing directors of Shell and NLNG are Nigerians.

The IOCs have embraced the local content law, as their benefits have been articulated. One of the benefits is that Nigerians, instead of expatriates, are hired to save high maintenance cost. The benefits were quite visible in the COVID-19 situation as Nigerians, who have built capacity over time, had to sustain the oil and gas business with the departure of most expatriates due to prevalent health challenges. Nigerians are practically dominating the business in the service and upstream sectors. For instance, it was mandated by law that drilling in the swamp and land location would be reserved for Nigerians.

There are other initiatives by the industry that focus on infrastructural deficit, gas pricing, sanctity of contract, creating an environment for investor-friendly businesses to thrive, checking issues of pipeline vandalism, among others.

The industry is reactivating its business continuity plan which could be likened to the economic sustainability plan of the federal government. One key document being considered for implementation is the National Gas Policy 2017.

Industry watchers have described Nigeria as more of a gas player than crude oil. Hence in the oil and gas parlance, the refrain is “a tiny drop of oil and an abundant natural gas resource.” Major stakeholders have disclosed that the country has about 203 trillion cubic feet of proven gas and over 600 trillion cubic feet of unproven gas. That is the quantum of gas which is drastically under-utilised. The industry has sectoral linkages with the power sector, gas-based industries, agricultural and transportation sectors. The ministry is focusing on exploration in the inland basin and offshore to further increase the abundant gas resources.

Some months ago, President Muhammadu Buhari flagged off the Ajaokuta-Kaduna-Kano Gas Pipeline Project. According to stakeholders, the project is a 6.4km gas pipeline that will unlock about 2.2 billion cubic feet of gas per day. Experts say this can resuscitate over 232 industries that became moribund as a result of power crisis. The Abuja-Kaduna-Kano Independent Power Plant along this corridor will also spring up industries and create jobs for Nigerians.

Besides, the National Gas Expansion Programme has to do with using gas as a precursor for production of other items. The programme seeks to gather gas resources across the broad spectrum of the gas value chain and ensure they get to the end user at a good price. This will further deepen the domestic market with Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) which can eliminate the use of kerosene and firewood for domestic use.

There is also the Nigerian Gas Flare Commercialisation Programme where its transaction, commercialisation and design have been completed. The programme came up with a regulation called the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 that is now being implemented by the Department of Petroleum Resources (DPR).

Early this year, the Ministry commissioned one of the deficit areas in the gas sector which is the National Gas Transportation Network Code that would address integrity issues, metering, transparency and investor confidence. Looking at the different gas development activities in the country, the Ministry declared last year 2020 “the year of gas.”

That suggests the country is beginning to look deeper in seeking ways to improve the economy with gas. A small country like Trinidad and Tobago has globally expanded her industry with gas. This is with 11 trillion cubic feet of gas way below Nigeria’s proven gas reserve. The country has a globally competitive petro-chemical industry, as it ranks number one worldwide in ammonia export, and number two in methanol export. This contributes significantly to her GDP.

Shoring up local content is a clarion call that should target not only the oil and gas sector but also the non-oil sector of the economy such as banking, shipping, automobile, aviation, textile, agriculture, among others. These should have guidelines to enhance opportunities for Nigerians.

Partly for this reason, an Executive Order was signed in 2017 to improve local patronage of made-in-Nigeria goods and services. The Order was signed by the Vice President, Professor Yemi Osinbajo, who was then Acting President. Later on in February 2018, President Muhammadu Buhari signed Executive Order 5 to ensure that procuring authorities gave preference to Nigerian companies in the award of contracts, and prohibit the issuance of visas to foreign workers with skills that are readily available in Nigeria.

This explains the preparation of a new legislation called the Nigerian Content Development and Enforcement Bill to revive the country’s regulatory approach to its companies in both the oil and non-oil sectors of the economy. The bill which has made slow progress was submitted to the House of Representatives in December 2019. The bill seeks to promote indigenous participation in key sectors of the economy such as Information and Communication Technology (ICT), mining, construction, oil and gas, and power.

With Executive Orders 3 and 5 that promote local content and local capabilities, other sectors of the economy can provide local services and products. One of the 17 parastatals under the Federal Ministry of Industry, Trade and Investment known as the National Automobile Design and Development Council (NADDC), has shown positive signs in this regard. NADDC is currently developing, designing and carrying out engineering work on two specific Nigerian vehicles that will be in tune with the country’s culture, climate, terrain and economic structure.

The automobile sector has the capability to create hundreds of thousands of direct and indirect jobs. For this reason, the sector is implementing the National Automotive Industrial Development Plan which has key elements of investment promotion that will encourage local production of vehicles as opposed to continued importation.

To address poor patronage of indigenous automobiles even at the governmental level, the sector has gotten involved in market development to empower Nigerians to purchase vehicles assembled and produced in Nigeria. To achieve this, the sector is working with Jaiz, Zenith, and Wema banks to provide single digit automotive financing. According to statistics from this industry, about $1b was invested in the sector in 2019 by a number of companies such as Innoson Motors, the Dangote Group, Nissan, among others.

The sector, through its skills acquisition and development initiatives, is training youths across the country in automobile engineering and mechatronics. For this purpose, the sector has created seven automotive training centres across the country to ensure that Nigerians especially the youths are empowered, self-reliant, creative and innovative. The centres are spread across the six geopolitical zones and the Federal Capital Territory (FCT). The training focuses on advanced automotive technology with a view to enlightening the trainees on some of the latest automobile technological systems, given that modern-day vehicles are basically computers on wheels.

Read Also: Economic Sustainability Plan: Can This Tool Keep Nigeria Out of Recession?

Another component of the big picture is vehicle electrification. This entails migrating from vehicles that use petrol and diesel to vehicles that are powered by electricity. There are also plans to migrate to vehicles that can be powered by CNG and Liquefied Natural Gas (LNG).

With the COVID-19 pandemic, many countries have become insular and protectionist including Nigeria, and are unable to import certain materials and products. The development and utilisation of indigenous capacity has become a task that should be pursued vigorously if the country must find solutions thrown up by the COVID-19 pandemic and other external factors that could lead to economic shocks.

Moses Amadi

Categories: Economy, Features

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