RESEARCH AND DEVELOPMENT AS A KEY LEVER FOR LOCAL CONTENT IMPLEMENTATION IN NIGERIA’S OIL AND GAS INDUSTRY

photo by: getty images

Since its discovery in commercial quantities in 1956, oil and gas have been the mainstay of the Nigerian economy. Studies show that Nigeria’s oil has generated $340 billion of revenue in exports since 1970 and that Nigeria is the 5th largest manufacturer of oil in the world while first in Africa (StackPath, 1995). Despite this, some Nigerians consider this natural asset a curse that has inflicted pains on citizens. Why do some share this sentiment? One study proves that “before 2010, nearly $380 billion and 2 million jobs were estimated to have been lost as most construction (mostly by foreign corporations), engineering and procurement were carried out overseas” (Adenikinju, 2018). This means citizens are not benefiting from oil and gas activities in terms of job creation and indigenous business opportunities. A second reason is that most of the manpower and assets used in the oil and gas sector are imported. Both reasons mentioned point to lack of a functioning or effective local content system in Nigeria’s oil and gas industry. The Nigerian Oil and Gas Industry Content Development Act (NOGICDA) (with the Nigerian Content Development and Monitoring Board (NCDMB) as its watchdog) was promulgated in 2010 to address this and many other underlying issues.

Local content refers to the use of local manpower and resources in creating goods and services. In the oil and gas industry, local content involves the expansion of local expertise, oil and gas technology transfer and the use of local manpower and local production. It is a mandate imposed by the government on investors. It entails the need to build local manpower that is skilful and developing a fierce supply network (Asamoah, 2010).

The Nigerian Oil and Gas Industry Content Development Act (NOGICDA) offers a structure for increment in Nigerians’ engagement in the oil and gas industry. It uses the Nigerian human and material assets in the oil and gas industry. It involves all activities that connect with exploring, developing, exploiting, transporting and selling Nigeria’s oil and gas. The act is intended to increase backward linkages, which is the relationship of an industry with its supply network. Without implementing policies that enforce local content in the oil and gas sector, business opportunities would be taken over by foreign organizations leaving locals jobless. In simple terms, the Nigerian local content act advocates for the use and development of Nigerian manpower and industries in the oil and gas industry.

So far, implementing the local content act in Nigeria’s oil and gas industry has yielded positive results like; facilitating employment and training for Nigeria citizens in the industry, restricting the importation of products which has led to an annual spending increase on locally made materials and an increase in indigenous participation in Nigeria’s oil and gas industry.

 While having a well-thought-out local content framework is a good starting point, other tools can aid the successful implementation of local content in Nigeria’s oil and gas industry. “Research and Development” is one tool.

What Is Research And Development?

 photo by: 123rf

Research is any new area of study or thought that will cause a new product or new facets for an existing product, while development involves the utilization of that new thought.

Research and Development (R&D) involves a series of steps or activities that organizations, companies, and governments embark on in expanding new services or products or changing existing ones. This is usually the first phase of developing a promising newfound service or product. It differs from other corporate activities, solely because it is not carried out to yield instant return(s) and carries high risk and uncertainties such as when an R&D program fails. Carrying out an R&D project can be very expensive. Notwithstanding, it plays a very significant role in the expansion of any institution. Organizations with continuous R&D policy outdo those with non-uniform or zero R&D policy. There is a connection between research and development and an institution's productivity across all industries. Research and Development is needed for any project expected to be established or existing in any sector to attain success. 

Every firm has its procedure for conducting R&D. A popular sequence of R&D proposed by Committee on R&D Strategies to Improve Surface Transportation Security, Commission on Engineering and Technical Systems, Commission on Physical Sciences, Mathematics, and Applications, National Research Council includes:

1. Defining the problem and objectives
2. Identifying ways to meet the objectives
3. Testing alternatives
4. Deciding on a course of action
5. Implementing the decision   

A question arises what effect can R&D have on local content implementation in Nigeria’s oil and gas industry.

RESEARCH AND DEVELOPMENT:  A Key Lever For Local Content Implementation In Nigeria’s Oil And Gas Industry.

As stated earlier, research and development (R&D) is the first step in expanding or developing a new service or product or improving on existing ones. Sadly, Nigeria spends as low as 0.2% of its Gross Domestic Product on research and development, which leads to high reliance on foreign firms for economic decision-making even in the oil and gas industry (Bello, 2020). Countries like Norway, who had success in implementing local content in its oil and gas industry, mentioned how encouraging foreign investors to form R&D partnerships with local Norwegian companies,  led to their local content growth (Gas Iq, 2010).

Despite commendable strides made since its inception, the Nigerian local content act has however not achieved all its set targets in the oil and gas industry. Reasons are because of factors like; foreign manpower and technology are still widely used in the oil and gas industry, lack of adequate infrastructures to support local industries development and lack of skills and training by local industries. R&D can be employed in solving these problems. For example:

1. Research can be conducted on the availability of local technology and how to source for locally made materials that are needed in the oil and gas industry. This increases the use of local materials and technology instead of importing those materials and will eliminate the factor of foreign technology that is mostly used in the oil and gas industry.
2. The oil and gas industry understand the relevance of training. Training can be conducted for local workers and industries to enable them with the skills needed to perform better in the oil and gas industry and increase indigenous participation in the industry. This will eliminate the factor of inadequate skills by local industries and workers. Research is needed to discover such training. 
3. Research can be employed to discover infrastructures that are needed by local industries to increase their efficiency in the industry. This will eliminate the factor of inadequate infrastructures in the oil and gas industry. For example, Norway owns its success story in implementing local content to existing infrastructures they had.

After researching such areas, the development of a model will be employed to solve those problems. Research and development will cause new products, strategies and techniques which will lead to growth in technological procedures that the oil and gas industry can apply. This will lead to economic growth likewise spillover effects for the country.

Conclusively, for local content to be implemented and function maximally in Nigeria’s oil and gas industry, there is a need for heavy investment in all-encompassing systems and processes (like; infrastructures, funds and technological development) which will aid research and development in Nigeria. This will ensure that our local industries and likewise small businesses are adequately equipped with the right knowledge, tools, technical-know-hows, and resources to undertake these multibillion-dollar activities and therefore justify indigenization policies and initiatives. Research and Development will enhance the success of local content implementation and initiatives in Nigeria’s oil and gas industry. Little wonder The Nigerian Content Research and Development Council (NCRDC) was established.

Works Cited

Adenikinju (2018) Local Content Development in the Nigerian Oil and Gas Industry – A Model for Indigenization https://seplatpetroleum.com/media/1333/sep_5595_local-content.pdf

 Asamoah, J. (2010, September 22). Local Content in the Oil and Gas Industry. Oil & Gas IQ. https://www.oilandgasiq.com/strategy-management-and-information/articles/local-content-in-the-oil-and-gas-industry

 Bello, O. (2020, July 5). NCDMB governing council approves $50m for research and development. Businessday NG. https://businessday.ng/news/article/ncdmb-governing-council-approves-50m-for-research-and-development/#:%7E:text=Nigeria%20spends%20about%200.2%20percent,including%20oil%20and%20gas%20operations.

Committee on R&D Strategies to Improve Surface Transportation Security, Commission on Engineering and Technical Systems, Commission on Physical Sciences, Mathematics, and Applications, National Research Council. (n.d.). Read “Improving Surface Transportation Security: A Research and Development Strategy” at NAP.edu. Www.Nap.Edu. Retrieved September 15, 2020, from https://www.nap.edu/read/9689/chapter/4

Gas Iq, O. (2010, March 25). Norway: A Local Content Success Story. Oil & Gas IQ. https://www.oilandgasiq.com/strategy-management-and-information/articles/norway-a-local-content-success-story

StackPath. (1995, November 13). Www.Ogj.Com. https://www.ogj.com/general-interest/companies/article/17216431/niger-delta-oil-production-reserves-field-sizes-assessed