LOCAL CONTENT MEASURES
‘Local content measures,’ as the term suggests, are domestic trade policies enacted by the government to ensure that businesses operating within their borders use products or services of a local origin. Under the Local Content Act, the concept is classified as “Nigerian content” and is defined as the:
“Quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human and material resources and services in the Nigerian petroleum industry.”
States typically impose local content requirements on businesses to aid in the achievement of national economic goals such as economic diversification, reduction of import dependency, promotion of indigenous participation in strategic economic sectors, promotion of exports, facilitation of technology transfers, skills acquisition and job creation, and advancement of social and environmental objectives.
The success of local content policies is largely dependent on the extent of implementation. For instance, where local content measures are used to improve the competitiveness of local industries, rather than as a mechanism to protect those industries from market competition, there is a good chance that they will produce positive and long-term economic results. Local content measures, on the other hand, may fail to produce desirable and long-term economic outcomes if they are not accompanied by efforts to improve local firms’ competitiveness.
As a result, the application of local content measures without a corresponding increase in the competitiveness of local firms, that benefit from such measures is likely to provide only temporary and artificial protection to local businesses, as they will likely become uncompetitive in the long run. Accordingly, a report of the UNCTAD has observed that:
“Where [local content requirements are] used carefully with offsetting measures to ensure that suppliers face competitive pressures and have access to the technology and skills they need to improve their capabilities, they can foster efficient suppliers. Where used in a protective setting with few pressures to invest in building competitive capabilities, they can result in inefficient suppliers that saddle the economy with high costs, outdated technologies or redundant skills.”
Hence, it’s critical that a state’s imposition of local content measures is done in a way that boosts local firms’ long-term competitiveness.
Another attempt to promote local content development in the country was the Federal Government’s Decree Establishing the Petroleum Technology Development Fund (PTDF) in 1973, which aimed to provide training for Nigerians to qualify as professionals and technicians in all fields of the industry. Subsequently, the government in 1991, implemented the Indigenous Concession Policy, which aimed to broaden indigenous participation in the industry while also diversifying sources of investment and funds inflow. As a result, Nigerian entrepreneurs were awarded onshore and offshore oil blocks, paving the way for the emergence of indigenous oil companies in oil exploration and production.
In 2003, The Coastal and Inland Shipping (Cabotage) Act was enacted by the Nigerian government to increase local content in maritime activities affecting the industry, such as the carriage of petroleum products in coastal and inland waters, as well as other ancillary services like barging, bunkering, and towing. The Act, however, fell short of its goals of increasing indigenous participation in the Maritime and Oil and Gas industries. This was attributed to a number of factors, including a lack of indigenous fleet, indigenous manpower, financial support and inefficient administration.