What new African oil producers can learn

Current Affairs

What new African oil producers can learn

Kwamina Panford writes on how Ghana and other African nations can avoid the resource curse in the area of petroleum. He strongly advocates using petroleum to create jobs through industrialisation, and less emphasis on the export of crude oil and unprocessed natural gas.

The cases of Nigeria, Angola, and Equatorial Guinea, which are sub-Saharan Africa’s major petroleum producers, are instructive regarding how oil and gas affect local employment and job creation, if judicious and deliberate policies are not put in place and on time. The evidence gathered for this article shows that in Africa generally, petroleum production has had a minimum impact on job creation and employment and even standards of living and poverty.

For instance, in spite of the claim by the government of Equatorial Guinea that it provides 17% of the natural gas used to heat US homes and for cooking in these homes, the Central African nation is still one of the least developed, and has one of the worst child and maternal death rates.

Nigeria and Angola’s situations may not be as dire, but they do not lag far behind Equatorial Guinea’s appalling human development indices. Many factors account for these petroleum-rich nations’ poor human development conditions but I present only a few here. The experience of both Angola and Equatorial Guinea shows that without effective legislation, backed by the supply of a qualified workforce, African countries will not be able to attain optimum employment of their nationals. That is, if that is in the first place a sought-after national vision.

Nigerians, on the other hand, have learned (after many decades of the country being one of the leading oil-producing nations) that local employment would not rise, if effective legislation was not passed to enforce the employment of Nigerians. The error made in Nigeria for over three decades was assuming that oil companies would voluntarily hire more Nigerians and thus develop the economy.

Nigeria started a slow push towards local employment in 1973 by creating the Petroleum Technology Development Fund (PTDF). The PTDF aimed at training Nigerians abroad and locally to acquire oil and gas skills. Funds were also used to employ European and US experts to offer local training to build the capacity of Nigerian training institutions. However, it was not until 2000 that Nigeria accelerated efforts to indigenise both employment and services in the oil and gas sector. The country’s oil company, the Nigerian National Petroleum Corporation (NNPC), reviewed local content policies and practices and set up the Nigerian Content Consultative Forum in 1999 and 2000.

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In 2004, the NNPC created a local content unit which required oil companies to report on hiring practices and how much they spent on local goods and services in Nigeria. In the same year, the PTDF conducted a skills audit and sought to train 2,600 local engineers. It was also expected that by 2006, 45% of goods and services used in the hydrocarbon industry would be sourced domestically. This target was anticipated to rise to 70% by 2010. To achieve these objectives, $12bn was earmarked each year while in April 2006, the Nigerian Senate passed a bill giving preference to local businesses.

For instance, in bids for oil blocks, local contractors were to be given preference if their offers were not 10% above the lowest bid. As a result, more than 28 new local companies, in contrast with just a handful before, emerged to operate.

One particular concern of the Nigerian authorities was ensuring that oil companies did not employ workers they would not hire in their home countries because they lacked qualifications. This was aimed at creating employment for Nigerian nationals by discouraging the employment of unqualified expatriates.

The Nigerian government also designated operations that were to be indigenised by 2005. Some were front end engineering design (called FEED) fixed oil platforms, the gathering and storage of seismic data, and oil and gas reservoir management. These operations were reserved for Nigerians. This measure enabled Nigerian companies to bid successfully for contracts and deepened local participation. Even if the target of 45% local content set for 2006 may have proved over-optimistic, local content increased to 21% by 2005 and jumped to 28% by 2006.

Also importantly, these local content related activities increased awareness of the importance of local content in a major oil producing country such as Nigeria. To further deepen local participation, in 2010 the federal government passed the Nigerian Oil and Gas Industry Content Development Bill. This legally codified for the first time efforts to enhance job opportunities for Nigerians.

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Angola’s lessons
Angola’s experience is relevant due to the fact that it was one of the first to attempt to boost local employment through legislation. Decree No 20 of 1982 mandated the employment and training of Angolans in the oil industry. The training and hiring plans of oil companies were to be submitted to the government for approval and expatriates were to be employed only when Angolans were not qualified for such jobs. International oil companies were also required to train local personnel to train new employees. Angola, however, has not trained as many nationals as required to keep pace with its rising levels of oil output. Hence, for example, by 2008 barely 30% of the 820 employees of BP working in Angola were Angolans.

How is Equatorial Guinea doing?
Equatorial Guinea’s experience is not remarkably different from that of its Nigerian and Angolan neighbours. After enacting stringent laws on the employment of indigenous employees, the acute shortage of locally qualified personnel made the government resort to immigration exemptions for expatriates to assume many positions in the oil and gas industry.

What are the lessons?
Thus, relying on data from Nigeria, Angola and Equatorial Guinea, it may be concluded that so far in Africa the oil and gas sector has not been a major engine for local employment, even in large producing countries. In 2006 for instance, in Nigeria less than 1%, in Angola only 5%, and in Equatorial Guinea a trifling 4% of the labour force was in the oil sector. Failing to generate jobs rapidly through such an important sector may account for why these countries have massive populations living in poverty, even when oil prices rise steeply on the world market. Petroleum production has not generated jobs not only because it is capital intensive and also entails high technology, but also, and even more importantly, because old producers like Nigeria and Equatorial Guinea are literally obsessed with exporting raw crude and unprocessed natural gas.

So far new producers, such as Ghana (which started production on 15 December 2011), seem to be following the same disastrous path. Ghana has committed itself to selling its crude oil from the Jubilee Field as it has done with its gold, timber, diamond, and cocoa over the last 100 years with little to show in the form of good paying jobs, careers, manufacturing industries, and a sustainable economy with promise for the teeming youth who roam the country’s streets jobless. To reverse course and avoid disaster, Ghana must refine, use products and bi-products from the oil and gas sector to manufacture items and generate jobs to boost the economy and incomes.

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