successful local content strategies presentation tanzania feb 2015
TRANSCRIPT
Jessica Kyeyune
4th Annual
East Africa Oil & Gas Summit 2015
Introduction
Home to 6 of the 10 fastest Growing world Economies
New Oil & Gas
Frontiers
16 Oil Exporting Countries
Africa’s Oil & gas Industry is on the spotlight
Despite the image of enormous wealth and opportunities, oil rich countries grew less rapidly than oil poor countries
Though helped to raise standards of living, the bounty of the proceeds from hydrocarbons goes to a minority of the country’s population
Growth failure associated with democratic collapse, corruption and civil war have led to rich countries with poor people
Oil is not a guarantee for economic success
Natural resource wealth occur independent of factors of production & economic processes
Take place without major linkages to other industrial sectors Do not need participation of domestic labor force Non-renewable and will eventually run out
These factors produce an array of political and economic
processes that produce adverse effects on the economy. These adverse effects include……………
What makes natural resource wealth different
Economic and Political Instability People are out of work are more susceptible to violence Supports Insurgents Steal & Sell; Extortion; Political Alliances Increases Separatism Massive revenues, little disbursement of wealth Under-represented locals bear brunt of costs
Volatility of earnings, timing of payments, expenditure Mexico, Nigeria, Venezuela have used future oil revenues as collateral for construction of infrastructure, drowning them into debt
Living off your capital If revenues are consumed, a country’s total capital declines
Spending pressures Politicians to hold onto power, population want to see visible welfare benefit
Insufficient investment in education Counties forget to build skilled workforce to work in other sectors
Weak unaccountable states Availability of large financial asset increases opportunity for thefts
Grievance in producing region Locals aggravated if they see wealth leaving their region
Cambodia, Angola, Doba in Chard and Niger Delta in Nigeria
Oil Bunkering
Other causes of the resource Curse
Local Content is defined as added value brought to a host
nation through:
Workforce development:
Employment and training local workforce
Supplier development:
Procuring supplies and services locally and Developing local
supplier capacity
Can Local Content Strategies Avert the Curse?
Purpose:
Increase national wealth thru Economic growth and more employment of locals
“Value creation in the country” Norway, UK, Brazil &Nigerian policy
Other countries look at Ownership
Expenditure in the local economy
Employment of local workforce
Local content is a means – not a goal
Why Develop Local Content Strategies?
Oil & Gas Specialist Goods and Services
Non-Specialist Goods and Services
$ Local Content Opportunities
Understanding Oil & Gas Cycle & Local Content
POLICY
OBJECTIVES
THE NATIONAL OIL
AND GAS POLICY (2008)
1 Efficient
Licensing
2
Establishment &
Management of
Resource
3
Efficient
Production
4
Valuable
Utilization of
Resource
5
Promotion of
Transport &
Storage
6
Collection of
right revenue
7
National
Participation
8
Development
of National
Expertise
9
Environment
Conservation
10
Stakeholder
Relationships
Policies required to enhance local participation
To enact:
State Participation in Petroleum activities
Provision of goods and services by local entrepreneurs
Training and employment of locals
Technology transfer
2
Legal requirements for local content
High Government commitment
International oil companies to be supportive
Policies and contracts that allow service companies to invest in the country
High focus on developing human capacity
What will it take to reach a satisfactory level?
There is no “Ideal model” to export to other countries
The most successful countries have 40% – 80%
Brazil, Malaysia, United Kingdom, Norway
Many are struggling to reach 25%-30%
• Nigeria, Angola, Trinidad and Tobago, Saudi Arabia, Libya
Identify competitive edge
2
What level to aim for in the LC Strategy?
Source: SBC analysisNote: Industries within quadrants are not evaluated relatively to each other
Feasibility
Cement
manufacturing
Bulky
construction
materials
Construction
steel
manufacturing
Site safety
and security
Facility
Management
Civil construction
services
Generic waste
management
Hazardous waste
management
Transportation &
Logistics (Goods)
Fuel
wholesale
Manpower
agency
Technical
consultancy
Food
supply
Catering
Light equipment
manufacturing
Domestic Airline
Services
Road
construction
Transportation
(People)
Work safety
products
High
Low
Complex Easy
Production
operation services
Furniture
manufacturing
Vendor and
representation
services
Mechanical
construction
services
GMS Light iron/steel
products Oil/Water
pipe
installation
Pipe
steel
Petrochemical
(refinery)
Fertilizer
Machinery and
heavy equipment
manufacturing
Drilling
services
Drilling
supplies
Oilfield
Services
Oilfield equipment
manufacturing
Drilling
Equipment
Oilfield
chemicals
Cement
additives
O&G specific
emergency
services
Engineering
consultancy
Benefits
Blue area
industries
will be
addressed
through
steps on
education
Identify Industries with high local content potential
What it takes to maximize local participation
Understand the strengths and weaknesses of local enterprises to ensure policy responsiveness
Promote programs to upgrade and train local companies to meet the stringent QHSE requirements
Create institutions that focus on R&D and Set up long-term plans to support and finance R&D.
Provide tangible benefits for oil and gas companies to hire and train young graduates - eg. tax rebates, royalty changes
Access to low cost finance
16
Shell placed 70% of all contracts with Nigerian owned
firms until 2002-2003
Value creation in the country was only some 5 - 15%
Sourced work outside Nigeria, acted as middlemen
for profit
Over ambitious Local Content Strategies may hurt
economies.
• Ghana 90% in 10 years, IOCs divesting-Nigeria, Brazil Revisiting
Local ownership is no guarantee for value addition
Cost of Finance Technical Standards
EHS Standards
Availability of Plant, Equipment
& Materials
Oil Industry Experience
Capital Investment
Skills
Regulatory Environment
Infrastructure
Challenges to develop Local Content
Universities and
Technical
Institutions Petroleum Industry
E&P
Refining
Transportation
Distribution
Governmental
Agencies
Supply Chain of
Goods and
Services
Financial
Institutions
Environmental Protection
Health and safety assurance
Social and economic
development
Technological innovation
Key objective: Promote Sustainable Development
Linkages to Maximize Oil & Gas Benefit
LC Strategies have succeeded in many countries
Brazil – Petrobras:
Active involvement in the industry from its formation
Acquired deep water drilling technology thru international expertise
Malaysia :
Formed partnerships with international oil companies
Local industry gained best practice & management skills
Cutting edge technologies used by oil companies
Norway :
Openness towards international companies
A strong focus on national value creation
Technology agreements to fund R&D
Existing capabilities & competitive strengths were leveraged
20
High expectations can lead to negative consequences:
A disappointed, and therefore a disengaged public
An indebted government that has borrowed
against possible incoming revenues
Increase of rent seeking; and
General mistrust within the society.
These consequences need to be managed accordingly.
Managing Expectations
2
Examples of expectations
Provide accurate information and knowledge to the public so that they can understand the challenges of the industry
Communicate and address the consequences of overly optimism.
Government to promote its own transparency and adopt the Extractive Industry Transparency Initiative (EITI)
Pay attention to lessons learned from other resource-rich countries, both successes and failures, could play an important role in managing expectations.
Ways to manage Expectations
NC strategy to address O&G negative effects
Build institutions for managing resources
Direct benefits of oil revenues to citizens
Involve principal stakeholders in developing plans
Strong civil society to monitor development
24
Direct Effect
• Value of oil and gas production
IOCs & GOV
Indirect Effect
• Purchase of materials, services and supplies locally
• Private Sector
Induced Effect
• Spending by employees of both oil Companies and suppliers
• Private Sector & Government
Oil and
Gas Sector
Government
gets revenue
from oil and
taxes from Oil
Companies,
Suppliers
And
Employees
And reinvests
the proceeds to
develop the
Country’s
Economy
NC Strategy to maximize revenue received
Conclusion
Successful local content strategies can Maximize Benefit when:
Focus is put on diversification rather than resource windfall
Ensure the revenue generated, is reinvested wisely and holistically
Stimulate other sectors in the Economy
Create more jobs to reduce unemployment
26
Thank You