. Photo: AFP/Getty Images

A new chapter for African oil

By Adam Robert Green | Published:  31 March, 2010

The presence of oil has proved to be a mixed blessing for many countries over the years, but by putting local content policies at the heart of their development plans, governments in sub-Saharan Africa are hoping to make the most of their new found reserves

Oil production in sub-Saharan Africa is on the rise. Discoveries along the West African coast from Ghana to Sierra Leone have sparked talk of a 700-mile frontier. In the East, Uganda may have upwards of 2bn barrels. Promising exploration work is underway in Namibia, Zambia and elsewhere.

For emerging producers the development implications are profound. Uganda’s oil could earn $2bn per year – two thirds of the current annual budget – over three decades. Ghana’s oil and gas could average $1.2bn per year over two decades. But leaders of both countries have greeted their luck with muted optimism. Oil has left a troubling legacy of poverty, corruption and environmental degradation in Nigeria, Angola, Chad, Sudan and elsewhere on the continent. Revenues have evaporated and communities have been dispossessed.

President John Atta Mills has publicly promised it will be different for Ghana, arguably a leading light of political and structural reform in Africa. Uganda’s President Yoweri Museveni was quick to assure his own people, back in 2006, that new-found oil was “an opportunity for the country, rather than a curse”.

Both governments are studying regimes from Norway to Malaysia, scouting for policies to help oil complement broader development goals. Local content, where foreign companies are obliged to procure a percentage of labour, goods and services from the host country, is proving especially attractive. Norway pioneered it. Brazil, a rising oil giant, has the policy at the heart of its development plan.

“Local content is the fastest, most sustainable way for the benefits of the oil and gas sector to accrue to a society,” says Kevin Warr, former head of the energy market development team at the US Agency for International Development. It guarantees jobs in the core sector – engineers, geologists, senior managers and the like – and stimulates domestic supply chains delivering everything from chemicals, boats and drills to catering, security and IT. In 2005, Royal Dutch Shell spent $9.2bn on goods and services from low and middle income countries. Chevron’s procurement reached $45bn worldwide in 2008.

Capturing such inflows enables domestic companies to buy new kit, hire and train new staff and access credit. “Local content means less money goes to governments, and more goes to well-positioned local firms,” says Matthew Lynch of Engineers against Poverty, a specialist NGO. “It also helps to bridge the economic benefits gap – the lag between resource extraction and material reward.” An influx of work, such as that created by the roads and railways donated by Chinese and Indian national oil companies, involves communities from the start.

Local content is not new to sub-Saharan Africa. South Africa’s post-apartheid Black Economic Empowerment programme, which offered preferential training and employment to black communities, was essentially a local content policy writ large. But formal legislation specific to oil and gas has picked up only recently. In 2003, the Angolan government passed a law requiring procurement of basic oil-related goods and services to be reserved for Angolan companies. A year later, Equatorial Guinea passed its own law addressing equity participation by nationals in international oil companies.

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