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Africa Rising: African countries create new rules in the oil game

New local-content laws in Nigeria, Angola, Gabon, and Ghana aim to ensure African countries gain as much benefit from the oil business as foreign oil companies do.

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The legislation also specifies the percentage of fabrication and construction, materials, drilling services, the use of transport, information technology, and that finance and insurance be locally owned or based. Many analysts regard Nigeria’s local-content requirements as some of the highest in the world ranging from between 75 and 100 percent in many areas. Implementation in Nigeria will be overseen by a local-content monitoring board to be set up next year and percentages will be expected to gradually increase.

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But will firms be scared away?

But some analysts are concerned that this emphasis on local could scare off oil companies and investors. Olsen says that he thinks it unlikely that Nigeria would accomplish its local-content goals.

“I think the biggest issue with the high local-content environment – with the competition for the resources, will the firms go to West Africa or will they go to countries with huge opportunities and less restrictions?” says Olsen. “I don’t think oil companies will go, but it could lead to higher costs and lead to some of the main contractors setting up shop in other countries that are easier to operate in.”

At a conference held by Nigerian Association of Petroleum Explorationists (NAPE) last year after Nigeria’s local-content laws were passed, Mark Ward, managing director of ExxonMobil Nigeria asserted that the implementation of the government policy was hindering the development of new deepwater oil projects.

Ward was quoted in the Nigerian newspaper 234Next as saying that the government needed to engage more with international oil companies in their development of local-content requirements.

“Nigerian content development needs to be paced, realistic, and collaborative,” said Ward. “Imposition could stifle both the total number of in-country projects and the development pace of projects.”

What about other countries?

Other countries such as Angola have also passed controversial legislation regarding local content and Gabon and the newest African oil producer Ghana are also in the final stages of drafting their own local-content bills. Ghana's draft bill sets forth a target of 90 percent local content by 2020 but will be subject to revision. Currently oil companies are required to have 10 percent of their goods and services provided by Ghanaians, and the requirement will increase to 20 percent next year.

Olsen thinks it is unlikely that Ghana will achieve its 2020 local-content goals but thinks that it possibly could achieve them in the gas industry. Finance Minister John Duffour recently announced that the government would borrow $800 million from the state-owned China Development Bank to develop its natural gas infrastructure. At a meeting last month, Ghana's Executive Director at the World Bank, Javad Talat Duffour said the gas industry -- in contrast to the oil industry -- would be "in the hands of Ghanaians."

Olsen says that while the desire for local content for African countries was understandable, the lack of consistency in legislation from country to country could cause problems.

“The dilemma is that every country in West Africa is going their own route,” says Olsen.

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