1. Jessica Kyeyune
4th Annual
East Africa Oil & Gas Summit 2015

2. Introduction

3. 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

4.  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

5. 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

6. 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

7.  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

8. 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?

9. 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?

10. Oil & Gas Specialist Goods and Services
Non-Specialist Goods and Services
$ Local Content Opportunities
Understanding Oil & Gas Cycle & Local Content

11. 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

12. 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

13.  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?

14. 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?

15. Source: SBC analysis
Note: 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

16. 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

17.  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

18. 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

19. 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

20. 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

21. 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

22. 2
Examples of expectations

23.  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

24. 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

25. 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

26. 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

27. Thank You