The Politics of Nigerian Local Content: An Analysis of Stakeholder Interests and Elite Accumulation

Abstract

Although Nigeria is Africa’s second largest economy and second largest oil producer, oil extraction and economic growth have not been accompanied by improved wellbeing for most of the population. 60% of the population lives below the poverty line and the country is ranked 153rd of 187 on the Human Development Index. Moreover, although over 70% of government revenues come from the oil exports, the oil and gas sector contributes very little to the nation’s GDP. This thesis analyses the Nigerian government’s recent attempts to increase the value generated by the oil sector through Local Content Policies (LCPs) By promoting local content development, Nigeria hopes to replicate the success of other oil-rich nations who have had significant success using LCPs to encourage the transfer of technology from foreign companies to local producers and promote linkages between the oil and gas sector and the productive sector of the economy. However, Nigeria is characterized by a unique institutional context which has hindered the success of LCPs. This thesis argues that the Nigerian state’s lack of capacity has constrained the success of the Nigerian local content regime. The state has failed to consider the interests of key oil and gas stakeholders: International Oil Companies (IOCs), Nigerian Indigenous Oil Companies (NIOCs), and host communities in the Niger Delta. Early attempts to promote Nigerian content were grounded in a logic of ‘indigenization’ which alienated foreign capital and favoured elite interests. The resulting opposition from IOCs and capture by rent-seeking elites impeded the transfer of technology and capacity building. More recently, the Nigerian government has worked to galvanize the Nigerian Oil and Gas Industry Content Development Act (NCA) which was passed in 2010. However, the NCA maintains elements of previous failed national content policies and as a result is prone to similar institutional challenges. The government’s failure to address the concerns of the NIOCs and IOCs regarding implementation has hindered the transfer of technology and development of industrial capacity. Moreover, the Nigerian government has also failed to address stakeholder concerns regarding broader industry issues, including the conflict in the Niger Delta, which has stalled oil production and undermined local content development. Finally, this thesis argues that the corrupt Nigerian state is dominated by the interests of rentier elites who are unwilling to engage in productive activity and instead seek to maximize the capture of oil rents. These elites have been able to co-opt benefits provided by the local content regime, although they are only engaged in rent-seeking and do not add value to the economy through productive activity. Such rent-seeking hinders industrialization and capacity building. The findings of this thesis are crucial to understanding the obstacles to Nigerian industrialization via the oil and gas sector. Moreover, they provide a useful framework for understanding the rise of LCPs in other resource-rich nations with weak states, and how they might impact the oil and gas industry globally.