Ed Reed reviews Jesse Salah Ovadia’s The Petro-Developmental State in Africa: Making Oil Work in Angola, Nigeria and the Gulf of Guinea which takes an innovative approach to the question of how local content policies work in Angola.
In development literature, oil production has often been seen as a problem to be handled, rather than an opportunity to be seized. The “resource curse” is a theory with flaws but one that does demonstrate a certain truth: oil is not necessarily a blessing.
The question becomes one of how best an industry can provide benefits to a broader populace. Nigeria and Angola would seem to offer lessons in how not to accomplish such an end. Luanda and Abuja have been collecting tax payments for more than 50 years, but have little to show for this deluge of cash. “In fact, revenues are only the first and least effective way that states can benefit from petroleum resources,” Jesse Salah Ovadia says in his book, The Petro Developmental State in Africa: Making Oil Work in Angola, Nigeria and the Gulf of Guinea.
Ovadia suggests governments should combine the benefits demonstrated by protecting industry, as seen in East Asian states such as South Korea or Japan, with the specific resource opportunities provided in West Africa’s hydrocarbon resources. There is a “possible emergence of a petro-developmental state that nurtures local capitalism and has unique power in a moment of global neoliberalism to adopt protectionist policies that work to bolster domestic industry in the oil and oil service sectors”, he says. Essentially, this would combine the appeal of a low-wage workforce with the allure of developing local hydrocarbon resources.
Angola and Nigeria have taken steps in a number of areas to protect local industry in a variety of areas and have, with varying degrees of success, imposed controls through a number of different routes in the oil and gas sector.
As Ovadia allows in his work, though, efforts from both of these countries have run into numerous problems, not least that it is elites that have tended to capture most of the benefits of local content requirements, through the control of local companies. As such, local content requirements has tended to support existing inequality, rather than helping those lower down the pecking order.
Nigeria and Angola have taken different steps to support local industries. Nigeria’s 2010 Act on local content set out quotas by which companies were required to follow for projects, for instance 45 per cent of high-voltage cables had to be supplied locally. Despite such Nigerian regulations, though, Ovadia points out that the regulator, the NCDMB, has never handed out a penalty for breach of such rules.
Angola, meanwhile, has tended to implement local content requirements in the production-sharing agreements (PSAs) it strikes with oil companies. Ovadia gives a number of anonymised case studies on Angolan companies providing services, which range from efficient operators to those that are merely rent seekers, which appear to have flourished as a result of their ties with the national oil company, Sonangol.
In both Nigeria’s and Angola’s cases, therefore, the problem becomes as much about how laws and regulations are implemented and supported, as they are about what is written in the rule book.
Further problems occur when looking at the costs associated with local content at a time when the oil industry is in a moment of crisis. While Nigeria and Angola boast attractive resources, foreign majors are little inclined to invest the billions of dollars needed at present to develop the offshore megaprojects required.
Another quota in Nigeria requires a certain amount of financing to be done domestically. This is appealing when times are good but, given the cyclicality of oil prices, and onshore militancy in Nigeria, companies are struggling and a wave of bankruptcies seems likely, which may impose severe strains on local banks.
Governments must use both carrots and sticks to ensure their economies grow and provide much-needed employment. Helping control costs for service companies, through means such as ensuring greater reliability of power supplies, while also increasing and improving education, will be just as important in securing the right balance to boost local content as protecting it from external competition.
Ovadia rightly points out that service companies can play a role in generating much-needed benefits for Nigeria and Angola – and that governments must play a role in helping secure such a future. Just as importantly, though, improving access to electricity, education and raw materials would help the economy as a whole.
The author makes clear the various challenges facing the development of local content but neglects to shed much light on how things could be done better in the new producers. Such an extension, considering what lessons can be taken from Angola and Nigeria and applied to those in the early stage of production – whether in West Africa or further afield – may have been fruitful. Furthermore, the book’s approach is unabashedly academic and would be most useful to those in academia.
The Petro Developmental State in Africa: Making Oil Work in Angola, Nigeria and the Gulf of Guinea. Jesse Salah Ovadia. Hurst Publishers. 2016.
Ed Reed is the editor of NewsBase’s Africa oil and gas-focused report, AfrOil. Follow him on Twitter @ed_reed.
The views expressed in this post are those of the authors and in no way reflect those of the Africa at LSE blog or the London School of Economics and Political Science.