Africa Energy & Resources Oil & Gas Strategy

Multinational oil and gas companies must embrace the concept of localisation

The plummeting and unstable oil price has been a major disruptor to international and national oil companies as well as governments of oil-rich countries. There has been a major shift towards developing and implementing sustainable cost-reduction strategies in order to survive the low oil price.

Africa has become a significant player in the oil and gas industry over the last 10 years with research showing that the continent’s contribution to global crude production has trended between 9.4% and 12.1% over the last 5 years. Similarly, Africa’s share of global gas production has been between 6% and 7% over the same period.

The concept of localisation has been promoted by governments of resource-rich countries as a means for capacity building, human capital growth, supply chain development and partnership with local organisations.

Local content pertains to compliance – many countries have local content laws that require foreign companies to use a certain amount of local labour, materials and services in their processes.

Localisation, on the other hand, focuses more on capacity building – in human capital growth, supply chain development and partnership with local organisations and businesses for talent and infrastructure development. Accordingly, localisation may be seen as a strategy, not just a requirement. In contrast to local content, localisation is powerful in that it enables growth in the communities in which companies operate, while potentially increasing productivity and reducing long-term cost

The old paradigm of simply doing the bare minimum to comply with local legislation in order to obtain an operating licence is no longer sufficient to achieve long-term operational stability. Multinationals need a regulatory licence as well as a socio-economic licence in order to operate in many countries on the continent. Without the goodwill of local communities and their governments, multinational firms simply cannot be certain of the long-term sustainability of their investments

Traditionally, local content programmes have been focused on job creation and up-skilling of workers only for the particular project, rather than taking a longer-term and broader view on education to uplift the entire community to better the workforce across the entire value chain. Existing local suppliers were traditionally utilised rather than taking a more mature approach to wider enterprise development to create new suppliers that compete across a number of industries. In other words, companies should look beyond local content and more towards localisation.

Given the immense potential that the African oil and gas industry holds, it is critical that all stakeholders be committed to sustainable local content development. Governments of oil-producing countries will continue to intensify enforcement of local content and localisation compliance on all IOCs. It is therefore vital for IOCs to differentiate themselves and to include in their strategies a focus on sharing their prosperity with the host country in a sustainable, mutually beneficial way.

In a recent report on Localisation in Africa’s oil and gas industry, we delve deeper into the concept of localisation and explore:

  • Africa’s Oil & Gas potential
  • The five elements of localisation
  • Changing legislation in Africa
  • Localisation and Stakeholder interactions
  • Challenges and benefits of localisation
  • What it takes to develop a successful localisation strategy
  • Taking advantage of localisation as a result of long-term spend
  • The way forward for localisation and local content

Author

Jason McPherson
Resources Manager
Strategy and Innovation
jamcpherson@deloitte.co.za

About the author

Jason McPherson

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