Why local content in Africa's extractive sector won't work without home grown human capital

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Significant investments have been poured into the development and growth of the extractive industry on the continent. But there is a disconnect between the industry and institutions of higher education. These are supposed to provide and develop the necessary skills, competencies and human capital required to develop and manage the industry.

But there is a substantial gap between the kinds of graduates that universities are producing and what extractive industries need.

There are instances where this gap has been narrowed. For example, a collaboration between private and public institutions under the banner of Nigeria's Institute of Petroleum Studies has proved successful.

The complexity of local content

One initiative that could help bridge the gap is local content.

As a concept, local content is complex. Within the context of this discussion, it relates to the process of developing local skills and capacity and local supplier competitiveness and participation in an extractive industry.

Local content requires that local citizens get jobs in the sector. In situations where there are no skills available, the capacity to develop them is considered.

It is an important agenda in Africa but the challenges and expectations are huge. Firstly, there is a limited pool of skills and expertise to develop its natural resources. Secondly, aligning local content with national priorities is a challenge because many stakeholders are involved.

Developing local content also comes at a cost and there is always the question of who pays, at what price. Another challenge is deciding on who benefits the most and how governments decide on their objectives or policies.

Despite these challenges, there is a clear benefit to local content development for host governments because it helps:

• stimulate jobs,
• increase a skilled workforce,
• develop international competitiveness in local suppliers, and
• protect a nation's key strategic industries.

Countries with policies in place

Local content policies differ from country to country. Nigeria has a Local Content Act. This is geared to developing and improving local capacity and participation in the extractive industry and the overall improvement of the economy.

In Angola, the policy situation is a little more complicated. There is not a central or single institution to supervise enforcement even though the role of local content is clearly appreciated.

Ethiopia opened its mining sector to private investment in 1991. A strategic broadening of mining permits is available with the enactment of the Mining Operations Proclamation. It also seeks to increase the participation of Ethiopian nationals in the extractive sector.

The Botswana government encourages foreign firms to hire qualified nationals rather than expatriates. The granting of work permits to foreign nationals can be made contingent on demonstrable "localisation" efforts. Though expatriates can be employed, international companies need to have strategies for developing local skills and succession plans.

In Gabon, a new hydrocarbons law encourages the progressive replacement of foreign workers and prioritises the hiring of local people with equivalent.

But where are the qualified people?

There is a need to think carefully about how local content policies can actually influence and develop higher education quality. It is common knowledge that there are pressing human capital development needs across Africa . It is also clear that the development of local human capital is a prerequisite if the extractive industry is to have a greater domestic focus.

Efforts towards local content are far removed from the quality of higher education being provided. In Nigeria, most of the graduates being absorbed into the oil and gas sector need to be retrained by companies. And in many cases, they need an extra post graduate degree from an overseas university before being absorbed.

In countries like Kenya, Tanzania, Gabon and Angola there is minimal higher education provision to produce the required skills needed by the sector. In some cases it is totally non-existent. The situation is even worse in the development of vocational skills that are in dire demand in the extractive sector.

In Angola, Nigeria, Kenya, Liberia and many other African countries where natural resource exploitation is on the government's agenda, overseas scholarships schemes abound. Most are funded by the government or industry to comply with local content policies or to show case their corporate social responsibility. But they seem to favour overseas universities. In addition, some graduates don't return home, defeating the intention of local content.

Focus on quality higher education

It seems that institutions that deliver top quality education are those that have been co-hosted or co-organised through a partnership between government and industry. An example is Nigeria's Institute of Petroleum Studies. This is sponsored by Total Exploration and Production Nigeria and the state-owned Nigerian National Petroleum Corporation.

The institute is based at the University of Port Harcourt, a public institution, in partnership with the IFP School of Oil and Gas in France under a trans-national education framework and a collaborative graduate school.

Instead of sending people overseas for training, is it not better to encourage partnerships between institutions on the continent and their overseas counterparts while collaborating with industry to produce the skills?

Most of the graduates from the Institute of Petroleum Studies stay in Nigeria. Its success is shown by the attraction of other nationals in Africa to take the institute's programmes. This initiative ensures that the graduates have a 90% chance of being absorbed into the Nigerian oil and gas industry.

Local content is a highly topical issue and is here to stay on the continent. It's also clear that key stakeholders, government and industry are favourably disposed to the value of local content as a sustainable proposition.

Bearing in mind the seemingly low quality of graduates and the pressing need for human capital development, it is imperative to consider local content policies that favour the development and improvement of higher education for practical impact.