High returns to be made by investing in local engineering capacity in West Africa. By Dr Amy Jadesimi
Nigeria is Africa’s largest oil producer, and one of the most prolific in the world. It is strange, therefore, that Nigeria’s oil sector is the lowest contributor to GDP of all the OPEC countries. According to the National Bureau of Statistics, in Q1 2017 the oil sector provided just 8.9 per cent of total GDP in Nigeria, despite accounting for 90 per cent of exports. By comparison, Angola’s oil and gas sector contributes 45 per cent of total GDP.
This problem, which is serious, is a symptom of a much larger issue in Nigeria, that is the lack of local capacity for heavy fabrication and engineering. This shortcoming has stunted economic growth for years. Nigeria’s deficient infrastructure development and lack of skilled labour has been exacerbated by chronic underinvestment from the government and the politically exposed local and international companies that have historically monopolised the contracts awarded in the sector. Contractual terms with both local and international companies, also often result in extractive rather than mutually beneficial agreements.
For the first time in 50 years the trajectory of the industry is rapidly and dramatically changing, largely due to the investment and participation of a new cohort of transparent, well-run private indigenous companies (‘Real Local Private Sector’) – which are winning contracts based on their skill level and value addition, rather than their rolodex.
The passing of the Local Content Act in 2010, opened the door for these value adding local companies to enter the market and play a significant role. The Act mandates the use of local capacity and personnel at increasing level for petroleum sector projects and contracts. The initial implementation of the Act, sadly, provided a platform for rent seeking behaviour. Often local private companies posed, and some still do pose, as legitimate business partners for international companies when in reality, they were doing little more than charging fees, allowing international companies to take the work offshore. Another powerful group of individuals and companies fighting the fair implementation of this Act are politically exposed monopolies, made wealthy by decades of receiving uncompetitive and exclusive billion dollar contracts.
Despite strong local and international opposition, the Act is beginning to have its desired effect. The change is largely due to the huge value addition, cost savings and jobs created by legitimate indigenous companies, which are proactively investing to localise activities. In addition, in April 2017 President Buhari signalled the end to rent seeking and monopolies in Nigeria by issuing strong directives that specifically broke up an oil and gas monopoly and ensured that it could never return. According to This Day, a prominent Nigeria newspaper, over 170 operators were forced to close their doors while the Intels monopoly was in place; President Buhari’s directive is a victory for private sector actors desperate for a level playing field. At the same time the President recognised the positive contribution that private sector companies, like LADOL in particular, have made to the industry. This directive has been followed up by a series of Executive orders all aimed at increasing ease of doing business and supporting real local and international long-term investors.
For LADOL, owner and operator of the only deep offshore logistics base in Lagos, this recognition of its contribution to the economy and the instigation of a truly competitive market for logistics and ports services marks a very important breakthrough. LADOL has been investing and developing its facilities for 15 years, today it is a fully integrated $150 million logistics base, built to service offshore and near Lagos oil and gas blocks 24/7. The existence of this facility has been critical factor enabling many oil majors, such as Shell, Chevron and Exxon Mobil, who have been pondering further investments in Nigeria’s offshore acreages to greenlight those investments. In terms of cost savings alone, operating out of LADOL could save oil majors $1 billion per year in logistics costs. LADOL is continuing its campaign to drive greater proliferation of real, value adding private sector companies in Nigeria, with a view to increasing industrial capacity such that supply chains are localised, jobs are created, and value is returned to the local economy.
Since 2001, LADOL has been working to turn an unused swamp area inside Lagos’ largest port, into a leading global sustainable industrial free zone. Today LADOL is home to Nigeria’s only fully integrated deep offshore logistics base, West Africa’s largest shipyard and the heaviest crane capacity in the region.
In disrupting the stagnant status quo in the petroleum sector, LADOL has set a higher standard for local industrial activity and is helping ensure that international companies transfer their technology. Importantly, LADOL understands that its success is only possible if it can demonstrate to all stakeholders the huge benefits of its sustainable business model. Already through its logistics base and its ship yard it has proven that Nigerians can add value to the most complex and challenging oil and gas projects in the world – the result for the international oil companies will be elevated returns from investments in Nigeria.
A recent report by the Business and Sustainable Development Commission found that sustainable business models, like LADOL’s, are poised to add $12tn to the global economy by 2030. At present LADOL is undertaking one of the largest oil and gas fabrication project in West Africa and has set new records in Nigeria for the level of work being performed by local labour. The yard is fabricating 6000 tonnes for Total’s flagship FPSO, the Egina FPSO, all of which will be integrated at LADOL when the FPSO arrives in Q4. Beyond the Egina FPSO, the yard has the capacity to fabricate up to 1000 tonnes per month.
Additionally, LADOL has just started construction on its Upskilling Academy. This initiative will create a skilled pool of labour within the Free Zone, trained in a campus with many schools. This will increase the capacity for future projects to be done in LADOL and across Nigeria and train young people to work in non-petroleum sectors.
LADOL’s mission is to continue its development across the Free Zone and attract non-oil and gas manufacturing and engineering companies to set up in the Zone. The emphasis in this new phase of development will be on building sustainable infrastructure and facilities, to support companies that want to sustainably manufacture for the Nigerian and West African market. Once completed, LADOL will be a blueprint for the establishment of sustainable industrial free zones across West Africa.
In a low oil price environment where operation costs are under more scrutiny than ever, it’s imperative to source local, legitimate partners for high-value projects. International companies that latch onto these new opportunities and operate sustainably in the Nigerian market will reap the benefits alongside their local partners
Dr Amy Jadesimi is LADOL’s MD and CEO.