How can SMEs benefit from Oil Boom in Sub-Saharan Africa?

The oil and gas discovery in most of Sub-Saharan African countries has put the sub region under a serious watch of multinationals and investors from the western world. Since the production of oil has taken place in these countries, many foreign companies have come to benefit form the lucrative oil business. But where is the stake of indigenous Small and Medium Enterprises (SMEs), which are the backbone of  Sub-Saharan African economies, in the oil industry.

Ghana has discovered oil in 2007 and has started production in 2010 by Tullow Oil, Kosmos among others. This has attracted a lot of multinationals to the country shore. The traffic of people coming into the country has been increased. This development has impacted positively on the other sectors of the economy, such as transportation, energy, environmental and waste management among others.

Ghana stake in the oil production is 10%, other countries in Sub-Saharan Africa stake range from 5 to 20%. The reason given by the oil and gas companies is that they take the risk to invest their own resources into exploration and production of the commodity. How should these African countries increase their participation and stake in the booming oil business?

First and foremost, Sub-Saharan African oil rich countries should create the awareness of business potentials that could be created and sustained by indigenous Small and Medium Scale Enterprises. These countries should make policies that reduce the importation of goods and services, which these SMEs could supply and offer to the hydrocarbon industry locally. For instance, 65 to 75% of metal works (fabrication of metal frames, platforms, etc) should be done by indigenous SMEs.  Some players in the industry may ask, do these SMEs have the necessary expertise to perform?

It is crucial for these countries to support the indigenous SMEs technically by organising with other institutions training workshops in various business fields, which are linked to the oil and gas industry. The local and the international oil experts should be hired  to organise regular training sessions in skill development for the SMEs and their employees. Capacity of indigenous SMEs should be high on all governments’ agenda. After acquiring the skills and the expertise in the industry, so what is next?

Local content policy must work in Sub-Saharan African oil rich countries. This policy must ensure that the supervision, the coordination, the administration, the monitoring and management of the development of local content perform creditably for the indigenous business players in the hydrocarbon industry.

In Angola, the government has set up an institution called CAE/CCIA, which is mandated to promote the indigenization in the local industry. This is part of Angola Chamber of Commerce and Industry to build capacity of Angola SMEs to participate more actively in the oil industry as key suppliers of quality products and services, in order to create jobs and wealth and achieve national based growth. Over two thousand Angolan SMEs are registered under the scheme and had benefited from 316 contracts worth $ 216 million, which created 4536 jobs.

Recently, The Angola Central Bank has directed all oil firms active in the country to pay their taxes and bills from overseas sub-contractors and suppliers in dollars through local banks. “This will bring greater capacity to the financial system in supporting the development of the national economy and will also allow bigger integration of the oil sector into the Angolan economy”, according to the central bank governor Jose de Lima Massano.

Nigeria, which is leading oil producer and has been solely dependent on oil revenue to grow its economy, is pushing for a strong local content. The country has introduced some stringent policies for Nigerian participation in the lucrative oil industry.

The country imported goods and services worth over $300 billion between 1980 and 2010. The country thus lost employment, skill development and business opportunities that could benefit its SMEs. Nigeria lost over $4 billion due to the employment of 150,000 expatriate. Since 2010 the game has been changed by NOGIC Act2010, which imposed restrictions on the import of goods and services by oil companies. The law stipulate steep targets for specific work to be executed in Nigeria and provides for monitoring, measurement and tracking compliance.

The Nigerian government is working on a scheme to restrict the ue of marine vessels services to vessels owned by Nigerians. The Offshore Rig Acquisition Strategy seek to encourage indigenous ownership of oil rigs.

In the medium term, Nigeria projects to retain at least $10 billion of $20 billion average annual expenditure within the country, create some 30,000 jobs, and capture50 to 70% of banking services, insurance risk placement, and legal services.

In Ghana, the government is increasingly looking for more than economic rent from petroleum production. The Ghanaian participation is driven by the desire to maximize national value creation along the petroleum value chain, in the form of transfer of technology and skill development. But as at now, the local content is still a draft. The government has to sit up to enable the Ghanaian SMEs to start benefiting for the oil boom, which is taking place in their country.

©2012 EnterpriseAfrik