Ghana’s local content target too ambitious: IEA

 Within some two-and-half years of Ghana’s production of oil in commercial quantities, the Institute of Economic Affairs (IEA), an Accra-based economic and governance think-tank, has hinted that the current 90% Local Content target to be achieved within a time frame of 10 years is too ambitious.

Local Content refers to the level of use of Ghanaian local expertise, goods and services, people, businesses and financing in oil and gas activities. It include: the transfer of knowledge to host-country citizens; capacity-building of local companies; creation of local jobs and development and growth of the local economy.

The Government of Ghana (GOG), which prepared the draft Local Content and Local Participation Policy in Petroleum Activities Policy Framework, has proposed specific targets for direct employment in the exploration and production of oil and gas.

 

These include management staff, 50% of the management staff must be Ghanaians from the start of petroleum activities of the licensee and the percentage shall increase to 80% within five years, after the start of the activities.

Core staff, at least 30% of the technical staff, are Ghanaians from the

Commencement of petroleum activities of the licensee and the percentage shall increase to at least 80% within five years after the start of the activities; and other staff of which 100% must be Ghanaians.

However, a Senior Fellow at the IEA, Dr. J.K. Kwakye argued that achieving these in practice was not as straightforward as it may seem. He added that with the commercial production of the Government of Ghana’s new found wealth-oil, Ghana at present lacks the sophisticated technology, highly-skilled labour force and capacity to provide certain core upstream oil and gas activities like seismic operations, exploration and drilling appraisals, construction of installations for production, among others.

In the light of this, though there is a requirement for priority to be given to locals in the production of goods and services, this might be difficult to meet in the initial stages with regard to many technical upstream activities, the renowned economist added.

He told some journalists in Accra that: “It may be more realistic to give specific targets for different segments of the oil industry”.

Dr. Kwakye mentioned for instance that the Nigerian Local Content Act is specifically targeted at putting in place structures to build local capacity in areas fabrications/installations, manufacturing of equipment, and construction of oil and gas infrastructure.

Comparing the Nigerian situation with Ghana, he stated that “rather than setting a blanket cost target, we may have to undertake a value chain analysis to determine where the country (Ghana) has a comparative advantage and build capacity in those areas”.

The Senior Fellow, however, noted that there were numerous opportunities for the domestic economy to benefit, in terms of non-core oil activities like hospitality services, office and residential accommodation, insurance, banking, as well as the provision of various services along the supply chain, provided they meet the requirements of being competitive in terms of price, quality and timely availability.

Presenting a report issued at the end of a two-day capacity building workshop, Dr. Kwakye noted that as a developing country, Ghana should rather be interested in strengthening its capacity along the value chain addition process since it is relatively cheaper.

He was quick to say that: “The industry is risky, costly and highly technical and therefore requires a huge investment in capacity building. In the long term, Ghana can consider full participation”.

Touching on investment options, Dr Kwakye urged the Ghanaian government to consider investing some proportions of the oil funds domestically.

He explained that Ghana is a new oil producer, it is risky to venture into high risk-high return investment, saying “we should consider low risk investment in the interim”.

As a country, we need to diversify investment portfolios to avoid the risk associated with investing in a single instrument, Dr. Kwakye cautioned.

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