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Nigeria-UK trade relations

September 11, 2010

Nigeria is the UK’s 32nd largest overseas market and second largest African market for goods. In 2008, £1,279m worth of services was exported to Nigeria (up 46% on 2007), according to the UK Trade & Investment. With proved gas reserves 22% the size of Saudi Arabia’s, Nigeria is one of the African region’s most attractive. War in the Middle-East and resource nationalism in Russia mean international oil companies will focus more on Nigeria. Nigeria’s oil production and proven reserves have increased by 9.8% and 51% respectively.

Provision of services to the oil and gas industry is considered a major UK export opportunity; UK-based companies in Nigeria’s oil and gas industry reflect this. From Aberdeen Drilling School Ltd in Scotland to TTE International in England, several firms offer training courses in well control, drilling technology and skills development in the upstream and downstream sector.

“Allowing for profits to flow back into the local economy and for business skills to be developed” is one way of developing local capacity, according to the Natural Resource Charter, co-designed by Paul Collier, professor of Economics at Oxford. Thus the local content bill  intends to promote as much participation along the entire oil and gas value chain through the use of local goods, services, people, businesses and financing.

The ambition to localise the petroleum industry dates from the mandatory 10% equity for local companies during bid rounds for oil wells in 2005. However, achieving greater local participation is admittedly fraught with a yawning skills gap.

Some analysts contend that given the technology and skill deficit, meeting the requirements of the local content bill will be steep. The percentage of local content required in, say, engineering services; onshore, offshore and liquefied natural gas facilities range between 50-90%. There is also a 5% limit on foreign workers for projects over $100m. For joint bids by local and foreign companies at “least 50% of their machinery has to be manufactured locally.”

Others opine that the success of Oando, Nigeria’s most visible indigenous oil firm, when local content policies were nonexistent suggests otherwise. For proven local companies, scarcity of domestic credit is not a constraint. AMNI, an indigenous oil company and partner of Afren, a UK-listed oil firm with significant exposure to Nigeria, was granted a $50m loan by GT Bank in July 2009. The loan will finance AMNI’s Ima oil field project. John Crawford, Deputy Director Energy in UKTI’s energy team, agrees that doing business in Nigeria is difficult but “If you are serious about developing relationships in Nigeria you need to look at being in-market”.

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