ABSTRACT
The concept of local content has gain a worldwide acknowledgement as the debate as to whether indigenes and indigenous business is worthwhile protecting. Local content provides a significant framework in driving the development of Ghana and increase the influx of foreign investment. Therefore, this study sought to provide a comprehensive assessment of local content policy and its significance for FDI in the oil and gas industry in Ghana. It employed a random sampling qualitative methodology through the aid of a well-structured open ended and closed ended questions and found that the introduction of the local content policy increased the level of foreign investment in Ghana through structures laid down in implementing the local content legislation in the oil and gas sector in Ghana. This has also increased locals participating in the upstream oil and gas industry has improved through various mechanisms such as employment, joint venture partnership, supply of goods and services and through sub- contracting. On the whole, the study identified that the local content policy has not been able to significantly achieve its intended purpose since its inception hence, strict implementation and adherence is on the low key. Thus, it is recommended that there should be an establishment of local content funds to support indigenous SMEs to enhance their competitiveness vigorously in the industry with their foreign counterpart thus increasing the participation of Ghanaians in the oil and gas industry and eliminating fronting of foreign companies. Additionally, the local content policy should be strengthened such that foreign investors and local industry players are clear on their overall scope of work so that unnecessary expectation would be reduced to avoid any conflict between industry participants.
CHAPTER ONE INTRODUCTION
Background to the Statement of the Research Problem
Over the past era, the global financial system has seen a histrionic rise in foreign inflows and investment by renowned multinational organisations and also a fundamental modification to the foundation about the advantages of Foreign Direct Investment (FDI). Indeed, FDI has developed quickly than foreign exchange, especially among the world’s most advanced economies, and as per UNCTAD the consolidated internal and outward FDI stocks influenced 31.7% of worldwide GDP and FDI to export represented 46% of worldwide exports of merchandise and services in 1999.1 The innovative and generalised view about FDI has moved governments to disassemble numerous obstructions so as to draw in foreign inflows. Nonetheless, some repetitive practices of mediation and various vital qualifications proposed by trade researchers have led over the recent years to abundance of theoretical and empirical research which looks at this issue, using a diverse range of analytical approaches.
While firms from advance nations may like to trade their goods to unexplored markets, developing nations will endeavour to utilize their market potential to draw in FDI. This is because, as opposed to export, foreign direct investment by multinational enterprise (MNEs) may raise employment and upgrade innovation transfer in advanced nations. With a specific end goal to full benefits of employment and innovation exchange, developing nations regularly enforce local content requirements on FDI. This is on the grounds that local content requirements regulations require multinational firms to utilize a specific extent of locally made parts and components in their production, employment in the local enterprises will undoubtedly increase. Furthermore, to keep up the quality of their main goods, multinational firms must
transfer innovation to the local businesses. In this manner, local content requirements have turned into a well-known form of governmental regulations of FDI in developing nations.
Despite Ghana’s endowment of rich natural resources, it is still rated as a lower middle income country and depend largely on foreign aid and grants. The multinational companies operating in the resource sectors in Ghana are expatriating a larger part of the returns leaving most Ghanaians in poverty.2 As a result, the Ghana government was provoked and started to set local content policies (LCP) that will protect the interest of the domestic firms and citizens. Ghana began working on local content policies since 2010. The tone was set by the enactment of the Minerals and Mining (General) Regulations, 2012-LI 2173 as a local content policy in the mining sector. This was followed by that of the oil and gas industry – Petroleum (Local Content and Local Participation in Petroleum Activities) Regulations, 2013 (LI 2204), which defined Ghana’s participation of local content in oil and gas industry. Ghana is fortunate to be one of the few nations that have strong regulatory framework dealing with issues relating to the local content in the petroleum sector.
The enactment and execution of the Local Content Policy within the petroleum Industry in Ghana sought to place a limitation on foreigners’ participation in the activities of this sector. FDI is a main component of capital flow for developing countries of which Ghana is not an exception. According to Musila and Sigué3 most of the literature are of the view that the gains of FDIs overshadow its cost in the host countries.4 As a result, FDIs are necessary for economic growth in developing economies such as Ghana. There have been massive inflows of FDI into Ghana following the discovery of oil. Ghana was placed third out of the five top countries as major receivers of FDI in Africa in 2011.5 Ghana benefited from FDI in the newly developed Jubilee oil field where marketable production began in December 2010.
Statement of the Research Problem
Africa is blessed with enormous natural resources such as gold, diamond, cobalt, oil, bauxite and uranium yet most of the states in Africa is engulfed with poverty and remains the poorest continents on the globe.
The discovery of oil in commercial quantities in Ghana in 2007 was greeted with high expectations and optimism by Ghanaians as it was deemed as a good source of revenue. Since the commercial production of oil started in December 2010, the economy grew at a more than 14 per cent in 2011, making Ghana the fastest growing economy in the world that year thus attracting more MNCs in doing business in Ghana.
While the oil discovery presents enormous opportunities for economic growth and poverty reduction, the country has since not experienced that quantum growth. As result, there is the need to assess the efficacy of the implementation of Ghana’s Petroleum Regulations, 2013 (LI 2204). This is because the Local Content Provisions for the oil and gas sector in the Petroleum Law (PNDC Law 84) did not succeed in increasing the benefits to Ghanaians in the sector due to inefficient implementation. Whether the passage of the Local Content law, 2013 (LI 2204) has made any difference leaves a lot more to desire and worth investigating.
Smith stresses that when a policy is espoused and supported by regulations, it does not necessarily mean it will be successfully implemented.6 Whenever assessments of programmes are done, it often turns out that their intended purposes are not always achieved. This could be as a result of the ideas been misapplied or they are not applicable at all in that area, even though
they appear good on paper.7 In some cases, the negative impact of the policy will turn to outweigh the positive.
The overall purpose of this research is to examine if the existing Local Content Policy (LCP) has any bearing on the amount of FDI in the oil and gas sector. This study seeks to enhance the development of the oil and gas business in Ghana, considering the numerous political and socio-economic challenges within the sector.
