Multinational oil and gas companies should embrace the concept of localisation in the countries in which they operate, partnering with governments and local communities to lower supply-chain costs, boost local skills development, reduce risk and enhance their local reputation, global audit and consulting firm Deloitte has advised.

Defining localisation as the process of capacity-building through investment in human capital, the development of in-country supply chains and the forging of partnerships with local companies and organisations, the firm argued that such activity would transition a corporate away from a narrow focus on compliance with local content regulations, which typically resulted in companies performing the bare minimum to meet specified targets for local labour, materials and services.

“The old paradigm for multinational firms, particularly those involved in the resource sector, was to simply do the bare minimum to comply with local legislation to obtain an operating licence.

“However, it is becoming increasingly apparent that firms also need a socioeconomic licence to operate in many countries. Without the goodwill of local communities and their governments, multinational firms simply cannot be certain of the long-term sustainability of their investments,” commented Deloitte Resources manager Jason McPherson.

According to Deloitte, Africa had become a significant player in the oil and gas industry over the last ten years, with research showing that the continent’s contribution to global crude production had trended between 9.4% and 12.1% over the last five years, with an increase of 2.1-million barrels a day between 2013 and 2014.

Similarly, Africa’s share of global gas production was between 6% and 7% over the same period, with a slight decrease of 0.1-trillion cubic feet a year to 2014.
 
The most significant growth in oil and gas investment on the continent had occurred in East Africa, with discoveries in Kenya, Uganda, Ethiopia, Madagascar, Mozambique and Tanzania. South Africa had also been identified as a country with significant shale gas potential, the firm held.

Returning to its argument in favour of localisation, Deloitte added that international firms could use localisation as a key enabler to add value to their operations in these countries, which was particularly important given that legislation was becoming more stringent.

“Instead of parachuting in expatriates, who typically require very expensive salaries, firms can reduce costs by focusing on local skills development.

“Similarly, the development of local suppliers and enterprises reduces the burden of having to import most of your inputs, typically at great cost,” said the company.

McPherson, meanwhile, reiterated that localisation should not be seen simply as a corporate social responsibility or public relations exercise.

“There are clear business imperatives to investing in local capacity development as it enhances a project’s long-term sustainability, both in terms of lowering the cost and length of your supply chain, as well as nurturing long-term relations with key stakeholders,” he held.

The group further encouraged international oil and gas companies to broaden their development goals to include both their own suppliers as well as nonessential enterprises that provided goods and services in the broader economy, whether they were related to logistics, catering, engineering or other sectors.

It also believed that African governments had a crucial role to play by bringing their local content and localisation policies in line with international standards through legislated compliance requirements for exploration and production licences supported by structured incentive plans aimed at ensuring full industry participation of multinational oil and gas firms.

“One cannot simply get away with doing the bare minimum anymore if you want to ensure long-term sustainability of your investment. One needs to view localisation not as a burden, but as a positive spin-off of local content regulation which can create a sustainable advantage for companies looking to enhance their triple bottom lines in key markets,” McPherson concluded.