By NJ Ayuk, Executive Chairman, African Energy Chamber
It’s not unusual, when discussing Africa’s local content laws for natural resources, to focus on employment. Local content typically specifies that a company operating in “Country X” must hire a certain percentage of the local people in a certain number of job categories, from unskilled labor to supervisory roles. During my recent trip to Angola, where I engaged with a lot of Angolan players local content continues to be a key topic. Diamantino Pedro Azevedo, the country’s Minister of Mineral Resources, Oil and Gas was firmer about improving local content and creating opportunities for his citizens. He is right.
Unquestionably, laws that make sure Africans get a reasonable portion of the jobs created as a result of the oil and gas activity in their countries are critically important.
But wielded strategically, local content laws can accomplish even more than boosting local employment rates: By requiring companies to turn to local businesses for products and services, local content laws can help countries grow and diversify their economies — paving the way for long-term prosperity.
This is what Angola has been working toward since the country updated its local content laws in October 2020. One particularly impactful change was to specify that the requirements for international oil companies (IOCs) to work with local businesses would apply to all Angolan companies that provide goods and services for the oil and gas industry. Now, not only do local content policies benefit energy sector companies like oilfield services providers and oil and gas logistics services, but also accounting firms, food services, and many others you wouldn’t immediately associate with oil and gas. And these businesses, in turn, can contribute to growth in other economic sectors, including agriculture, construction, transportation, and shipping.
Angola’s common-sense approach to harnessing its oil and gas resources is already propelling a positive cycle of growth. Look at Angolan banks. A thriving oil and gas industry has been contributing to a strong economic outlook for Angola, where the GDP is projected to grow 5% between 2023 and 2026. Factor in rising oil prices, a stronger Kwanza (Angola’s currency), and local content laws that now require oil and gas companies to do business with Angolan banks, and you have a considerably stronger Angolan financial sector.
As a result, in an era when net-zero emissions goals have made it more challenging for Angolan energy companies to get financing from Western institutions, Angola’s banks are better positioned to fill the gap. Angolan banks can now provide at least some of the funding necessary for local companies to pursue oil and gas opportunities in their country, whether they take the form of exploration efforts or doing business with IOCs.
So, essentially, local content has played a role in building a stronger Angolan banking sector, which is now in a position to bolster Angola’s domestic petroleum industry. And as the local oil and gas industry grows, it will be able to contribute to even more economic growth.
What we’re seeing here is a win-win-win and a perfect picture of the tremendous power oil and gas have to put African countries on a path to prosperity.
Banking on Angola’s Petroleum Industry
Essentially, a strong banking sector goes hand-in-hand with effective oil and gas industry local content.
For example, say an indigenous business gained an opportunity — thanks to local content policies — to start providing oilfield services for an IOC. To capitalize on that opportunity, the local company might need to hire more people or buy new equipment. And to do those things, it would need financing from a local bank. In Angola, local content regulations have helped ensure that banks are well-positioned to provide that financing.
Angola’s banking sector also is facilitating financing for domestic oil and gas projects on two fronts. First of all, it’s taking measures to put potential investors at ease about partnering with Angolan financial institutions to finance petroleum projects. As The Energy Year recently wrote, the Angolan financial sector is working to establish “transparent, reassuring legal frameworks that protect all types of investment, finance local players and attract FDI (foreign direct investment).”
Angolan banks are also working to help identify promising funding sources and match them with Angolan petroleum companies and projects. In other words, they’re serving as a bridge between local companies and international financial institutions.
All of these efforts will work in Angola’s favor.
The Vital Role of Domestic Companies
I’ve written and spoken extensively about the important role IOCs have to play, now and going forward, in African countries’ petroleum industries. I’ve explained that African countries still need IOCs’ investments, as well as the knowledge and technology they can share.
I still believe that. In fact, another highly promising change in Angola’s local content law calls for all technical assistance and foreign management agreements to include “a detailed programme on training, transfer of knowledge and technology and evidence of improvement of local staff skills.” These requirements are necessary for any African country planning to capitalize on its oil and gas to grow and diversify its economy.
But all of that is not to say that local companies don’t offer significant value to their countries’ petroleum sectors. In Angola, local exploration and production companies helped make it possible for the country to hold the No. 1 and No. 2 spots in African oil production during the last couple of years.
For example, Etu Energias (the country’s largest privately held oil company) has been working to increase output from its onshore and shallow-water assets. As of 2022, the company was operating Blocks 2/05, FS, and FST and had interests in non-operated blocks 3/05, 3/05A, 4/05, and 17/06.
The company also contributes to skill and technical capacity-building in Angola, provides jobs, and — like IOCs — creates opportunities for other local businesses.
Through laws and policies that set the stage for local companies to succeed, whether those companies are drilling for oil or providing energy companies with much-needed financing, Angola is positioning itself for even more growth and prosperity.