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The Local Content Law And Its Effect On Job Creation (A Case Study Of Capital Oil And Gas Nigeria Ltd)

Abstract of The Local Content Law And Its Effect On Job Creation

The study explored the Local Content Law and its effect on Job Creation and having Capital Oil and Gas Nigeria Ltd as its case study. The Survey technique was adopted in the study. Structured questionnaires were used for data collection, data collected were analyzed using the statistical tools of frequency counts, charts and simple percentage for the demographic data while inferential statistics of chi-square (X2) was used to test all the stated hypotheses at 0.05 level of significance. A total number of Eighty Nine (89) copies of questionnaires were administered to the respondents. The objective of the study was to investigate the effect of Local Content Law on Job Creation; vis-à-vis government legislation and protectionist policies. After all relevant data were gathered and analyzed Two (2) hypotheses were tested and the entire alternative hypotheses were accepted. The result of the first hypotheses showed that there is a significant relationship between local content law and job creation in Nigeria. The findings of the second hypothesis also revealed that government policies/legislations have an effect on the growth of SMEs in Nigeria. The study recommends that the present state of unemployment in Nigeria is a clear indication that a responsible and dynamic approach to sustainable local content development needs to be adopted by government policy makers and upstream operators to guarantee a better future for the nation’s teeming population. Technological development does not occur just by chance; rather it is a product of a nation’s sound economic management, policy re engineering, good governance and a social value system that rewards hard work and creativity.

Chapter one of The Local Content Law And Its Effect On Job Creation

INTRODUCTION

1.1 Background to the Study:

The role of the Local Content Law (LCA) in the creation of job in the face of the rather sky-rocketing mass unemployment in Nigeria cannot be overemphasized. Now, the Oil and Gas Industry (OGI) in Nigeria plays a crucial role to the sustenance of the nation and fuels her economic and development activities. The industry has been widely described as the nation’s live wire and literature abounds on its role and significance in Nigeria (Agusto, 2002; Atakpu, 2007; Odulari, 2008). Nonetheless, an estimated $8 billion is spent annually on servicing the industry in operations such as fabrication, engineering procurement, construction (EPC), Front End Engineering Design (FEED), conceptual designs and seismic studies. This figure is projected to hit $15 billion within the next few years (Business Day, 2008). Regrettably, despite these huge sums of money spent in servicing the industry, only a very little proportion of the accruable profit is spent in Nigeria.

Majority of the amounts are repatriated abroad, where most of the equipment is manufactured; and providing employment opportunities for citizens of other countries. The major reason for this situation has been attributed to low local content (LC), which is a situation where most of the service contracts are awarded to foreign firms because local indigenous firms lack the requisite skills, technical expertise, manpower and production capacity and capability to compete favourably. Oladele (2001) posited that low LC in the Nigerian OGI results from: Deficient capitalisation arising from the tendency of Nigerian entrepreneurs to operate as ‘one man’ businesses; Capital and structural deficiencies associated with poor training and low managerial ability; and Inability to attract funds due to lack of suitable collateral and positive corporate image.

Historically, Nigerians have had very little share of the country’s oil wealth and there was an urgent need to reverse this trend in the wake of the country’s return to democracy. To address this anomaly, the Federal Government of Nigeria in the early 2000s introduced the Local Content (LC) policy, christened

Nigerian Content (NC) and it was primarily aimed at enhancing increased participation of local indigenous firms in OGI. The policy was targeted at transforming the industry through the development of in-country capacity and indigenous capabilities in the area of manpower development, facilities and infrastructure towards ensuring that a higher representation of local indigenous companies participate actively in the industry (Lawal, 2006; MacPepple, 2002 and Nwapa, 2007) in the drive to create employment opportunities for Nigerians.

The term Local Content (LC) as aptly christened ‘Nigerian Content’ has been defined as ‘The quantum composite value added or created in the Nigerian economy through the utilization of Nigerian human and material resources for the provision of goods and services to the petroleum industry’ (NNPC Website). The concept of local concept is global and not restricted to Nigerian, as it has previously been undertaken in several other oil-producing countries. Warner (2007) views LC from an angle of ‘community content’ while stating that “Ultimately, community content is about realising a competitive advantage for an oil and gas development company in the eyes of both the local population and the country’s guardians of economic policy.”

According to the National Manpower Board, (2009) the Nigeria labour market could barely absorb 10% of the over 3.8 million persons turned out by the Nigeria educational system on a yearly basis. In brief, the employment trends in Nigeria indicate that, without a concerted effort to tackle the problems of unemployment and underemployment the situation could get worse.

Job creation is one of the developmental problems that face every developing economy in the 21st century (Patterson et al, 2006), and Nigeria is not exempted. Non availability of jobs is felt more by the youths, leading to youth unemployment. Trafficking in persons and child labor can be attributed to poverty and joblessness among the youths. For a few who are able to find their way out of the country to work in other countries, their departure has depleted the quality of human capital resources in the country.

The Nigeria Local Content Law is aimed at reforming the petroleum industry into becoming the economic hub for promoting higher SMEs participation, job creation and base for industrial growth; as well as for checking capital flight away from the country (Binniyat et al, 2008; Chukwu, 2005 and Gilbert, 2007). It is against this backdrop that this study is inspired to investigate “the Local Content Law and its effect on Job Creation” with a special reference to Capital Oil and Gas Nig. LTD.

1.2   Statement of the Problem:

The journey to industrialization is not just limited to the oil and gas sub sector. The entire footwear and leather sector is virtually wiped away. Even the print media is feeding on imported newsprint as the local newsprint companies like Oku- Iboku, Iwopin and Jebba remain a mere shadow of a once vibrant sector. In the construction industry many local firms have closed shop and the big multinationals are reducing workforce in large numbers as the leadership of the union reported over 12,000 job losses recently. The prosperous petroleum sector is built virtually on extraction and not value addition as Kaduna, Warri and Port Harcourt refineries remain comatose.

The entire oil industry regrettably lives on contract and casual employment. In fact, no sector is spared; Air Transport, Shop and Distributive, Steel, Engineering and Automobile. The Railway sector despite monumental investment in recent years is yet to show the promise of revival. The Industrial decay is just monumental.

The Manufacturers Association of Nigeria (MAN) in her 2009 annual report provided a graphic detail of factory closures across all geo-political zones with eight hundred and thirty four (834) factory closures and over 100,000 job losses that year alone (Ariweriokuma, 2009).

According to industry experts, the main reason for this situation is attributed to the problem of low local content (LC), which is a situation where most of the service contracts are awarded to foreign firms because local indigenous firms ‘allegedly’ lack the requisite skills, technical expertise, manpower and production capacity and capability to compete favourably (Aneke, 2002; Ariweriokuma, 2009). Oladele (2001) suggested that low LC in the Nigeria is due to: Deficient capitalisation arising from the tendency of Nigerian entrepreneurs to operate as ‘one man’ businesses. Hence, this research study will assess “the Local Content Law and its effect on Job Creation” with a special reference to Capital Oil and Gas Nig. LTD.

1.3   Objectives of the Study:

The major objective of this study is to investigate the Local Content Law and its effect on Job Creation. While other specific objectives include;

1.To find out the impact of the Local Content Law and its effect on Job Creation in Nigeria.

2.To examine the impact of government policies/legislations on the growth of SMEs in Nigeria.

3.To examine the relationship between Local Content Law and the rate of unemployment in Nigeria.

4.To examine the effect of unemployment on the rise of social vices.

5.To find out the effect of government legislation on economic growth and development in Nigeria.

6.To provide plausible recommendation for the implementation of the Local Content Law in Nigeria.

1.4   Research Questions:

The undertaking of this research project will beam a searchlight on the following research questions;

1.Does the Local Content Law have effect on Job Creation in Nigeria?

2.Does government policies/legislations have effect on the growth of SMEs in Nigeria?

3.What is the relationship between Local Content Law and the rate of unemployment in Nigeria?

1.5   Research Hypotheses:

The researcher intends to test the following hypotheses at 0.05 level of significance;

Hypothesis One:

Ho:      There is no significant relationship between Local Content Law and Job     Creation in Nigeria.

Hi:       There is a significant relationship between Local Content Law and Job        Creation in Nigeria.

Hypothesis Two:

Ho:      Government policies/legislations have no effect on     the growth of            SMEs inNigeria.

Hi:       Government policies/legislations have effect on the growth of SMEs in         Nigeria.

Hypothesis Three:

Ho:      There is no significant relationship between Local Content Law and the      rate of unemployment in Nigeria.

Hi:       There is a significant relationship between Local Content Law and the        rate of unemployment in Nigeria.

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