The Importance Of A Holistic Localisation Strategy: Insights From The Oil and Gas Industry

Localisation strategies are a cornerstone for mutual growth, value creation, and effective transformation for both Ghanaian Society and upstream Oil and Gas companies. However, by not taking a holistic view, the potential benefits of robust localisation strategies are not captured.

In 2007, Dallas-based Upstream Oil and Gas Company Kosmos Energy made one of the largest oil discoveries in Ghana for decades. The Jubilee Field which is located 60 km offshore between the Deepwater Tano and West Cape Three Points blocks off the coast of Ghana’s Western region currently has a production rate of 84,700 Bopd (Barrels of Oil Per Day). The discovery of oil acted as a beacon to the world that signaled Ghana’s hydrocarbon potential. To capitalise on this potential, from 2007 to 2020, Ghana has taken major leaps to develop the industry; from setting up industry-specific entities such as the Petroleum Commission, to passing regulations such as the LI2204. All these actions have been undertaken to make sure that the discovery of oil, and the resulting exploitation of natural resources, leads to the creation of economic value. Which will be diffused throughout the entire country instead of being concentrated in the hands of a few. One central area for creating mutual economic benefit, across multiple stakeholders, is workforce localisation strategy. The lifecycle of a localisation strategy has many nuances. Given our deep industry experience within the Oil and Gas sector in Ghana, we set out to explore and demystify the following within this article:

• The anatomy of a holistic localisation strategy that results in strong value creation for all stakeholders involved. 
• The hidden costs of a badly implemented localisation strategy, and how it can lead to serious disadvantages across the entire value chain. 
• Tangible recommendations for the successful implementation of a holistic localisation strategy that leads to distinct positive long-term value creation. 

Why The Need For A Holistic Workforce Localisation Strategy?  

Local Content Regulations refer to policies that are imposed by governments that often require firms to use some level of domestically supplied services or domestically manufactured goods in order to operate within an economy. These regulations are put in place as a means for the government to achieve its respective policy aims in regards to industrialization, economic development, and employment. When faced with existing local content regulations in a particular economy of interest, companies must employ workforce localisation strategies. Developing and implementing a workforce localisation strategy can take a variety of different forms depending on the economy of interest. Given our deep experience within Ghana’s Oil and Gas sector, we have identified gaps in the implementation of workforce localisation strategies as it relates to workforce planning. These gaps prevent and seriously hamper the perceived mutual value creation that is supposed to underpin these strategies. We believe that there is a need for holistic localisation strategies; which are integrated strategies from a business objective perspective where the company believes in the benefits of localisation, and creates structures of accountability between themselves and the host country. 

Ghana’s local content regulations were created in a piece of legislation known as the LI2204. The central pillars of these regulations are highlighted below: 

• Maximizing the patronage of Ghanaian goods and services and thereby increase in- country spend
• Increased employment of Ghanaian Professionals by ensuring the localisation of job opportunities
• Facilitate Technology and Skills Transfer through Training, Research and Development.

• Local Participation by encouraging Ghanaians to have equity ownership and management participation in upstream petroleum activities

• Develop Local Capacities resulting in increased capabilities and competitiveness of indigenous Ghanaian companies and individuals

A holistic localisation strategy requires that a company explicitly states its intention of having a majority of its company’s operations run by domestic nationals within the economy of interest, and working in tandem with the host country to achieve this. Transparency on both sides is necessary for a successful engagement. Without this transparency or accountability, localisation strategies tend to fall short and lead to hidden costs that are incurred by both the host country and the oil and gas company. 

Hidden Costs Of A Badly Implemented Localisation Strategy 

There is a cascade of hidden costs when it comes to a poorly implemented localisation strategy.  Most international oil companies, within the upstream oil and gas sector, that have the ability and capital to go into new economies are publicly traded companies. This requires a sharp focus on maximizing shareholder value and being efficient allocators of capital. These companies must use both short-term and long-term planning to ensure the viability and attractiveness of their business for prospective and existing investors and customers. Therefore cost discipline is absolutely necessary. So it is extremely surprising to see some of these companies incurring a greater cost than necessary due to not employing holistic localisation strategies. We believe that the companies that will ultimately succeed are the ones that view holistic localisation strategies as a competitive profit-maximizing long-term investment, instead of a cost-centre associated with compliance. We will use our experiences operating within the Ghanaian Oil and Gas sector to highlight how some of these hidden costs are incurred. 

•  Social license to operate  
  • An agreed-upon and transparent workforce localisation strategy between the company and the Petroleum Commission, the organization tasked with monitoring and enforcing local content regulations, leads to an approved social license for that company to operate. This social license is not written down on paper, however it generally relates to how the government views, evaluates, and treats the oil and gas company. This is especially important when the company begins operations which will require procuring work permits for a variety of different activities. Favourable standing with the existing regulatory organizations via a clear commitment towards developing the local industry and its human capital leads to smoother operating experiences for the oil and gas company. The importance of the social license cannot be understated. Failure to show a host country the steps that your organization is taking to help develop the local industry may lead to unforeseen delays that lead to costs accumulation to the operations. The steps should include a clear and transparent succession plan including transfer of skill and knowledge over a reasonable period of time.

•  Lack Of Knowledge Transfer and Capacity Development hamstrings a company’s productivity and continues to add significant costs to operations
  • Organizations that do not have strong knowledge transfer programmes between the expatriate staff that they bring in and the domestic staff that works within a particular economy are at a disadvantage. Investing in the capacity of your local staff translates directly to long-term cost savings and productivity enhancements. The main mechanism driving this hidden cost comes from relocating expatriates to a new economy. Expatriates are relatively more expensive for an organization to service as opposed to domestic talent. Additionally, the reliance of a company on out-of-country personnel, especially for more technical considerations, prevents the company from moving nimbly within that economy. This will continue to add significant costs to the overall operations and host country.

•  Retention and churn of existing employees
  • One of the strongest indicators of a successful company is employee morale. Strong employee morale means that your organization has employees that can envision a long-term future with you. If you do not invest in your domestic employees via structured knowledge transfer programmes, strong succession planning, and various other training or benefits, then you will have high employee churn within your organization. Employee churn is a serious problem if you are located within an economy that does not have a readily available supply of technically competent talent that you can replace the lost employees with. The prevalence of churn is a serious cost which may delay production schedules, and ultimately manifests in a sub-par operating performance with zero-to-little productivity gains. Additionally, low employee morale amongst existing employees may result in a work culture where people view your company as an antagonist as opposed to an enabling protagonist. This leads to behaviours where employees will act to your company’s expense instead of to your company’s benefit.

Our Recommendations For Creating A Holistic Workforce Localisation Strategy

The companies that take a long-term view of the economies that they operate in are the ones that are most poised for success. At CarvinClay, we take the stance that investing in developing strong workforce localisation initiatives and programmes acts as a competitive advantage that companies can use to pursue growth, productivity gains, and ultimately create more value. However, this is easier said than done. So we laid out some concrete and proven ways of developing, measuring, and implementing strong localisation strategies below: 

• Strong Sourcing programmes
  • There is one critical element at the core of every strategy; people. Therefore sourcing skilled and competent professionals, qualified graduates, and other qualified participants of the workforce is important. As part of a strong holistic localisation strategy, an oil and gas company can invest in developing partnerships, or co-creation programmes, with established higher-education institutions as well as top oil and gas recruitment agencies in Ghana. Investing in a strong recruitment programme can directly lead to increased benefits in the long-run for the oil and gas company. Having a top-quality, competent, domestic workforce will allow the company to move faster and also be more capital efficient. We believe that the upfront costs incurred in starting and developing the programme will be matched and exceeded,in the long-term, by benefits that come from competent talent being a competitive advantage.

• Development For Existing Employees
  • Creating formal, pre-approved development programmes for existing domestic employees is a strong pillar for a holistic workforce localisation strategy. Formalized development programmes have a host of different benefits. They signal to a company’s employees that the company has taken the time to map out what career growth within the organization at specific roles looks like; this inspires employee confidence. Additionally, the company has an objective standard by which to measure an employee’s competence. The company can also collaborate with the Petroleum Commission (PC) as necessary to show them how their domestic staff are progressing; this will increase the PC’s confidence that the company is actively trying to match and fulfill local content requirements. There are a variety of tools that a company could use to enhance their development programmes for existing domestic staff:
    •  Establishing structured and measurable knowledge transfer programmes between expatriate staff and domestic staff.
    • Leveraging succession planning and training to prepare domestic staff for roles that require more responsibility; especially in the technical competency.

Implications for Oil and Gas Companies in Ghana

If you are an oil and gas company currently operating in Ghana, then we suggest that you start viewing your localization strategy as a way of creating a competitive advantage. An advantage that not only benefits your company but also benefits the communities that you operate in. This creates a virtuous flywheel that will help your organization ultimately create and capture more value in the long-run.