sharing in governance of extractive industries
The discovery and exploitation of oil, gas and mining usually brings in its wake high expectations of employment opportunities for countries where the resource extraction is taking place. However, there is often a mismatch between these expectations and the actual jobs that the oil, gas and mining sectors can offer. In practice, oil and gas, and to a lesser extent, mining projects in Africa often do not generate much employment locally. This is partly as a result of the capital intensive nature of extractives and, especially oil and gas projects.
While to some extent the challenge stems from the nature of the industry, there is scope for policies that can reconcile the interests of extractive companies and governments, and in the process amplifying the benefits for broader domestic economies through increased employment. Most often, locals lack the skills and competencies to compete for job opportunities in the oil, gas and mining industries as a result of the profile of oil, gas and mining projects, and also the quality of the education and skill-training systems. It is against this backdrop that African governments should be motivated to institute a set of policies that will enhance the skills and competencies of their people to take up opportunities that expanding oil and mining activities create.
This article highlights the set of government interventions that are crucial for developing Africa’s skill-based economy in the oil, gas and mining industries and, also illustrate how these skills are relevant to other sectors of the economy too, drawing on previous research by the African Development Bank (AfDB) in collaboration with the Bill and Melinda Gates Foundation.
Skills policies for extractives need targeting and timing
The extractive industry is capital intensive. In the mining industry, US$ 1 million of investment corresponds to three jobs, on average. In oil and gas, the investment per job is 10 times higher compared to mining. These industries are therefore characterized by very high labor productivity compared to other sectors like agriculture, construction, finance, among others. The high labor productivity implies that extractive industry companies are prepared to pay high salaries for the skills and competencies they require.
The extractive industry requires a high level of skills and competencies to operate complex machinery and manage sophisticated processes. In some resource-rich African countries, local workers tend to miss out on employment opportunities because of the considerable gaps between the skills and competencies of local workers, and the skills demanded by industry. How can this be remedied?
Improving universal education will have benefits far beyond the extractives industry, but there is also a specific case to improve the quality of education – particularly at lower secondary level – if African countries are to fully exploit the broader employment opportunities from the extractive industry. Skills development in and around the extractive industries involves a combination of pre-employment training, on-the-job learning, and upgrading of skills and competencies through further continuous professional development and education.
The challenge is to create skills and competencies that are not only required by the extractive industries, but are also transferable to other sectors, thus helping lay a foundation for economic diversification. Also, the type of education and skills needed for oil and gas projects could differ from education and skills that mining projects demand.
In oil and gas projects, much of the labor demand is for semi-skilled and skilled workers. In contrast, mining companies normally need a higher proportion of employees at the basic/entry level, particularly during the construction phase. Therefore, countries that want to leverage gains in the extractive industries need to calibrate their training and educational offer to match labour demand.
The timing of the investment in education and training is critical too. The demand for labour from extractive companies is time-bound, and evolves over time as the extraction cycle goes through its different phases. The highest demand for labor arises during the construction phase of the project life cycle, which is also when most opportunities for local labor participation exist. Figure 1 below illustrates a typical extraction cycle for the mining and for the oil and gas industry.
Figure 1: Extractive project lifecycles
Once a project has been set up and is operating, the demand for labor not only drops significantly but also tends to be more specialized. It is also during the construction phase that the demand for transferable (or portable) skills required by other related economic sectors (e.g. infrastructure development, provision of utilities, the construction industry) is usually highest. Figure 2 shows the timing of the window of opportunity, plotting an estimate of skills demand for a typical oil and gas project.
Figure 2: The time-bound nature of labor demand – a small window of opportunity
The attention of governments has often focused on direct employments that arise from oil, gas and mining projects. However, induced or indirect employment, which results from mining or oil companies procuring goods and services, and their employees spending their wages, is often much more important in terms of job creation than the direct employment created by the project. The skills and competencies required as a result of direct and indirect labor demand from the extractives industry include those used in the construction and utilities sectors, (e.g. downstream energy and electricity, water, communications) and by technicians in the mechanical, process and electrical engineering industries. These skills and competencies are typically acquired through formal and informal technical and vocational education and training (TVET) systems. In addition, extractive industries also need employees with more general business skills, such as IT, accounting, and project management, as well as geology and engineering skills.
It is therefore important for resource-rich African governments to complement primary, secondary and tertiary education with dedicated TVET, which ideally builds on lower secondary education and is considered equivalent to higher secondary education but with learning focused on specific workforce roles. These skills and competencies are highly transferrable and sought after by industry around semi-skilled and skilled employment.
A coordinated approach at national and regional level
Governments and other institutions need to play a coordinated role in developing the skills base of the economy for extractive industries.
Figure 3: The roles of the various stakeholders in skills development
Beyond government and other domestic stakeholders, there is a role for regional initiatives in skills development. A regional skills survey could identify skill needs and constraints. Initiatives such as shared facilities, cross-border or inter-university training programs, sponsorships, and research and development programs could be facilitated by Regional Economic Communities (RECs) in order to minimize individual country costs, foster economies of scale and improve competitiveness. Harmonizing job descriptions and requirements, educational certifications, as well as facilitating the free circulation of labour across African countries would help match skills with jobs and create regional employment and skills transfer opportunities.
Skills training requires time. Ideally, a skilled workforce should be available when a project reaches the development stage. This is, however, very unusual. Governments need to develop short-term, medium-term and long-term plans that tailor work permit regimes to allow skilled foreign experts to take up the vacant positions in the extractives sector and utilize these foreign experts to build local capabilities, while putting in place policies that incentivize skills transfers to the local workforce.
But for this strategy to be successful, wide educational foundations and reforms need to be built and implemented through public investment. If the quality of education is compromised at the primary and secondary school stages, acquisition of the desired skills becomes difficult to achieve at a later stage. Effective teaching can be achieved through reducing pupil–teacher ratios, reducing primary school dropout rates, and increasing the time students spend in school.
There are considerable gaps between the skills and competencies of local workers and demand from the extractive industries in most African countries. While improving education will have benefits far beyond the extractive industries, this points to the urgent need to improve the quality of education – particularly at the lower secondary level, which prioritises technical education. This will involve developing a comprehensive local content policy that is linked to the overall national agenda on education and skills training in resource-rich African countries.
By: Stephen Yeboah, Consultant and Pietro Toigo, Chief Macroeconomist, African Natural Resources Center, African Development Bank. This article was originally published by the African Development Bank.
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