Think global, hire local

The Oil Boom of the 70’s saw a flurry of oil and gas exploration and production activity in the Middle East. Since there was a dearth of skilled manpower to sustain the fast growth in the region, international and national oil companies turned to experienced staff from overseas to make up for the talent shortage in the region. After 40 years of operation, the situation hasn’t changed much. Though there has been massive growth in the work force, the percentage of expatriates remains the same.

All was okay until recently. There has been an increase in violence directed at expatriates in Saudi Arabia. Meanwhile local unemployment has been growing; Arthur Little’s report released this week highlights how this problem has been growing in the region. Yemen’s unemployment rate is 36%, Saudi Arabia’s is creeping up to 14%.

Finally the cost of expats, typically 2-5 times higher than locals, is also more difficult for NOCs to bear. With the populace seeking to “share the wealth” (eg, the agitations in the Niger delta) governments are interested in greater knowledge transfer, upskilling and general hiring of local talent. The Dept. of Petroleum Resources, Nigeria has recently issued a directive to oil and gas companies to hire local talents instead of expatriates. Similar guidelines are already being provided by licensing and governing bodies in growth regions such as Libya and Iraq.

Instead of viewing such directives as a handicap, International oil companies should make most of the situation to cement their relationships with national governing bodies, while NOCs can build up their image as national champions; giving practical solutions for their country’s expatriates dependence in the future. National oil companies’ aspiration to play a major role in the international energy market is very closely related to building local capability. As they venture into other countries, they will need the expertise to manage their growing international operations.

There is a financial imperative to this calculus too. Block awards and renewals are increasingly tied contractually to local workforce development. IOCs also worry about the approximate 50% of the current expatriate workforce that will retire by the next decade. There is no time like now to build a local workforce that will not only deliver the project at hand but may also be a springboard for regional expansion.