On 2nd February 2018, the President of the Federal Republic of Nigeria, Muhammadu Buhari, signed the Presidential Executive Order 005, “Planning and Execution of Projects, Promotion of Nigerian Content in Contracts, Science, Engineering and Technology.” The Order seeks principally to (i) entrench principles of local content into the procurement processes of public entities; (ii) promote capacity building for indigenous companies and professionals through deliberate knowledge and technology transfer from international experts implementing projects in Nigeria; and (iii) institutionalize the application of science, technology, and innovation (STI) in all sectors of the Nigerian economy to boost economic development.
The passage of the Executive Order is indicative that the subject matter is of national importance and requires urgent intervention. The legal effect of the Order is that it will have the full force of law without requiring any further legislative action.
Overview of the Executive Order
The Federal Government of Nigeria (FGN) has taken a two-pronged approach to promoting national interest and value preservation for indigenous businesses by defining a sustainable path towards economic growth and social development. On the one hand, entrenching local content principles in public procurement guarantees that indigenous businesses will be given priority in the allocation of contracts by government institutions. The government institutions will also be compelled to promote and utilize home-grown products and services.
On the other hand, the promotion of science, technology, and innovation at all levels, ensures the development and deployment of local and Nigerian-centered solutions to our development and infrastructure problems, whilst entrenching innovation into our collective consciousness.
A. Promoting Local Content in Public Procurement
Preference for Nigerian Companies in the Award of Contracts:
The Order mandates all government Ministries, Departments and Agencies (MDAs) to give preference to Nigerian companies in the award of contracts. These contracts are, however, required to also be awarded in line with the Public Procurement Act, 2007. It is expected that where a Nigerian and a foreign company bid for a contract, priority is given to the Nigerian company that demonstrates suitable qualification, technical expertise and capacity.
It is, therefore, pertinent for Nigerian companies to ramp up their knowledge and skills; invest in new technology, materials, and equipment; and enhance their internal processes for service delivery. The foregoing will enable Nigerian companies take advantage of the boundless opportunities resulting from the Order. Notably, unlike the Nigerian Oil and Gas Industry Content Development Act, which promotes local content solely in the Nigerian oil and gas industry, the Order ensures preferential treatment for Nigerian businesses across diverse sectors.
Local Content Plan in Contracts Execution:
The Order requires all MDAs to note on the faces of all documents soliciting tenders for supply of goods or services that preference will be given to domestic bidders. Further, tenderers are required as part of the bid submission process to indicate within the proposal, a detailed local content plan. This disclosure will include the use of local materials, skills and labour, as well as a plan for the transfer of knowledge and technology (in the case of foreign tenderers). In effect, it becomes mandatory for local content principles to be entrenched in the delivery of goods and services to government institutions.
It is equally important to note that the Standards Organization of Nigeria (SON) has been mandated to certify the locally produced raw materials and goods in accordance with international best practices. Such certification is now required to be disclosed in tender documents submitted to any government institution.
Margin of Preference in Tender Processes:
The Order introduces a Margin of Preference for indigenous suppliers of goods and providers of services for national and international competitive bidding. Margin of Preference is an allowance for an extra markup on price for domestic contractors or suppliers, which will not put them in a disadvantaged position during the tender evaluation process.
The order mandates for a 15% Margin of Preference for goods and 7.5% for works/services. Notably, procurement for goods has been allocated a higher percentage Margin of Preference indicating the FGN’s intent to incentivize local manufacturers. This, will in effect deepen the manufacturing sector by promoting the concept of “buy Nigerian” within its MDAs.
B. Capacity Building and Preservation of Business for Indigenous Companies and Professionals
Knowledge Transfer from Foreign Experts:
The Order mandates that where expertise is lacking, procuring entities shall give preference to foreign companies or firms with demonstrable and verifiable plans for indigenous development, prior to the award of such contracts. In addition, MDAs shall ensure that before the award of any contract, Nigerian counterpart staff are engaged from the conception stage to the end of the project.
In providing a demonstrable and verifiable plan for indigenous development; employment for the local workforce, knowledge and technology transfer are expected to be dominant features. If implemented and enforced meticulously, we can expect a geometric increase in the skills and competency of our local workforce and ultimately increased productivity and global competitiveness.
Barrier to entry for Professional Services Firms:
The Order further mandates that where contracts are to be awarded for professional services, only firms which are accredited with the relevant professional body/regulators may be considered for selection. Further, in relation to consultancy services in the areas of law, engineering, ICT, procurement, architecture or quantity surveying, the Order mandates that any joint venture established for projects in this field shall be led by the local partner. It is clear that the Order seeks to raise the barrier to entry into the professional services space to ensure that indigenous professionals are fully engaged without any external competition.
The Order has proscribed the grant of visas to foreign workers in respect of skills or expertise, which are readily available in the country. Further, expatriate quota (the official permit granted to Nigerian businesses to employ foreigners into certain approved roles/designations) for projects will be made subject to the availability of local skills and expertise as required by the Immigration Act. For specialized areas where local capacity is lacking, incentives will be provided to attract foreign workers who will be mandated to transfer their knowledge and skills to Nigerian workers during their stay in the country.
C. Promoting the Application of Science, Technology, and Innovation across Sectors
The FGN, in recognition of the critical role of science, technology and innovation to national development and in consonance with its National Science, Technology and Innovation Policy and the Sustainable Development Goals of the World Bank, has mandated the Federal Ministry of Science and Technology (FMST) to take the lead on the implementation of the policy and the FGN’s Made in Nigeria campaign to stimulate productivity, economic development and national competitiveness.
FMST is expected to establish centers for technology acquisition in the six Geopolitical Zones in Nigeria to strengthen technology utilization, technology management capability and information system. It is also expected to provide intervention fund to facilitate the upgrade of existing training programmes in universities, polytechnics, technical schools as well as to establish new programmes that support research and development of emerging technology. FMST is also expected to review the ICT infrastructure of government institutions to ensure that they are utilized to improve efficiency and quality of service delivery.
The Order also mandates that research, handling and processing of agricultural products must be done locally before the products are permitted to be exported. This ensures that optimal value is received for these products and that loss of revenue is minimized.
D. Fiscal Incentives for Local Manufacturers
One of the most commendable aspects of the Order, is the deliberate effort of the FGN to incentivize local manufacturers and companies who utilize local inputs and materials in their production processes. The Order mandates the Federal Inland Revenue Service (FIRS) to grant tax incentives to manufacturers of machine tools, foundries, forge shops and indigenous artisans in the tools and equipment manufacture industry.
Indigenous producers of building and construction materials are also to enjoy tax incentives and access to finance at single digit interest rates. Concurrently, the FIRS is to grant tax incentives to indigenous and foreign businesses who utilize local inputs and materials in their production processes.
Whilst, the order is not clear on the finer details of the incentives to be provided and the mode of implementation, it is expected that these incentives will have far-reaching impacts on the demand and supply side manufacturing value chain.
Critical Success Factors
Whilst the Order is capable of delivering the key objectives of the policy thrust of the FGN on Local Content, Science, Technology and Innovation; the critical success factors identified below may deter or enhance its successful implementation.
Given the extensive scope of the Order as well as the current dearth of indigenous capacity, technology and skills amongst Nigerian businesses and the government institutions responsible for its implementation, a phased approach should be considered to give room for implementation of the more immediate priority such as: (i) capacity building/ skill and technology acquisition; (ii) research and development; (iii) operationalization of fiscal incentives for existing local businesses.
Monitoring and Evaluation
The FGN, in recognition of the importance of compliance monitoring, established the Presidential Monitoring and Evaluation Council (PMEC), whilst mandating FMST to take the lead in the implementation of the Order. An efficient implementation plan and a targeted approach to compliance monitoring with adequate penalties for non-conformance should be set in motion. MDAs should be mandated to keep record of all contracts awarded after the effective date of the Order and to submit periodic statements of compliance to PMEC.
To complement the efforts of the government, the Manufacturers Association of Nigeria (MAN), and other trade associations/regulatory bodies should also create platforms for their members to report any infractions by the MDAs. The Ministry of Science and Technology, Ministry of Interior, Ministry of Power, Works and Housing, Nigerian Content Development and Monitoring Board (NCDMB), Ministry of Petroleum resources, the Nigerian Academy of Engineering, National Office for Technology Acquisition and Promotion (NOTAP) and National Information Technology Development Agency (NITDA) should be required to keep a data repository of available skills and expertise in the country. Such information should be made readily available to the National Bureau of Statistics for accurate analysis.
Timely and Efficient Implementation of the Fiscal Incentives
It is important that the government demonstrates its commitment to the successful implementation of the Order by creating a favourable environment for indigenous businesses and manufacturers of Made in Nigeria goods by commencing an immediate implementation of the fiscal incentives, which are to be implemented by the FIRS and the Ministry of Finance.
The effort of the FGN in introducing the Executive Order 005, is very commendable. It is no surprise that it has enjoyed a lot of support and good will amongst stakeholders. We expect, however, that the FGN will be conscientious in its implementation, with active collaboration amongst the government institutions playing critical roles in its implementation (i.e. the Ministry of Science and Technology, Ministry of Interior, the Federal Inland Revenue Service, NOTAP, NITDA, amongst others).
Where the factors critical to the success of the Order are given due consideration, we can expect visible impacts within the medium- to long-term horizon. Specifically, we expect this Order to achieve the following:
i) jump start local production of goods, which will meet international standards of production;
ii) active research and development to facilitate technology-driven solutions to critical infrastructure and developmental challenges;
iii) a geometric increase in skills capacity and expertise within the local workforce;
iv) astronomical boost in our gross domestic product with corresponding real sector growth; and
v) an economy that is strong, diversified and self-sustaining.
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