Global Pacific & Partners

Strictly Business

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Courtesy of Courtesy of Global Pacific & Partners


What’s the trouble with Africa?

Africa as understood by Hollywood is not Africa. The external visions on Africa are a combination of populism, misunderstanding and not knowing the history or geography of the continent. Sure, there are the warlords and militia in certain areas, but that’s not the whole of Africa. The oil and gas industry is playing a strong role in the shift from medievalism to modernity in Africa.

So you’re positive about the prospects of oil in Africa?

Absolutely … but with realism. I have a necessary ruthless objectivity. As far as the African oil industry is concerned, we are seeing more investment inflow, more new players and over 500 companies busy with development and exploration. There’s been an upsurge in all segments of the value chain, including liquefied petroleum gas (LPG) and gas-to-liquids conversion (GLT).

Do you see foreign powers dominating the scramble for oil?

During the past 150 years there’ve been three distinct and connected scrambles for Africa, each one affecting the next. The first scramble, or ‘colonial lunge’, created the African states we know today. Then came Africa’s own scramble for control of its destiny through decolonisation. This was followed by the current rush for hydrocarbons – the third scramble. It’s become very competitive, but there’s a lot of opportunity. Western powers have become challenged by Chinese and Indian forays into African oil. In a sense, it’s the last scramble from a resources point of view. The next 25 to 50 years will define Africa’s petro-arena.

Is there actually an entity that is Africa, when, in fact, each country that makes up the whole is unique and diverse?

Africa is not made up of 54 states, no. There is no such thing as Africa itself, other than as a geographical space and in some sense a construct of mythology.

You recommend – presumably to potential investors and business people eyeing Africa – reading Sven Lindqvist’s Exterminate All the Brutes, a discourse on the essence of Joseph Conrad’s Heart of Darkness. Why?

Lindqvist is an author of great insight. He wrote about the primordial conflict between the outside world and Africa. He put forward his view of Conrad’s Heart of Darkness as the truth about where the problem lies. I agree with what he wrote –the problem with Africa had antecedents in Europe.

Why do you suggest that more African countries should emulate Mozambique? Is it a sentimental attachment to the country?

Actually, I grew up in Harare and we had a farm on the Mozambique border. I’ve suggested that Mozambique’s model – licensing and letting its national oil company operate along commercial lines – is to be recommended, yes. South Africa did a similar thing with its own petroleum licensing company, and it has its own state company, PetroSA, which has developed strategies for the industry here, and made certain investment choices.

Where does South Africa fit on the world stage regarding oil production? You say that it needs a new strategy – fast. What would you suggest?

South Africa is a small producer with limited reserves in oil and gas. It’s largely a frontier player with limited on-shore opportunities. It’s also an importer of crude and will be an importer of liquefied natural gas (LNG). There are several viable options for PetroSA. It could go global or it could consider corporate acquisition in light of its running short of reserves and having a cashed-up position. It seems that a large refinery is mooted for Coega, for which PetroSA will need cash – more than it currently has in the bank.

So a retrenchment on some African upstream ventures may follow ... This certainly implies a new strategy and a downward shift in its upstream portfolio. A new direction in domestic energy security is likely in a country now plagued by an energy crisis. How, in your opinion, has the Eskom debacle – in which load shedding was the order of the day – impacted on potential foreign investment?

It’s in the strategic interest of South Africa to have reliable, affordable power for commercial uses. The Eskom crisis reflected a decade of under-investment, and, of course, that would have an impact on the economy. It was a bad sign for investors, but I am cautiously optimistic. There is a lot that can be fixed.

Has the South African government been supportive of oil exploration initiatives? Does the change in leadership bode well for the oil industry?

We’ll have to wait and see. There’s no immediate clarity, but there is a view that things will work out. The future outlook for South Africa’s upstream looks more positive than at any other time in its history for a number of reasons, including that the government is committed to developing petroleum resources and making investment in this industry more attractive. That shouldn’t change dramatically.

How does Black Economic Empowerment (BEE) affect the industry in South Africa? South Africa is going through a political transition and a self-designed transformation process built on the concept of ‘black empowerment’, which is structured to change the ‘face’ of the industry … partly from foreign to local. Yet BEE is a small part in the big picture. It’s has a larger role to play in the downstream. In the upstream – exploration and development, where it gets more technical and there are long lead times – there’s high risk for potential investors.

Are we losing skills and experience to other countries?

We’re losing skills. This country could do more to retain and develop skills. There are some independent South African companies that have, however, ‘grown up’, but we shouldn’t lose sight of the fact that there’s a global market for these skills.

Do you see the world order changing as a result of the current financial crisis? Does Africa have a role to play?

The global financial crisis is ongoing and indeterminate – there is no clear vision. It will have an impact on all emerging markets and companies dependent on borrowing and debt. What, for you, is the most encouraging development you’ve seen regarding oil in Africa? There are many. The growth of corporate entrants; the rise of independent African companies; the record of rising production of oil and the spread of gas production and ventures; the expansion of LNG, and foreign companies buying up the land.

Will Africa’s image ever change? Is Afro-pessimism ever going to go away?

Afro-pessimism is a state of mind. I prefer to deal with the realities, crude or otherwise. I prefer to look at how things are actually working.

How do you imagine the African oil industry in 2020?

Flourishing! I foresee a corporate presence of up to 1 000 companies on the African continent; the de-sanctioning of Sudan, which right now faces bans on trade and all oil and petrochemical transactions; large investment commitment into Africa, and a greater expansion into gas … I see a general bullish trend.

“The Eskom crisis reflected a decade of underinvestment, and, of course, that would have an impact on the economy. It was a bad sign for investors, but I am cautiously optimistic.”

– Duncan Clarke

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