Africa is on the cusp of a boom in the oil and gas industry. Marsh Energy Africa, a wholly owned subsidiary of New York-listed professional services firm Marsh & McLennan Companies, which has just been given the go-ahead by South Africa’s competition authorities to acquire Alexander Forbes Risk Services to create a new pan-African insurance broking and risk advisory business, points out there have been significant new finds in Uganda, Kenya and Mozambique in recent years.
But African hopes of becoming self-sufficient in oil and gas production will not become a reality unless the continent develops a risk management and insurance industry able to mitigate the risks faced by the energy sector.
PetroSA’s prospective Project Mthombo refinery at the Coega industrial development zone near Port Elizabeth is grinding along — environmental impact studies seem to take forever in South Africa. But more important, state agencies are so keen on maintaining strict control across the economy that the much-vaunted development of special economic zones and the National Development Plan are struggling to get off the ground.
Part of the reason is that the government ignores the realities of market dynamics. Nearly all of its planning is stuck in first gear, including the implementation of an Infrastructure Development Act heralded by President Jacob Zuma at the Presidential Infrastructure Investment Conference in Sandton late last year. After years of riding on the back of global infrastructure markets, South Africa’s domestic construction and engineering firms are keen for the state to embark on its R4-trillion infrastructure spending plan over 15 years. But recent rating downgrades have made the prospect of borrowing much more expensive for South Africa.
While the Western Cape waits to see if its application for Saldanha Bay to become an industrial development zone centred on the marine, oil and gas sectors is approved, the Department of Trade and Industry has identified these industries as being a key part of the country’s industrial future. But many economic creases need to be ironed out before South Africa is in a position to effectively build such mega-projects. The African National Congress’s elective conference in Mangaung last month saw all eyes focus on Trevor Manuel’s National Development Plan. Yet, this week Eskom’s proposed third multiyear price determination for electricity tariff increases of 16% each year over the next five years came in for a storm of criticism from business, unions and civil society organisations.
Earlier hearings by the National Energy Regulator of SA in Cape Town, Port Elizabeth and Durban heard that such increases will cripple provincial economies.
But such is the disconnect between state agencies, including Eskom and the department, that the government continues to espouse building two manganese smelters in Coega even as the world’s primary steel maker, ArcelorMittal, pulls out of the business.
Transnet needs to spend many billions of rand on bulking up the rail link between Hotazel in the Northern Cape and Port Elizabeth for the R11bn Kalagadi Manganese mining, sintering and smelting project to succeed. But it remains far from clear, now that ArcelorMittal SA has left the party, how all of this will be considered viable and subsequently funded.
As long as the government continues to pursue poor policy options, such as those that led to the ArcelorMittal SA, Kumba Iron Ore and Imperial Crown Trading legal debacle over mining rights, its hopes for "developmental" steel pricing and a competitive economy are doomed to fail.
Instead, South Africa might first look at the reasons for the risks inherent in its declining mining and manufacturing sectors before it seeks to service the world’s oil and gas industries. The patent and mutual distrust between the state and business leaves any hopes of success in such endeavours dashed upon the rocks, even before they get started.