by Hannah Edinger, Simon Schaefer

The new Africa

An oil led economy

Oil and gas Plant
oil.jpg

The “New Africa” shows robust economic growth, hovering around 6% per year. This growth is strongly driven by developments in oil and natural gas producing countries with high annual GDP growth rates such as Ghana (12.5% real GDP growth in 2011), Nigeria (7.2%), Equatorial Guinea (12.5%) or Gabon (5.8%). Currently there are over 40 countries on the continent that are in various stages of oil and gas exploration or production, potentially adding to Africa’s growth outlook further. Taking this growth trajectory into account, will it be possible for the City of Cape Town to position itself as a service hub for Africa’s petroleum industry? Does Cape Town have the potential to become the next Houston, Aberdeen or Stavanger of Africa’s oil sector or even the Singapore of Africa?

According to Warwick Blyth, it is not a question of if Cape Town can become a hub, but rather that the city is starting already a hub, even if only small at present. There are a significant number of activities in the oil and gas sector, such as ship and rig repairing and logistics, already present in Cape Town. 

Taking into account that in 2011, out of more than 100 oil rigs that passed by, only three were serviced in Cape Town and that there are 400 oil rigs in Angola that will require servicing amounting to US$90bn over the next four years, there are plenty of opportunities for Cape Town to position itself as a growing service hub for the oil industry. 

In order to establish itself as a local hub for the oil industry, the city has to capitalise on its attractive location half way between the oil fields of West Africa and the gas fields of East Africa. Utilising and partnering with the less congested deep water port in Saldanha would enhance Western Cape province’s logistical attractiveness. 

Reynold Pinto pointed out that these opportunities were the main reason why DHL set up its oil and energy component centre in Cape Town.The regulatory framework including the tax regime, the international investment regime and the rules governing immigration have to be amended to encourage the inflow of foreign investment and to encourage international oil and gas players to set up operations in South Africa. 

Jonathan Veeran suggested that the Western Cape provincial government should take the initiative to develop the province into a more investor-friendly area by adjusting its regulatory regime towards the needs of international oil and gas investors. 

By re-looking and adapting this, the province will be able to encourage international players to put down roots in South Africa which would ensure a higher degree of sustainability of these investments, the development of an oil and gas cluster and by doing so contribute to the development of the region. 

These developments would also help to stimulate activities in other segments of the economy such as tourism and education. 

The IDZ initiatives in Saldanha and Coega serve as examples how this disconnect and lack of co-ordination among different players as well as inhibitory red tape undermine the attractiveness of these initiatives. Referring to the inward looking character of the NPC’s National Development Plan, Veeran reckons that the government has to strengthen its focus on attracting investments into South Africa. 

Dr Davies noted that a key component of creating industrial clusters is the development of supporting institutions of higher education which are able to generate the necessary talent. The example of Singapore shows that the development of talent ensures the success of industries and sectors within the cluster. 

Responding to the chair’s question regarding the availability of these skills in the Western Cape, Pinto felt that South Africa has excellent institutions which are able to generate highly skilled individuals equipped with sound technical skills. 

However, he doubts that this talent is driven into the right direction. Additional skills are needed to bring talent together to be mentored and guided. For instance, DHL has established centres of excellence to further train and nurture talent in order to meet the industry’s requirements. 

This reveals that there are opportunities for universities and educational institutions to offer training programmes and courses to equip students and workers with skills required by the market place.

In this context, Blyth notes that there has been an interesting trend in recent years where global engineering companies have been buying or investing in South African engineering firms. For instance, Australian-based WorleyParsons bought South Africa’s KV3 Engineers and are now leveraging local talent where they operate. Blyth adds that such a model would become more popular in Cape Town.

Referring to lessons to be learned from global oil and gas hubs, Blyth pointed out that the cases of Houston, Aberdeen and more recently Singapore show that it is possible to position oneself as hubs of the global oil and gas industry despite the lack of significant local resources in these sectors. 

Pinto added that Houston and Aberdeen have established themselves as key locations for oil and gas technology with significant R&D facilities. It is not foreseen that these R&D facilities would be relocated any time in the near future. 

Dubai and Singapore on the other hand were successful due to government initiatives that led to the establishment of free zones with little red tape and efficient services which make it relatively easy for companies to set up operations within these zones. 

In addition to the ease of doing business in Dubai and Singapore, both hubs benefit from their central location in relations to key parts of the world. Being located between the oil producing countries in West Africa and the emerging gas producers in East Africa, Cape Town is ideally positioned to become a similar hub to Dubai or Singapore provided that the right government policies and regulatory frameworks are put in place.

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