with Alan Winde, Minister of Finance, Economic Development & Tourism, Western Cape Government of South Africa
Before going into oil and gas, we would first like to come back to the Western Cape economy at large. Looking at the Provincial Economic Review and Outlook you shared at the end of 2011, economic growth is expected to average at 4.2% per annum over the next 5 years. How exactly does this compare to the local economy’s historical records, and how healthy is this current state of the economy?
Being at the Southern tip of Africa, we are sitting in a continent that the whole world is looking at. 7 of the top 10 fastest growing economies in the world are in Africa. Unfortunately, South Africa is not one of them. The key reason for that is that our core trading partners and markets have primarily been Europe and the USA. We are obviously very linked to their economies, and experience similar pressures.
At the same time, South Africa has got very good financial, legal and auditing results. Looking at the World Bank ratings, we rank among the top countries in the world and are known to have very strong regulatory requirements around financial, legal and auditing standards. Even though we link very strongly to the European and American economies, we are buffered because of these rules and regulations.
There are two other reasons why we are not amongst the high growth economies in Africa. The first is oil as an important economic driver for many African countries. The second reason is that many countries come off a very low base, while South Africa has historically been a strong economy on the continent.
We have recently started to diversify our core markets when it comes to trading. The BRICS are now a big lever in this sense. On the other hand, South Africa serves as the platform to do business in Africa. That is the most exciting and most significant area of gain that I foresee in the future. The oil and gas sector falls clearly within this strategy.
Our primary focus from Cape Town and Saldanha Bay is the West Coast of Africa. Nonetheless, our strategic location at the Southern tip of the continent allows us to address the East Coast as well, with core trading partners such as Mozambique. Our sister ports of Coega, Richard’s Bay and Durban are also well placed to look after that side of the continent.
Now, our big driver is to link Cape Town port, with its newly upgraded A-Berth facility, to the future growth in Saldanha Bay.
Statistics from The Western Cape Investment and Trade Promotion Agency (Wesgro) show that services now account for two thirds of the local economy. The oil and gas sector is a major driver in this respect, comprising a sector of R 1.5 bn in repair and maintenance and another R 1 bn in services in particular. Can you elaborate on the recent initiatives to support the development of this sector?
It is also worth noting that the entire services sector of the African oil industry exceeds USD 200 billion. Around our coast, we particularly see significant movement of oil rigs, with 132 oil rigs passing by South Africa in the last year alone. Of those 132, very few were able to be serviced in the South African ports, because we are still building the necessary capacity. This is where we see a huge opportunity because of our proximity to the industry versus other hubs such as Rotterdam or Singapore. This is why many companies have started taking us in serious consideration, and have increasingly begun to open their regional head offices here.
I have personally been involved in leading a delegation to Angola last year and have been in Singapore to talk to the industry players there. We also had a lot of discussions with the Singaporean government and have had the opportunity to learn from their experiences. They are also active on taking their knowledge of Jurong Island out into the world. We therefore see the opportunity for partnerships both at a business level as well as a government level.
Coming back to your trade mission to Angola, you headed a delegation of 78 South African companies there. How successful was this initiative?
We have had one follow up where we met with them. There are already many successful business operations that have been running for a while. For South African businesses, this is not an easy transition. Africa is not one big easy continent to operate in, primarily because there are so many different ways to do business because of historical influences. Angola for example has very strong Portuguese influences and strong linkages to Brazil. We have to ask ourselves how we bind into this BRICS relationship, in particular, as it is not a market we have traditionally worked with. Nonetheless, we have seen many South African companies moving into this market from which we can learn significantly. Overall, I think the opportunities to use South Africa as a springboard and pursue success stories throughout the continent are vast. We are calling on companies across the world to put in place an African strategy before it is too late. We further believe that we can offer a platform for this Africa strategy.
Looking at Angola in particular, a lot of practical issues persist for South Africans, such as the difficulty of obtaining visas. What still needs to be facilitated in this sense?
Visas, border controls, port access, etc. are all big issues. However, at our meeting in Angola for example we managed to include both the South African ambassador to Angola as well as the Angolan ambassador to South Africa. At a national level, there has also been commitment to make these things work. We keep pushing to resolve such issues, which is also why the ambassadors were both present.
Increasingly, E&P developments are taking place on the Sub Saharan East Coast. How do you see these developments changing, or perhaps even increasing, the role of South Africa as a service hub to the region?
Through Wesgro, we have had the pleasure of hosting a dinner in Cape Town where the president of Mozambique was invited. In that meeting, we had our businesses talking to the Mozambique government. It is as government to government that we have to create such pro-active platforms for our businesses to speak to each other. You will never see our government going on a trade mission with politicians alone. We aim to create platforms to take businesses with us.
A key bottleneck that has come forward with various business leaders in South Africa has been infrastructure. The general opinion was that developments have been taken a long time, while most of the decision-makers had higher expectations of how things would progress, particularly with respect to the ports of Cape Town and Saldanha Bay. Do you understand this frustration?
It is a huge frustration. The inefficiencies in the Port of Cape Town and the slowness of getting the Industrial Development Zone (IDZ) up and running are massive. On the other hand, we have rules and laws that people can get very frustrated with from an economic point of view, in particular environmental laws.
From an economic point of view, I deal with the oil & gas and ship repair side on the one hand, as well as exports and containerization on the other hand. On the latter side, I do not have many complaints. Companies such as Sainsbury’s are looking to treble their business in the next 10 to 15 years, to R 10 bn of products.
On the ship repair side in particular, there is huge frustration, and Transnet needs to prioritise this area in addition to containerisation.. One thing I am very excited about however, is that oil and gas is now on the top of the agenda of the national government. We now have people such as Garth Strachan, who used to run my portfolio, that clearly understood this importance and are now active at a national level. Obviously we now need to make sure that the importance of the sector gets more traction.
The IDZ process in Saldanha Bay is taking place now. We are meeting at national, provincial and local government levels and have started setting up a development company that will actually make it happen. The consultation process is reaching an end, so it is now all about delivery. Some companies have become frustrated because of the slow process, but at the same time they need to remain careful with making public statements on the developments they may be able to pursue there. It is however upsetting to see some of these companies moving to other parts of the world because of the slow process.
What is great about Saldanha Bay is that we have lots of space, but it is also an environmentally sensitive area. There is the beautiful lagoon of Langebaan on the one side, while there is an iron ore terminal and a planned oil and gas service hub on the other side. Keeping this balance is something that takes time which in turn can be frustrating.
If developments take too long, other hubs may progress faster in the region resulting in competition from other ports such as Walvis Bay, Namibia. How big is this exposure?
We have some advantages over Walvis Bay. We have the deepwater advantage, as well as strong logistics and infrastructure around the port. Moreover, we have a high number of engineering companies and many companies setting up offices here. All of that adds to enhancing the advantages of this area. On a recent trip to Namibia, I spoke to my counterpart there to discuss cooperation between our ports, rather than being in competition. This was well received and we look forward to engaging the Namibian government on this soon.
Seeing oil rigs pass by the South African coasts can also be frustrating. Many of them were towed all the way back to Singapore. Do you ever see the possibility to match the level of expertise we find in Singapore?
This is the dream. It is very easy to get jealous at the infrastructure you find in Jurong Island in Singapore. However, upon returning to South Africa, I also see reason enough to get excited about the revamped A-Berth facilities, although we do not have some of the massive workshops you find in Singapore. I was also very impressed at my meeting with Keppel, which I deem to be a role model company.
When Focus Reports met Keppel’s CEO Choo Chiau Beng back in 2010, he was at least as excited about wind farms than about building oil rigs. It may be farfetched, but how do you see renewable and alternative energies reflecting on the South African energy mix? How will this reflect on the infrastructure developments in the region?
Part of the IDZ in Saldanha Bay is not only a service hub in oil and gas, but also part of a green economy. There are thousands of wind generators going to go up in the Western Cape. Some parts will need to come in by sea, where Saldanha Bay will have a role to play. Ideally, most of the manufacturing will also take place here. One of the South African manufacturers of wind blades already showed intentions to base themselves out of Saldanha Bay, rather than Cape Town where they are based now. The reasons for this primarily lie in gaining better access to where we see a lot of the wind generation taking place, but also in terms of transport and logistics as they would be able to take their products to other parts of the world easier. This company has already set up a training facility in Saldanha Bay where they are training youngsters in green technology in the manufacturing space. Second and third huge opportunities lie in gas and tank farms respectively.
Do you have any final message you would like to send out to the readers of Oil and Gas Financial Journal, on behalf of the Western Cape?
The most important point is that we are open for and serious about business. The second thing is that we understand that governments can be frustrating sometimes, which is why one of my key projects is “red tape to red carpet.” It is about saying what is wrong and telling us about it. This is the only way for us to fix it, fast track it, or sort it out as a whole.
One other interesting point is the investment and offices we see opening up from the Middle East here. We have increasingly seen an interest from petrochemical companies to start their operations in South Africa. The Qatar Petrochemical Company (Qapco) is one example of such company recently opening offices here. Generally speaking, a lot of things are happening in this region.