with Paul Maclons, Managing Director, SMIT Amandla Marine
2009 was a year in which the company changed its strategy, increasing its focus on the Southern African markets. Can you elaborate on the context surrounding this strategic redirection?
P.M.: This was a pure business decision, particularly because the South African market offered limited growth potential for our company. In terms of oil and gas developments, activities are fairly restricted to current exploratory work by PetroSA with regards to its F-A field and F-O gas project as feedstock to its Mosselbay refinery. The only growth potential we currently see for SMIT Amandla Marine is in opportunities created as a result of the planned refinery near the Port of Ngqura. While it is not sure yet when these developments will kick off, it seems that the investment has received the go-ahead from government. Our interest with regards to these developments consists of marine services to the terminals – the import and export buoys.
In order to further create value for our shareholders, we therefore needed to look at emerging markets. A key market, in this respect, has clearly been identified as Mozambique. Companies such as Anadarko, ENI, Shell and Sasol have all invested into exploratory offshore oil and gas activities in that market. Growth in this market has been identified as offshore oil & gas support, which is not just limited to our traditional services of vessel chartering and offshore support, but also LNG terminal activities. With respect to the privatization of ports and harbors, Mozambique seems to be moving at a much faster rate than South Africa.
Another influence in Mozambique has come from the BRICS countries, most notably with respect to the Brazilian mining group Vale, the Indian conglomerate Essar, and China to a lesser extent in terms of resource exploitation. Our interest lies in the volumes of coal that will be exported through these ports of Beira and Nacala.
All in all, we now have 3 key focus areas in Mozambique:
1. offshore oil & gas,
2. ports and harbor privatization, infrastructure support, dredging, etc. through our shareholder Boskalis,
3. and marine logistics to support offshore mining activities.
On the west coast of Africa (Angola and Namibia), we see ports and harbors as a growth area.
Looking back, are you satisfied with this decision?
P.M.: We are satisfied with this decision, but we also have to note that the growth has not been as rapid as expected. Working in countries with different dynamics has resulted in different timelines for decisions. We had to adjust to working in a different socio-geopolitical market and country. We just concluded a substantial contract with Vale in Beira and are in discussions on marine services with the Mozambique ports, harbours and rails authority. In the next 12 to 18 months, we will be aggressively moving into the offshore oil & gas market. A local company is in process of being established.
The Vale contract was said to be a catalyst for asset investments of roughly R60 million. What exactly will happen?
P.M.: We have invested in an offshore mooring buoy installation as well as 2 vessels: 1 workboat and 1 terminal support vessel. At the moment, Vale is railing its coal through to Beira, where they stockpile and transship the coal. Smaller vessels load coal in the harbor (25,000 DWT – 30,000 DWT), move 42 miles offshore to the buoy and transship the coal into large bulk carriers up to 50,000 DWT. We provide the offshore marine support and have around 35 employees – both local and Mozambican – dedicated to this project. Other ports (Quelimane and Nacala) will host similar mineral export operations.
Mozambique is positioned as a hub for inter-land exports and exploitation of resources through ports like Beira, Maputo and Nacala. In my opinion at the moment, Mozambique on its current growth trajectory is probably set to outgrow South Africa from a resource exploitation point of view. China, India and Brazil have all made plans to substantially invest in Mozambique.
You also spoke of other countries such as Namibia and Angola. Historical ties between Mozambique and South Africa are stronger, but can they also be leveraged to progress faster in this market?
P.M.: Within the SADEC region, there is a trade protocol. From a Sub Saharan economic perspective, we have certainly felt that these countries want to do business with their African counterparts. The ties with Mozambique are historically strong. Diplomatic relations with Angola have also warmed over the years, and significant trade missions have now also taken place. Traditionally, Namibia has also had a good relationship with South Africa, although the growth path is not as exponential in this market.
D.M.: Significant developments are taking place from an offshore concession perspective. There is a lot of excitement, but developments are slow. We have for example already done some work with Tullow Oil around the Kudu gas field. However, there still remain some questions around licensing, logistics and partnerships. Namibia today is perhaps where Mozambique was 3 to 4 years ago. For another part of our business, support for offshore diamond mining, we work very closely with De Beers.
What factors do you look for in such partners?
D.M.: Partners need to add value, either through equity investment, business development or marketing. From a structural perspective, this can therefore either come in the form of an equity relationship, an agent service or a strategic alliance. The chosen mechanism will vary according to the particular country context.
SMIT Amandla Marine has achieved an award for its diversity in the workplace. What makes the company stand out from the pack in this regard?
P.M.: In line with South African Broad Based Black Economic Empowerment legislation and its Codes of Good Practice, diversity translates itself into how the workforce reflects both diversity of race and gender – most notably at junior, middle and senior management levels. It also takes into account our activities with regards to training and development, as well as the culture within the organization.
What makes us stand out? We are the biggest employer of seafarers, with roughly 540 seafarers, approximately 80% of whom are black South Africans. Our recent BB-BEE Audit has shown that we are again rated as a Level Three Contributor. It is something to be quite proud of and we are now the most transformed specialist marine services provider in the country. As we expand into the region, our challenge will be to introduce a process of indigenization and local development into our operations.
Localization must indeed also be important for your activities in countries such as Angola, Namibia and Mozambique. How do you get started with localization in these areas?
P.M.: Angola is a very complex country in the first instance, and our first priority was to identify and find a strong partner. We have been working on the relationship with our current partner for 3 years and are now starting to see positive developments. Also in Mozambique, we have looked for a partner that can add value and facilitate entry into the economy and its sectors. Yet, getting into the door is one thing; one needs to perform well too.
Of these different markets you now operate in, which one is the most challenging?
P.M.: Angola, because of its decision-making timeline and legislative framework from a commercial, regulatory and tax perspective. Logistics, bureaucracy, infrastructure and language will be an operational challenge we will overcome.
SMIT Amandla Marine is part of an international group – SMIT. Yet, how do you want to be perceived in these markets, a South African company, a Southern African, an African or an international player?
P.M.: We are in the first instance branding ourselves as a Southern African specialist marine services company – localization and local content is increasingly becoming more important, and hence this is how we will position and market.
D.M.: We are currently also negotiating a contract with Statoil. And even though this concerns a Southern African operation, the name and international reputation of the SMIT Group initially appealed to them.
P.M: Because of its reputation, credibility and to some extent its heritage, SMIT has built up a strong name in the offshore oil & gas sector which is what our blue-chip clients require – this depth of knowledge and skills.
Other clients may want to do business with an African company, and their requirements and pre requisites must also be met in our regional presence.
Can you draw on the expertise that SMIT has built up internationally as well then?
P.M.: At the moment, we are fairly self-reliant and have built up an enormous skills base locally. The entire SMIT Terminals business in the international Group started here in South Africa. We have built up our competences and skills base. The Group itself does expose us to additional markets, such as the offshore energy markets with regards to dredging and land reclamation, reusable onshore and offshore mining for instance.
How confident are you that LNG terminals will appear on the Mozambican coastline?
P.M.: Anadarko has estimated gas discoveries of at least 30 TCF in Mozambique, which can probably power up to 60% of Europe for a year. They have indicated that they wish to explore and build a LNG facility, either North of Nacala or in Nacala itself. I am quite certain that these developments will take place in the next 2 to 5 years time. These companies would not invest billions of dollars in concessions that will not be used.
D.M.: It has to happen, simply from a market perspective alone.
You also spoke of large sums of investment coming in from the BRICS countries. Is this something new?
P.M.: From a metallurgical and thermal coal perspective, Mozambique is set to become the third biggest exporter of coke and coal by 2023. Both China and India need these materials for their iron ore factories, which already generate a large offtake. The real BRIC countries are seeing Africa as a continent with some of the biggest resources in the world and a real investment.
On the West Coast of Africa, especially in the French speaking countries, many European companies have been spotted however. Does this also represent a different competitive landscape for SMIT?
P.M.: The East coast of Africa is still wide open for buyers, and the first to market should definitely be able to secure a strong foothold. We are pursuing this market, because other global companies –such as Swire, Boubon and Svitzer- are also showing interest. West Africa is more mature, established and poses enormous barriers to entry.
The 2009 strategic shift went under the name “Vision 2012.” What will happen now?
P.M.: We will continue to focus on our growth strategy as we have not yet achieved our financial objectives. We will extend our growth strategies for another 3 to 5 year period to focus on the aforementioned markets, both on the West and East Coasts of Africa. A challenge remains to be appropriately resourced. We need to attract entrepreneurial and commercial skills too. Now, we have some experience in dealing with these foreign markets and have taken away some of the uncertainty they held. As our managers become more comfortable in these markets, we will continue to develop local talent too.
Do you have a final message to send out to the international readers and investors?
Economic growth in Southern Africa is positive, and with improved social and political stability – definitely a market for the future in our business area of interest.
D.M.: As much as we have traditionally focused on South Africa, we need to look further afield. Being based here, it is a lot easier for us to move into these markets. Despite not having met certain financial targets with regards to Vision 2012, we have made huge strides in the past few years. In a short time, we have invested in a multimillion rand terminal in Mozambique, as well as a number of other opportunities.
P.M.: Our stated goal is to add value to the competitiveness of the countries where we operate. It may sound altruistic, but this is our business!