August 2010 Newsletter

The past month or so has been the most interesting so far of my time at SAOGA. The reason? We’ve begun the company visits that are part of our industry profiling initiative and it has been absolutely fascinating to get out and see what you are all doing – there are some amazing businesses out there and I’ve been overwhelmed by the hospitality of companies and individuals who’ve made significant amounts of time available to give us a real insight into their businesses.  I truly hope that we can repay these investments with better initiatives and marketing of the our sector and its companies.

Another result of visiting companies is that I am getting to hear more about the needs and priorities that companies in the sector have.  One early theme coming through ties in nicely with a promise I made in my last newsletter article – that I would share my thoughts on how we grow upstream business in South Africa.  Last time I shared our agenda around industry capability development (skills, supplier development etc) and it has been interesting to hear from companies a strong theme that, although both capability and business development are important, we need to lead the sector development with business generation.  With a bit of reflection this is obvious – it’s very hard to train people and develop skills if there is no activity for people to gain work experience in, it is hard to expect companies to make the necessary SHEQ investments if the payoffs aren’t apparent and so on.  So as we enter the period where we start working with funders and our stakeholders to set the strategy and business plans for the time ahead it is crucial that we have some sound thinking as to how we create larger volumes of business in the region.  In what follows I’d like to set out my thoughts on the matter – hopefully this will provoke some discussion and we’ll get a debate moving that will sharpen the actions that we take.

The overall process of growing South Africa and the Western Cape in particular into a much more significant upstream centre will ultimately be one of individual companies finding and exploiting opportunities for which competitive advantage comes from being located here. As this happens new niches and clusters will emerge and things will grow.  While I strongly believe the process will be led by the creativity, energy and profit-seeking of the private sector the public sector and SAOGA have a role to play in “greasing the wheels” so to speak. Competitive advantage can be enhanced by initiatives around public sector infrastructure and regulatory frameworks.  Efforts can be made to attract global companies that bring activity and know-how. Companies can be encouraged to network and collaborate in a variety of ways both locally and with foreign partners. Global awareness of our capabilities can be raised through collective marketing efforts.  Public funds can be leveraged to seed investments in particular areas and the list goes on.  The challenge for SAOGA is to identify those specific areas where we can apply effort to help unlock greater business opportunities.

My experiences over the past year leave me convinced that there are substantial opportunities around the regional upstream activities that we can benefit from with the right focus and combination of private and collective effort.  My top four and some of the ways I see us working to unlock them are as follows:

1. There is a substantial opportunity to build on the gains we have made in getting the arrangements around the Cape Town port and the ship repair business right (I’ve always felt we can increase the revenue and employment by several multiples of what we currently do). The privatization of A-Berth and the impending concessioning of the dry-dock facilities will place critical infrastructure in the hands of people that can manage them and will invest in them. Already we are in the midst of a substantial upgrade at A-Berth and we look forward to seeing this facility completed and fully open in November.  We expect to add well-managed and maintained dry-dock facilities to the proposition in the months ahead as the concessioning process runs its course.  The next step is to get the word out to the world that Cape Town is open as a ship and rig repair centre.  Already there are plans for an “A-Berth stand” at OTC next year and additional efforts for marketing the repair/upgrade capability in the region need to be developed.  I also believe that we need to focus some of our industry capability building activities on this “harbour cluster” to get the supply chain to function better at higher quality and lower cost;

2. The recent industry analysis and company visits we have been busy with confirm that although our upstream sector is small there is substantial capability and expertise on offer – much of it with a great track record in the upstream industry.  We can increase business by promoting and marketing South African companies in the regional and global upstream markets. Part of this will be lobbying with government for better access to the regional upstream markets in terms of things like visas, bilateral agreements around local content etc.  There is also a lot that can be done through focused marketing, media and mission campaigns and we need to invest in these to get the word out about what we do have;

3. While I believe that growth can and will come from increasing the scale of the existing South African companies I am also convinced that a really substantial expansion of the upstream sector in South Africa is going to require a focus on attracting the global players with their reputations and know how. If they are here we’ll capture a much bigger share of the African upstream opportunity than through organic growth alone.  Once here we will benefit in many ways – they’ll hire and procure locally, they’ll partner or even acquire local companies and they’ll attract further companies in a virtuous cycle of investment.  The proposition for foreign companies locating here is strong and I’ve seen evidence of a steady stream of them setting up here in the past year but more could be done to actively promote our region as an upstream company destination. To this end we are actively tightening our links with Wesgro (and in time with other national investment agencies).  The Western Cape in particular has two very strong immediate propositions that are attractive to the upstream industry and should be aggressively pursued:

a. The Western Cape is well  positioned geographically between the west and east African hydrocarbon resources and well positioned commercially (i.e. a sophisticated infrastructure, shipping connections, supply of skills, services etc) to be a supply and logistics point for the region.  We need to capitalize  on expanding this logistics and supply opportunity. We are already a significant upstream logistics hub but more needs to be done to unlock the opportunity – we need to review the customs regime (which we are currently doing), need to secure port accessible land (probably in Saldanha) and need public sector commitment to making this happen.  Some of this opportunity will involve local companies but a lot will involve attracting the distribution/supply functions of the global players, the base operators etc.  Specifically, there’s an opportunity to create an oil and gas supply hub at Saldanha Bay (perhaps as part of a freezone) and there’s opportunity to encourage more of the global service companies to locate their African/sub-Saharan distribution centres here (a number of currently considering this);

b. Establishing Cape Town as a regional head office hub for the sub-Saharan industry. We have a great living and business environment, good universities and a pool of talent as well as an established base of engineering and other services not available further north. Furthermore we are in Africa but don’t suffer from much of the dysfunction that makes it hard for companies to operate efficiently out of places like Angola and Nigeria. This creates  a huge opportunity for us to develop and sell the story of SA and the Western Cape in particular being a location of choice for regional head office functionality – much as Singapore has become the centre of the industry in Asia even though it has no resource of its own. The story is enhanced by the growth of hydrocarbon reserves in Southern and East Africa;

4. Last but not least we need to do what we can to ensure that South Africa’s upstream projects actually proceed.  Nothing will accelerate the upstream sector faster than a major discovery in South Africa.  For a start the operators need licenses – there is lobbying to be done to get this process to move forward.  Next, for the Orange River basin gas projects to proceed we need to ensure that there is a market for the gas – this means lobbying to ensure that gas generation is included in the national energy strategy, it means seeing what can be done to build a pipeline down the west coast to Cape Town (this may need public money because no one project will carry it) and it means keeping an eye on the proposed project to import LNG into the western Cape – if this happens it is doubtful that any of the west coast gas fields will be developed in this generation.  Once projects proceed we need to be working with the operators to ensure that local content is used as much as possible and where not possible that foreign contractors making the stronger commitments to the long-term development of our industry are favoured e.g. companies establishing an African operation on the back of a South African upstream project, proposing NIPP investments that build our sector etc.

That’s the 30,000ft view of what needs to happen – in my opinion! Please send me your thoughts and opinions. We have Board strategy day in October that will exert a large influence on the budgets and plans for the year ahead and it will be good to get as much input on these matters as possible prior to this.

To end a few of the customary plugs.   The SAOGA AGM will be held on September 15 (13h30-15h30) at the Protea Hotel in Arthur’s Road Seapoint and we hope to see you there.  Amongst the formalities I will review the year past and plans for the year ahead – food and drink will follow!  The next Networking Breakfast is on September 29th and we are going to have Mile Sofijanic from Murray and Roberts projects speak. Mile is experienced and passionate about the industry and he’s got some really interesting stuff to share about improving productivity in large projects – which includes some thoughts about how to align and coordinate all the companies involved.  As always, there is an open invitation for breakfast speakers or proposals for speakers – let me know!