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After the Bell: The case in favour of Shell leaving SA

After the Bell: The case in favour of Shell leaving SA

While foreign companies leaving SA is a depressing indicator of the poor business environment caused by years of the ANC’s dysfunctionality and its anti-business policies, there are some specific troubling issues when it comes to oil companies. So, perhaps it’s time for Shell to head on out of here.

There has been a spate of international companies leaving SA – both a sign of the times and generally a bad thing. 

We all know the rule: developing countries often lack the capital to develop their markets and industries, and developed countries have excess capital; it makes sense for both sides to get together to cut a deal. 

But SA often treats foreign companies with a kind of high-handedness which is truly astounding, especially for a country that is ex-growth. And, as my colleague Ed Stoddard pointed out yesterday, when you go ex-growth, you end up in the front of the queue when a restructuring requirement hits. That’s just life.

So, foreign companies leaving SA is a depressing indicator, but you know, in Shell’s case, I am perfectly happy for it to head on outta here. I know it’s a reflection of the poor business environment in SA caused by years of the ANC’s dysfunctionality and its anti-business policies, but when it comes to oil companies, some specific issues have troubled me for years. 

The vast majority of countries where oil companies do business are, broadly speaking, what I would call thug states. Oil companies have to make uncomfortable decisions about operating in these countries because the world needs oil. But because the world needs oil, the thug states hold the whip hand, putting oil companies in a tough position. 

The relationship can be mutually thuggish, however, and it can breed a culture inside oil companies which is contemptuous of human rights, very transactional and hideously immoral. 

So, while perhaps not their first preference, oil companies do quite often play a part in upholding thug governments and the consequences for the populations of these states can be horrible. I know this is very generalised, but allow me to explain.

A recent case that popped up in the press is a good example of my point, even though it doesn’t involve Shell, but other oil companies. 

The Wall Street Journal this week reported on two South Africans, Frederik Potgieter and Peter Huxham, who have been in an Equatorial Guinea jail for a year now on flagrantly trumped-up charges of drug smuggling of which they seem transparently innocent. 

It seems obvious they were arrested and convicted simply because a South African court ordered the seizure of the yacht and two Cape Town houses of Nguema Obiang, son of President Teodoro Obiang Nguema Mbasogo and de facto head of the country’s feared security services.

The reason why the yacht and the properties in Clifton and Bishopscourt were seized was because of a different dispute. In 2011, a South African businessman Daniel van Rensburg tried to start an Equatorial Guinean airline with Gabriel Mba Bela, a member of the Obiang family and then-mayor of Malabo. The deal went south and, according to a 2021 SA court ruling, Nguema Obiang sent his personal security force to arrest Van Rensburg on Mba Bela’s behalf. 

Van Rensburg spent just under 500 days in the notorious Black Beach Prison between 2013 to 2015 without being charged and he sued Obiang in a SA court for compensation. He won the case, the court seized the yacht and the properties in lieu of damages.

So obviously, the SA government jumps in and uses its enormous diplomatic muscle to get Potgieter and Huxham out, because the charges against them are a laughable fiction. I am in fact making that up. Obvs. A year later, the government has so far done almost zero to help bust them out of jail because, it says, the two South Africans were legally convicted. In Equatorial Guinea. Funny, not.

What about the oil companies? What did they do to get their loyal employees out of this ridiculous situation? It’s a bit complicated because neither man worked for the American oil companies operating in Equatorial Guinea – Exxon and Chevron, two of the largest oil companies in the world – they worked for Dutch-based subcontractors. But that was just a convenience; both worked on ships owned by the oil companies and the Dutch company was subcontracted by them. 

The Journal quotes an Exxon spokesperson saying something I have heard dozens of times from publicity execs kicking for touch: “These are sensitive matters, and we don’t comment on details involving employees of other companies.” Chevron said it “remains committed to the rule of law and ethical business standards in its operations and to its partnership with the Republic of Equatorial Guinea to develop its energy resources for the benefit of its people”.

I mean really. To put it another way: Don’t be ridiculous; we are not going to jeopardise our very lucrative business in Equatorial Guinea just because the rulers of the country arrest people arbitrarily if the country’s deputy president’s yacht was impounded by a foreign court. 

The yacht, the Blue Shadow, was released at Van Rensburg’s request in the hope that it would result in freedom for Potgieter and Huxham, but no such luck. 

Obiang crowed about the liberation of the ship saying in a tweet the “racist South Africans” had “underestimated us, and we showed them that we know how to vigorously defend ourselves”. Par for the course for someone who is a jet-setting playboy and has now been convicted in criminal cases in both France and the US and who is in line to become the next president.

Western oil companies don’t necessarily foster thug states (although sometimes you wonder), but they don’t do very much to prevent them from veering off in that direction either. They just swim nicely in that same pond together, taking turns following in each other’s wake. And over the years, the result is the most extraordinary correlation between thug states and oil-producing states.  

So what about Shell and SA? Well, oil companies now know that to do business in dodgy countries, they have to have some leverage. So, true to form, Shell tried to secure its leverage in SA by entering into a deal with the ANC’s pet corporate plaything, Thebe. And it is a rather delightful outcome that this transparently corrupt relationship has ended in tears. Couldn’t happen to nicer people.

Thebe calls itself a “partner” with Shell’s retail operations and holds 28% of the business. It has wanted to exit for years. Shell says the stake is worthless, and Thebe is astounded and “in shock”. Why it is astounded is, well, astounding.

Shell is partnered with BP in SA’s largest refinery, Sapref in Durban, but the refinery has been closed for two years because the government can’t get its act together to introduce new rules meant to reduce sulphur emissions, which of course Shell doesn’t want to implement. 

If you have taken the trouble to essentially bribe a country’s government by giving them a slice of your downstream business and that doesn’t give you leverage to stop new emissions rules, then the relationship is pretty useless.

But behind this all is a much larger trend, and that is the decline of the oil industry. The industry of course has many years left to go – people forget how important it is for the chemical industry, for instance. But the truth is that not only is SA ex-growth, so is Shell. 

The company’s income bounces around with the oil price, but Shell’s turnover has been somewhere between $200-billion and $300-billion for decades now. It’s trading on a multiple so bad it’s almost South African.

And now it faces its first real existential threat in recent history: electric cars. In most countries, the impact is currently very small so far, but the future is visible for all to see in China, where almost half the new cars sold are electric. Around 66% of total oil sales in the US are to the transport industry, mostly to cars, and a little to aeroplanes. Think of that market halving, and you get some idea of the future oil company execs are facing. 

And you know, it’s all good. Natural resources force companies to go to where the resources are and the result is the corruption of honest governments and the persistence of corrupt governments. So, while the departure for Shell from SA may be sad in some respects, I for one, will not shed a tear. DM

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  • James Baxter says:

    Thank you for such a good article. Such quality

  • Rae Earl says:

    Thanks for enlightening me with the true facts Tim Cohen. Apropos the Shell saga, the disgusting lack of assistance by the ANC government in fighting for the release of South Africans Potgieter and Huxham is typical of the go-nowhere-do-nothing attitudes of Cyril Ramaphosa and Naledi Pandor. They were quick to turn a blind eye to the illegal and very expensive operation by the now disgraced Mapisa-Nqakula when she used a state owned jet to smuggle an illegal immigrant into SA from Kinshasa. Begone ANC. You’re bankrupting us financially and also by alienating us from our friends and trading partners in the West.

  • John Patson says:

    One thing to add, Thebe, even with the difficulties of making a profit on down stream activities (especially with a shuttered refinery), must have put aside a pretty good nest egg from its years of getting nearly 30% of total dividends.
    Enough to take over the “worthless” company and run it, free from Shell bureaucracy, towards profitability in a glorious example of what fully locally owned business can do.

  • Jon Quirk says:

    Excellent, well thought through article, Tim!!

  • L Keyser says:

    Love your writing style, Tim Cohen!

  • Anthony Krijger says:

    Despite Thebe having had 30 years of dividends from Shell, they are totally unhappy at Shell’s impending departure from South Africa. I would really like to know from Thebe how it has spent it BEE gains? As BEE is supposed to benefit the poor and previously disadvantaged, the reality is that it has made a few individuals extremely rich while the poor remain even poorer. It seems that the ANC set up BEE simply to enrich its cadres, and the people involved in the entire BEE police & points fiasco. Shell house was given to the ANC. Yet like most of what the ANC owns, its been allowed to become another dilapidated inner city building.
    Now that the Golden Goose is flying away, the tears and finger pointing has started.

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