INSIGHTS FROM AMPHORA
Local deals will save Africa’s hydrocarbon sector
As the global hydrocarbon sector experiences an unprecedented squeeze, now more than ever accessing trade finance need not involve the usual major players. Local deals are key. Infrastructure and trusted partners on a local level will become more important than global geopolitical trends. This is especially true in the emerging hydrocarbon economy in Africa where partnerships are incredibly important.
In the current pandemic, the Opec + deal to slash global oil output heralds an era of transformational deals to be done. The oil sector was already seeing pressure on trade finance. Some producers had been forced to bypass banks and traditional routes of finance, instead sourcing liquidity from large supply chain players doubling up as finance houses.
Africa is awash with oil and gas. But the Economic Commission for Africa (ECA) has warned that African oil exporting nations, namely Nigeria, Angola and Gabon, may be set to lose up to $65 billion in revenues as oil prices fall. In its own Opec + moment, the African Petroleum Producers Organization (APPO) committed to significant crude production cuts from the beginning of May.
Reserve-based lending (RBL) deals were still the main source of finance for Africa-focused independents looking to raise debt . . . with new liquidity coming from traders and commodity houses in return for tied offtake agreements stretching into the future.
Until recently, trade finance from foreign banks was becoming easier to come by in the African oil sector, but the impact of COVID-19 is expected to reverse that trend. Last year, Global Trade Review reported that “Reserve-based lending (RBL) deals were still the main source of finance for Africa-focused independents looking to raise debt . . . with new liquidity coming from traders and commodity houses in return for tied offtake agreements stretching into the future.”
Local banks in countries such as Nigeria, burnt by previous oil price falls and pipeline theft, have been cautious about getting involved in the hydrocarbons sector. Except – and we are likely to see a lot more of this – when local banks go into partnership with oil providers and commodity traders. Combining the liquidity benefits of partnerships with global commodity traders, who in turn tap into the local knowledge of national banks and providers, will be key to driving ongoing revenues in Africa’s hydrocarbon sector in the rest of this decade.