Advisory, the key to financing Senegal’s hydrocarbon sector
Senegalese’s investment banking boutique focuses on growing African companies’ involvement in top deals. SF Capital Chief Executive Officer, Moustapha Sow spoke to Africa Energy Series – Senegal, about how Senegal’s financial sector needs to mature and increase competitiveness, especially in the upstream and midstream segments, to support economic growth due to oil and gas production.
How does Senegal’s financial sector support local companies in the oil and gas value chain?
The oil and gas sector is divided into three subsectors: upstream, midstream and downstream. In the upstream, you see very few African companies involved, it’s starting in Nigeria but most players in this space have immense financial and organizational power, as well as extensive experience. Although developing currently, we don’t expect to see many Senegalese companies involved in the upstream sector. However, there is potential for local institutions to take part in the other subsectors. Opportunities exist in the midstream, which I consider to be mainly the service companies – such as logistics, transportation, and storage, among others.
To increase African companies’ competitivity, I believe solutions should be coming from Africans themselves. In the case of Senegal, we can partner with investors from countries with greater experience in the oil and gas sector, such as Ghana and Nigeria.
Those countries are part of the Economic Community of West African States (ECOWAS), which makes synergies easier. Nevertheless, we must be honest. African banks are not ready individually to finance the oil and gas sector. Across the continent, we are seeing increasingly strong involvement from Export Credit Agencies from around the world. These institutions rely on strong local banks to create partnerships and fund projects locally.
Therefore, the growth of our local banking sectors is crucial to the development of our economies. In Senegal, to date, very few banks can provide the necessary conditions to thrive in the oil and gas sector. Local companies need to think of other financing methods. We must have a global mindset; we must think of efficient synergies to build financial capacity allowing us to participate in offshore services contracts.
What key factors explain the lower maturity of the country’s financial system?
I believe the issues lie in the mindset of financial institutions. For example, funding a midstream project is usually run through contract financing. Here in Senegal, most contract financing deals are done with the government, which provides guarantees from the Ministry of Finance. There is a mindset in our country in the banking sector where risk-taking is very rare. This stance is even reinforced by our regulations system, which doesn’t promote such funding models. In other words, lending here is not on a cash flow analysis basis rather collateral basis.
To have a chance to involve our local financial institutions, we need a winning mindset to change both the private companies and the regulating bodies, nationally and regionally. I believe that’s where we have a role to play. Getting the knowledge and the experience from an advisory firm is the key to success. We have so much experience across the continent and I believe our expertise in export credit financing can be so valuable to local players here.
How can SF Capital support Senegalese companies’ competitiveness in the oil and gas sector?
SF Capital believes that Africa’s solutions must come from Africans. In terms of advisory services, we understand better than other firms what happens in our markets. Also, we have solid expertise in subjects related to export credit. I used to be Director of the Export Credit arm of the Islamic Development Bank. I was exposed to all African countries, which has given me a very rich and diverse experience, in Ghana, Burkina, Nigeria, and 30 + other countries across the continent, in all kinds of business sectors. That’s we want to offer Senegalese companies; structured, sound funding models for them to be able to compete with others when the time comes. Since inception, we have supported banks and in Nigeria, Ghana, Burkina, Senegal to structure financing of CAPEX in several sectors using multilateral agencies support. Our $59 million deal with Hashi Energy (leader in East Africa) in DRC is an example of success; we support them financing a 5-year, $400 million contract they have with the United Nations.
Senegal has reached a strong level of maturity, politically and economically. We have a sound economy that is not based on natural resources, but rather on services. That translates into a great basis for a performant oil and gas sector. We have strong social stability, a stable democracy and one of the only African countries free from coups or civil wars.