Senegal’s Local Finance Sector to Fuel Local Companies
With the first oil and gas productions scheduled to flow in 2022, many local financial institutions have not yet put a strategy in place to take advantage of Senegal’s growing hydrocarbons market. To meet local content goals, many companies operating locally require funding to upgrade expertise and skillsets.
As in many markets regionally, improving access to funding for small and medium enterprizes (SMEs) is a critical aspect of Senegal’s economy, including in the prospect of a booming petroleum market. Increasing financial inclusion Senegal’s financial system comprises around 90% of the banking sector.
It consists of 20 commercial banks, located in the country’s biggest cities. Although the banking system offers an array of alternatives, two-thirds of assets and almost 80% of deposits occur through the country’s five largest banks. The sector is led by subsidiaries of French (Société Générale, BNP Paribas), Moroccan (Attijariwafa Group), Nigerian (Ecobank) and pan-African (Oragroup) banks.
Therefore, the growth of local banking sectors is crucial to the development of 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. The sector ought to implement efficient synergies to build financial capacity allowing us to participate in offshore services contracts.
Aiming to increase financial inclusion, Senegal has taken advantage of its strong mobile penetration – around 107% – which boasts high rates of mobile money users. Orange Money launched in 2016 in Senegal, recorded 1,3 million users in 2018 and allows users to make small financial transactions.
In Senegal, over 32% of adults have a mobile money account. Meso-finance aims to be the missing link for financing in emerging African countries. It targets companies whose needs cannot be met by microfinance or commercial banks.
Meso-finance is an ideal model for SMEs that struggle to operate in Senegal due to limited access to resources, finance and efficient networks of information. By 2022, local companies will need to find a way to invest in training and new equipment to satisfy operators’ needs and meet international standards.
Several commercial banks – including Bank of Africa and Orabank – are currently implementing specific offers to target SMEs across sectors, with an underlying goal to fuel the demand for petroleum-related services. Loans in Africa are often hard to obtain, and even when available, they are offered at extremely high interest rates and require excessive collateral.
While the lack of funding capacity certainly needs to be addressed by the financial sector, national governments are capable of passing regulations that restrict interest rates to ensure that predatory lending is illegal, and that also prioritizes local companies in project financing efforts.
As the market moves forward and more local players are called in, synergies between the private financial sector and the government are crucial to move towards common local content goals.
Senegalese authorities have shown their commitment to blessing its population with the fruits of oil and gas resources. To make sure Senegalese SMEs are not left out, the national leadership must implement the winning trio: regulating, financing and hiring, creating a virtuous circle, which will not only fuel the local economy but also provide operators with long-term financial rewards.
Sangomar Project Financing
The final investment decision on the Sangomar project was taken on January 14, 2020 in Dakar with the Ministry of Petroleum and Energy after several delays. Shortly after, Far Ltd, one of the project’s operators announced on January 20 have obtained a loan of €300 million.
The Australian exploration company, who owns 15% of the project alongside her fellow Australian Woodside (35%, Scotland-based Cairn Energy (40%) and the Senegalese national oil company Petrosen (10%) was indeed granted $300 million by a pool of lenders made up of Macquarie Bank, BNP Paribas and Glencore, who each committed up to $100 million. Far Ltd will supplement its share for the financing of the project in particular by an equity investment just over $200 million.
A few days earlier, the Senegalese Minister of Petroleum and Energy, H.E. Mouhamadou Makhtar Cissé, had given Woodside the presidential decree giving the green light to the exploitation of Sangomar as planned by the consortium. The total planned investment reaches $4.2 billion investment, borne by the various members of the joint venture in proportion to the shares they hold there.
Formerly known as SNE, the Sangomar offshore deposit, uncovered in 2014, extends over 400Km2 in the heart of the Saloum Islands, 100Km south of Dakar. Its reserves are estimated at 2.5 billion barrels.
Its entry into production, postponed several times due to changes in investment strategy for the production, storage and unloading platform, according to the Senegalese government, is finally scheduled for the beginning of 2023. This first phase of exploitation is expected to produce 230 million barrels, with a rate of 100,000 barrels per day.