Asharami Synergy CEO states why IOC divested operations from Africa downstream market

The African downstream market which was heavily dominated by International Oil Companies (IOCs), has in the past years witnessed a tough operating environment with many of the international firms divesting their downstream assets, Moroti Adeyinka, managing director, Asharami Synergy, a subsidiary of Sahara Group company with focus on the downstream sector of the economy said.

The divestments were done to reduce their exposure to the rapidly thinning margins caused by increased competition and regulations in the African downstream market.

“Over the years, the downstream sector in Africa has been characterized by; progressively thinner margins, increased sectorial regulations and increased competition in the market”. Adeyinka said while giving a keynote speech at the 12th Oil Trading and Logistics (OTL) Africa Downstream Week, held in Lagos last week.

The African downstream sector was majorly dominated by the international oil companies (“IOC’s”) like BP, Chevron, ExxonMobil, Total, Shell and others but over the last 20 years, most of the IOC’s have divested their downstream assets in Africa .

Shell for instance has significantly reduced its downstream footprint and investments, exiting several African countries to reduce its exposure in the downstream sector.

As at 2017, few IOC’s still had downstream interests in Africa preferring instead to focus on upstream activities and offshore trading which have lower risks across the region.

KPMG reports that “With a weakened global economy, volatile oil prices and globally reducing margins in downstream business, multinationals were reconsolidating their balance sheets to maintain shareholder value by shedding assets that are marginal and where cost and operating risk are high”.

Adeyinka noted the IOCs’ exit has changed the competitive landscape in the downstream sector in three major ways, including the increased involvement of Indigenous Independents, increased participation of national Oil companies and has increased investment by trading companies alongside Private Equity (PE) in Africa’s downstream sector.

On increased involvement of Indigenous Independents, she noted that with the exit of the IOC’s, smaller independent companies that focused on specialized segments of the downstream market were created. However, some of these companies have since emerged as significant regional players through aggressive growth and expansion plans as well as the acquisitions of existing IOC’s assets, she added.

The exit according to her also increased the participation of National Oil Companies (NOI), with many of these national companies increasingly taking on significant roles in the sector. “These National Oil Companies (“NOC’s”) are also encouraging Public Private Partnerships with independent companies to invest in the much required infrastructure to support the downstream sector.

“It has also encouraged joint venture participation that has helped greatly in supporting the market”, she added

On increased Investment by Trading Companies and PE Firms in Africa’s downstream, Adeyinka said the exit of the IOC’s made multinational trading companies to increase their participation in the downstream sector through mergers with existing downstream entities or with private equity firms to form new downstream companies.

Some of these new entities she said, acquired existing assets from the IOC’s to become major players in the downstream market.

This has led to many companies moving from operating a ‘specialist business model’ to a more ‘integrated model’ to become the ‘New Major’ players in the sector.

She noted that many independents were niche players in specific segments of the downstream sector, however, some have since evolved and adopted a more integrated business model that involves them participating along the entire value chain, like sourcing, storage, distribution, sale Case for an Integrated Business Model- Asharami Synergy

For example, Asharami Synergy emerged from a consolidation of four separate downstream companies to run a more effective model.

This model integrates all activities along the entire value chain creating a commodity trading and Logistics Company, connecting suppliers with points of consumption across Africa. It positions Asharami Synergy as a ‘New Major’ in the African downstream

The growth in the African downstream market is signaled by strong demand projections which are driven by a variety of factors.