Stanbic Bank talks to AOP about the infrastructure projects and financing developments it anticipates in South Sudan.
Stanbic Bank South Sudan is a branch of Stanbic Bank Kenya, which is part of the Standard Bank Group, Africa’s largest bank by assets. Standard Bank Group reported total assets of R 1.95 trillion (about USD 143 billion) as at 31 December 2016, while its market capitalisation was R 246 billion (about USD 18 billion). The group’s largest shareholder is the Industrial and Commercial Bank of China (ICBC), the world’s largest bank, with a 20.1-percent shareholding.
Stanbic Bank operates in South Sudan as a retail and corporate bank. Customers include non-governmental organizations, multinationals and local mid-size corporates. Within South Sudan, Stanbic’s expertise is focused on the oil and gas sector, with plans to place greater emphasis on the energy space going forward.
How can cross-border projects, such as a product pipeline or transnational crude oil pipeline, be financed and how would Stanbic Bank be involved?
There is a massive opportunity here for some sort of convergence within East Africa. The challenge of this country is about how to continue to evacuate the crude oil as we discover more reserves. If oil can be routed through different jurisdictions, such as Uganda and Kenya, this provides opportunities for banks to participate in such projects. We have similar discoveries of oil in Uganda and Kenya and we have also seen big discoveries of gas in Tanzania. All of these present good opportunities for financing by banks. Stanbic plays a big role in East Africa in infrastructure development, partly through raising funds to invest in these projects, and we have the capacity, the resources and skillset to expand that role.
The only transnational pipeline that we have in East Africa is between Tanzania and Zambia. This was built in the 1960s, and was probably done on a concessionary loan basis, and it is the only precedent that we have. Times have changed, however. The Chinese, as an example, would not be looking to fund projects entirely out of their own pockets. There is now a greater commercial component around these types of projects. We have seen that with some of the mega-projects in the region, and I would like to think that that same model would be applicable for a cross-border pipeline. Indeed, with the Kenyan standard gauge railway, which will be expanded into Uganda, the governments of Kenya and Uganda have pretty much agreed on the mechanics of how they will approach the Chinese for this sort of funding package.
From the commercial aspect, the project that is really game changing in the region will be the crude oil pipeline from Uganda into Tanzania, which has basically all private-sector sponsors. For a product pipeline or crude pipeline into or out of South Sudan, I would expect that sort of project to be project-finance structured. There will also be movement in these infrastructure projects in the region and there will be participation by export credit agencies, multilateral lenders, the African Development Bank and the World Bank.
What are the difficulties in getting infrastructure projects off the ground in South Sudan? Are there particular financing mechanisms you can use to make these projects happen?
There is a huge deficit of infrastructure in this country, and the other issue is that the banking and capital markets sectors are very underdeveloped. This poses a number of challenges, from the ability to raise funds in the market to the pricing of private funding.
In most emerging markets, but especially in this part of the world, you require fairly strong credit enhancement support from the likes of the World Bank and the IMF. In our view, until we start seeing concrete responses from institutions like the IMF and World Bank, it will be quite a challenge for the private sector financial players to participate in any large project.
What we have seen in the East Africa region is that projects have been largely financed through project finance, as well as the issuance of infrastructure bonds. For example, the Kenyan market raised a huge amount of liquidity by issuing infrastructure bonds, which offer tax benefits. These are some of the mechanisms that you can introduce in this market to raise local liquidity. The challenge that will still be present in South Sudan, having raised local liquidity, is the foreign currency part of that equation.
With regard to energy and infrastructure, what kinds of developments would you like to see in terms of regional integration in South Sudan?
A starting point is the road network. That is a big issue. There have been some attempts to connect roads from South Sudan into Uganda and Kenya. The biggest challenge today is access to food. We need to develop road infrastructure that allows free movement of people, food and livestock across the region. What we see today is that there are many foods imported from the Middle East, milk from Dubai in particular, and yet there is a surplus of milk in Uganda. We need to see a lot more cross-border trade.
Of course, there are huge amounts of crude oil. Connecting to the Kenyan and Ugandan markets would be fantastic. We want to get these things done together, but what is most critical at this point is food access.
What do you see as the most important trends in South Sudanese oil and gas sector in the coming years?
As long as activities in the downstream are going to continue and as long as South Sudan keeps pumping crude, that can only mean that more businesses need to be established, more service companies will be needed in the fields and money will be flowing in this sector.
Then, there is also the import side, in terms of how you are going to keep bringing in fuel, diesel and petrol to continue to run the economy here. Power is always a challenge in South Sudan, as is getting vehicles moving. Companies like us need to access diesel easily. There are both opportunities and challenges in these two sectors.
We also know that the Government of South Sudan considers that there are many opportunities for building refineries. The government plans a phased development. Phase one would be diesel, phase two would be to expand on the diesel operations and add gasoline and then phase three would be for lubricants and such. There is also the opportunity to build regional crude pipelines.
What would be your message to potential investors in South Sudan?
There is tremendous opportunity and potential in this country, be it in the hydrocarbons, agriculture, power generation or tourism sectors. South Sudan at this point has very limited manufacturing. There is also very limited power supply.
Economic activity is also dependent on the continuing stability of the political situation. Barring any incidents, there is tremendous opportunity. The issue is still about what we need to invest in initially. We need to build a road network to open up the linkages into East Africa and then build capacity for people to be able to farm and manufacture through developing a power network here. We also want to cultivate a conducive environment, from the government perspective, to make it an easy place to do business and peaceful from a security perspective.