Knowing how to spot the next big trend ahead of the crowd is one of the best ways to generate substantial returns on one’s investments. For the self-directed investor who typically lacks the cash, knowledge, and access enjoyed by major financial institutions, corporations, hedge funds, and research firms, however, the very notion of “getting in early” can seem Quixotic at best.
But one should not mistake a difficult task for an impossible one. After all, the biggest oil companies in the world, for all their technological expertise and deep pockets, missed out on the developments leading to what is now commonly known as the “shale boom,” ceding what turned out to be incredibly lucrative plays to independent producers, and losing substantial replacement reserves in the process. As with anything else, it would seem that the principal ingredients of success are hard work, patience, and, of course, the courage to go against the grain every now and again.
This brings us to East Africa. Countries such as Mozambique, Tanzania, Madagascar, Kenya, Uganda, and Ethiopia. Though most often associated, especially in the Western press, with war, famine, and destitution, these countries have been telling an entirely different and far more promising story of late, one about the numerous and relatively recent discoveries of oil, natural gas, and various metals that have been made there.
According to Eugene Obiero, founder and operator of The East Africa Energy Blog, the East African story is one that is catching the attention of a growing number of companies, in part because of the size of the reserves that have been discovered, and in part because of the increasing willingness of regional governments to bring these resources to market. The blog was designed as an informational tool for investors and companies seeking opportunities in East Africa’s natural resources sector, and Eugene has been hard at work refining it specifically for this purpose.
On another level, however, the blog also serves as a document of what are still the early stages of a potentially momentous development. Indeed, while a vibrant East African resources market may very well end up being a boon for investors, it will certainly be many times more consequential for the citizens of region itself. Infrastructure projects and political and economic cooperation between the countries in the neighborhood will be the lifeblood of this market, and the combination of the two can ultimately lead to drastic improvements to standards of living.
Equities.comrecently spoke with Eugene about this wide-ranging subject, as a means of introducing our readers to the enormous potential of East African commodities, and a market that could turn out to be one of the next big stories in the coming years.
Equities.com: The search for natural resources in East Africa is by no means a recent development, but in the last decade or so, the region has seen far more serious attention from international companies. I was hoping you could explain to our readers what has driven the growing interest in natural resources in East Africa over the last ten or so years?
Eugene Obiero: The recent interest in East Africa’s natural resources has been driven by the increased demand for oil, gas, gold, iron ore, and coal on international markets, the result primarily of economic growth in Asia and the resultant higher prices of these commodities. It’s only in the last decade or so that Asia has reached this level of unprecedented economic expansion and with large populations, demand for these commodities has soared.
Traditionally, these minerals have been sourced from other regions of sub-Saharan Africa. The mineral and resource wealth of East Africa are of the hard-to-find variety, requiring higher initial capital outlays, and in the case of mining, also require that the price of the commodity be high enough for operations to be commercially viable.
EQ: Could you give us an overview of which countries in the region are the most promising? What sort of resources are we talking about? What are some of the reserve estimates that you find most impressive, and which companies are showing interest, or are already investing?
EO:Uganda has approximately 2 billion barrels of commercially viable oil. The UK’s Tullow Oil ($TUWOY), China’s CNOOC Ltd. (CEP) and France’s Total S.A. (TOT) have invested to bring this oil to market.
Kenya has approximately 1 billion barrels of discovered oil. Tullow and Canada’s Africa Oil (AOIFF) are the companies invested in this operation. Offshore Companies such as the US’s Anadarko Petroleum (APC) , meanwhile, continue to drill for natural gas.
In Kenya, Bare Titanium of Australia began mining rare earths on the coast in the last quarter of 2013. One mine alone will produce 330,000 tonnes of ilmenite, 80,000 tonnes or 14% of the world’s rutile, and 30,000 tonnes of zircon each year for over 13 years. Also, Africa Barrick Gold, a UK-listed company, is mining and exploring for gold in the Lake Victoria region.
Tanzania, meanwhile, is the most endowed in the region in terms of natural resources, with over 40 trillion cubic feet of commercially proven natural gas reserves. A variety of companies such as Brazil’s Petrobras ($PBR), British gas firm BG Group plc ($BRGYY), Norway's Statoil ASA (STO) , Royal Dutch Shell ($RDS.A), and Exxon Mobil Corp (XOM) are involved in bringing this product to market.
It also has gemstones such as the rare Tanzanite that can only be found in Tanzania and by law only mined by Tanzanians. Large deposits of iron ore, coal, limestone and gold are also found in Tanzania. Africa Barrick Gold has four mines producing impressive amounts of gold, though some of the mines tend to close when the price of gold collapses, as we have seen over the last year.
Mozambique is also another success story with over 60 trillion cubic feet of natural gas offshore, with many of the same companies, Petrobras, BG Group, Statoil, and Exxon Mobil Corp among the explorers. The country also has large amounts of coal in the northern region.
EQ: There is a great deal of excitement about the prospects in East Africa, but there is also no shortage of worrisome political developments, both in and around the neighbourhood. How big an obstacle do you think this is going to be going forward, and what other obstacles do you see needing to be overcome?
EO: Political unrest and instability is always a big worry, not only in East Africa but in Africa as a whole. As African countries continue on their slow road to becoming fully democratic states, there will obviously be bumps along the way. The current instability in South Sudan is worrisome because the conflict has the potential of sucking in other countries such as Uganda, the Democratic Republic of Congo, Uganda, Ethiopia and Kenya. The refugees from such a conflict flee across borders, with the resultant negative socio-economic impact this can have on receiving countries.
The DRC has been unstable over the last 20 years, mainly driven by outside lust for its mineral wealth, pitting local interests against each other for the control of these resources. These situations are worrisome but they can be contained by regional efforts of dispute resolution such as what the African Union has recently done in South Sudan.
As for Somalia, after 30 years of endless war, the country seems to be edging towards stability, a situation for which credit must again be given to the efforts of the African Union. The international community, through bodies such as the United Nations, European Union and individual countries such as United States, have played key diplomatic roles in resolving political disputes in Africa over the years.
Other obstacles include infrastructure such as the ports, roads, and railways necessary to bring these natural resources to market. This infrastructure needs to be upgraded, and in many cases built from scratch. The organisations running these key logistical fulcrums need to be privatised and efficiency enhanced in order to reduce the cost of transportation within the region.
EQ: Would you mind telling us a little bit about your background? How did you end up working in the natural resources space?
EO: I am a Kenyan who grew up in Nairobi. I studied business at the University of Nairobi, graduating with a Bachelor of Commerce (Finance) degree. I then worked in Germany on traineeships at Siemens (SI) , and then as an asset manager with Allianz (AZSEY) in Munich.
After Germany, I returned to Kenya to work for Shell Africa, where I occupied several roles in finance and operations management. It is here that my understanding and appreciation for natural resources came to the fore. I worked at Shell for slightly over 6 years.
While working at Shell, I enrolled at the Warwick Business School, University of Warwick (UK) for an Executive MBA in Global Energy. This has given me an intellectual appreciation of the theories, concepts and frameworks relevant to the natural resources space. I have just handed in my dissertation thesis this week and hope to graduate halfway through this year.
After leaving Shell, I have worked as a consultant, specializing in access to finance and strategy, mainly for companies involved in natural resources in Africa. I work as an advisor on projects and fundraising campaigns.
EQ: Your site, the East African Energy Blog, is really the only one of its kind out there, as far as I can tell, not least because of its accessibility to English-speakers. What compelled you to create this blog?
EO: I wanted to write the story of Africa’s energy and natural resources. The positive side of the story and not the negative one associated with conflict and chaos brought about by competition for natural resources that is depicted in the media every day, especially the media in the west.
I wanted to show the world that Africa is developing, and that natural resources is a huge part of that story. Because Africa is so big and incredibly diverse, my ability to cover the natural resources space is necessarily limited. I made a decision to focus on Eastern Africa, based on the fact that I comprehend what is happening here better than the rest of the continent.
EQ: I imagine your blog has gained considerable readership along with the increased interest in the region. Do you have any plans for the site over the next year?
EO: Yes, I plan to grow the site into a portal for sharing information about the developing energy story in Eastern Africa. I plan to eventually monetize through advertising and subscriptions, as the site has gained in popularity, with an increased number of hits coming especially from the US, the UK and Kenya.
Several organisations from the English speaking work have recently asked me to post their work due to the type of readership I’ve garnered, and so the next step will be to make this portal a reality.
Eugene Obiero is the creator and editor of The East Africa Energy Blog. Stay tuned for more conversations with Mr. Obiero as we examine the nascent East African commodities space in greater detail over the coming months.