Demand for power in West Africa has helped project cargo markets limit the impact of Covid-19. However, future recovery will depend on a solution to the region’s growing maritime security problems, reports David Whitehouse.
Covid-19 has “not really affected the project cargo market in West Africa so far” and the near future “looks promising”, according to Olivier Dirkzwager, commercial manager for West Africa at heavy lifting and transport engineering specialist Mammoet.
“Power-related equipment can be expected to rebound fast as there is very big demand for power,” Dirkzwager said. He is optimistic on prospects for Senegal, Mauritania, the Ivory Coast and Ghana due to their role as logistics corridors, as well as Nigeria.
Companies have been preparing for life after Covid-19. Pacific International Lines announced in June that it was beefing up its West Africa weekly services, claiming the fastest transit time from Chinese ports to Tema, Onne and Tin Can (Nigeria).
Some are even making acquisitions. CMA CGM, through its CEVA Logistics unit, has acquired inland logistics expert AMI Worldwide as part of its aim to compete with Bolloré Logistics. Burkina Faso is among the inland countries that CEVA hopes to be able to target.
Power-related equipment can be expected to rebound fast, as there is very big demand for power. – Olivier Dirkzwager, Mammoet
Harry Broadman, chair of the emerging markets practice at Berkeley Research Group in Washington, USA, argued that the need to invest in supply chain redundancy will be a lasting effect of Covid-19. The cost-benefit calculation is akin to deciding how much insurance to buy, he said. “Think of it as a local electric or natural gas distribution company contracting for extra supplies” for times of peak demand. “It is as applicable to West Africa as it is to Japan,” he said.
Hopes for recovery of the Nigerian market are supported by the government’s agreement with Siemens to expand the country’s electricity capacity to 25,000 MW by 2025.
Covid contingency
According to Bolloré Logistics, Nigeria’s ports remained operational in June, but only cargoes with a federal government letter proving that they were essential were being handled. Port Harcourt was in full lockdown. Warehouses and roads were also operational, but inter-state transport was not possible.
Border closings have made it harder to get the right crews at the right locations, Dirkzwager said, although the company has been able to keep operations running at projects in Nigeria and Ghana, at times through asking personnel to stay on longer rotations. Mammoet has been able to execute route surveys through Lomé in Togo; it also transported and installed a 200-tonne transformer near Accra in Ghana.
The Ghanaian power generation sector has been a strong source of business. Mammoet transported a new 300-tonne engine from the port of Tema to a power plant to increase the country’s power supply. Recently, the company has also transported and exchanged a transformer in Navrongo in the north of the country and successfully received, transported and placed six transformers in the Accra area. During June, Mammoet was working on a large, complex job comprising heavy equipment from Ghana to Burkina Faso, and the company plans to expand its operations in Senegal and Mauritania.
In January, Mammoet signed an agreement with Lagos Deep Offshore Logistics Base (Ladol), in Nigeria, to target domestic projects and those in the wider region. A 600-tonne lifting capacity MTC15 terminal crane is now up and running at Ladol and the additional capacity created means there is a lot of room for growth, Dirkzwager said.
Paul Okpurughre, director of business development and operations for the Middle East and Africa at SAL Heavy Lift, which operates a semi-liner service covering Africa, sounded a note of caution. Final investment decisions for major oil and gas projects are being delayed, he said. In terms of energy projects, Senegal is among the hardest hit. President Macky Sall has said that the country’s first oil and gas projects may be delayed by up to two years. The Greater Tortue Ahmeyim (GTA) offshore LNG project on the maritime border between Senegal and Mauritania is unlikely to come online before 2023 versus the initial 2022 target. Still, Okpurughre is optimistic that cargoes to Ghana, Nigeria and Senegal will recover strongly over time.
Piracy concerns
The issue of piracy also clouds the promising outlook. The Gulf of Guinea is the latest global piracy hot spot, accounting for 90 percent of global kidnappings at sea in 2019, according to analysis by Alexandre Raymakers, senior analyst at Verisk Maplecroft in London. He expects it to remain that way in 2020.
Boskalis’ heavy transport vessel Blue Marlin was hijacked on May 5, 2019, offshore Equatorial Guinea. Blue Marlin was heading to Malta when several armed pirates boarded the ship.
Boskalis reported that the crew quickly secured themselves in the vessel’s citadel, where they were able to communicate with various emergency authorities. Upon alerting the local authorities, two helicopters were mobilised from Equatorial Guinea, followed by navy vessels.
Navies from Equatorial Guinea and Spain searched Blue Marlin. No pirates were found and the crew was freed from the citadel safely. However, the pirates fired several shots during their time onboard the vessel and caused substantial material damage on the bridge, rendering the ship unsailable.
Kidnapping on this scale in West Africa is relatively new. Pirates in the past limited operations to raiding oil tankers to sell their crude on the black market, Raymakers writes in his research. The pirates would typically board a ship and siphon oil onto another vessel before selling it. That is a slow and dangerous process that leaves plenty of time for getting caught. The oil price collapse of 2015 turned their attention towards abducting crews for ransom. This year’s oil drop is likely to reinforce the trend, he suggested.
Regional security forces lack adequate equipment, leaving them unable to tackle piracy effectively. Nigeria’s security services are stretched thin and have little prospect of being able to attract significantly higher state funding, he added.
Companies such as Shell, ExxonMobil, Total, Chevron and Eni are at risk of experiencing “sporadic yet highly disruptive” instances of piracy in their supply chains. “Both regional shipping and oil and gas operators should expect further disruptions to supply chains, export routes and increased costs, as more ransom payments will be necessary to liberate crews,” Raymakers warned.
Both regional shipping and oil and gas operators should expect further disruptions to supply chains, export routes and increased costs, as more ransom payments will be necessary to liberate crews. – Alexandre Raymakers, Verisk Maplecroft
Indian nationals make up the majority of crew members in the Gulf of Guinea. The Indian government has been so alarmed by piracy that it threatened to restrict seafarers from working there in 2019.
Pirates usually want crew members as hostages, not equipment or cargoes, said Raymakers, a former NATO security analyst on Africa. Unlike in Somalia, where some ports in the past were in partnership with the pirates, there is nowhere for pirates in West Africa to put a ship.
The good news, if there is any, is that risk to projects onshore is “quite limited”. The main risk is in disruption to cargo deliveries. Any ship is a potential target although smaller oil supply and service companies will be the most exposed, Raymakers said.
Dangerous seas
The Gulf of Guinea is one of the most dangerous areas with regards to piracy, said SAL’s Okpurughre. He believes that local job creation is part of the solution, together with “greater geopolitical attention” to combatting piracy, similar to what has happened in the Gulf of Aden.
There is no immediate prospect of that attention. The wider problems are a lack of regional cooperation for dealing with piracy, and limited international interest, said Munro Anderson, a partner at the Dryad Global security consultancy in London. “It is just not the lifeblood of the world economy.”
The prospect of prolonged global recession means that the economic factors that lead people into piracy are only going to get worse.
The decline of local fisheries is part of the problem. Nigeria has long since ceased to be self-sufficient in fishing. French maritime security expert François Morizur has argued that establishing a regional fishing strategy needs to be part of the solution. This needs local fisheries management, including controls on the size of catches, fish farm development and anti-pollution programmes, he said.
Cases where crews of 20 or more are kidnapped and held show that the pirates are confident and well funded, With their connections to organised crime, pirates “have a level of freedom of movement onshore”, Anderson said. The going ransom rate for a whole crew is between USD250,000-500,000.
Nigeria, Raymakers said, remains “very uncomfortable” with the idea of private security contractors being used for maritime security. This would amount to admission that Nigeria’s navy is unable to guarantee the safety of its shipping lanes. This is “not politically acceptable” for the country’s President Muhammadu Buhari, Raymakers added. As a former military head of state in the 1980s, Buhari takes a universal view of security. The state has to be seen to do everything. He “does not want to look weak” and that means avoiding the use of private contractors.
However, the government is aware of the piracy issue and “there is hope for incremental change,” Raymakers added, citing joint training exercises with foreign navies. The government has been investing in the navy, but that takes time to feed through into better operating performance.
Beyond the horizon
The lack of international cooperation is a much broader issue. According to Sampson Kwarkye of the Institute for Security Studies, West Africa’s coastal states need to combat the growth of local terrorism by cooperating to track trade consignments, beef-up border control and surveillance, and improve intelligence gathering.
Unlike off Somalia, there are no internationally strategic maritime routes that cross the Gulf of Guinea, which lengthens the odds on international involvement, Raymakers argued. The Nigerian government is also unlikely to accept the loss of face involved in allowing any international naval mission into its waters, he added.
There are ways to work around the problem. While the Nigerian navy is not allowed to provide onboard security, it has coastal patrol vessels that can be hired and used as an escort, Anderson said. These are increasingly being used. “It is a workable solution. It just looks different to the way it looks in the Indian Ocean.”
Most West African countries do not have enough capacity to cover their huge maritime domains. Morizur said that one way to counter piracy is the creation of an international maritime military force, as has been done in the Indian Ocean. But the number of military vessels needed to patrol the vast area is probably insufficient. He urged that the pooling of surveillance and intervention in West Africa, as has been done in the Malacca Strait, to allow countries to see “beyond the horizon” of the immediate visible threat.
Oil needs to recover to around USD50 per barrel for any semblance of normality to return. – Björn Hollnagel, BOCS
The price of oil is the key to the speed at which regional project cargo markets will recover. Prospects for carriers in West Africa will go “hand in hand with the oil price”, said Björn Hollnagel, managing director of multipurpose carrier Bremen Overseas Chartering & Shipping (BOCS). “Everything is on standby for the moment.” Oil and gas-related equipment has been coming back from West Africa due to Covid-19, he said. “The whole world is upside down.”
There have been signs that the Nigerian oil sector can weather the crisis. Dangote has said that it still expects its new oil and gas refinery in Nigeria to be running in early 2021. In April, local oil company Seplat increased its 2020 capital expenditure by 20 percent to USD120 million, with two additional gas wells and related infrastructure planned. The company said that its low cost of production means that profitability is possible even at oil prices below those of April.
Still, oil needs to recover to around USD50 per barrel for any semblance of normality to return, Hollnagel said. Speaking in mid-June, he expected that such a recovery would take time. Offshore oil companies are reporting that there will be no recovery until at least the fourth quarter, or the first quarter of 2021, he believes. But the oil price lows of the first half of 2020, he predicted, “will not be seen again”.
Sector prospects
Hollnagel expects that in the longer term, local products, such as cement, will be more heavily relied on as a result of the pandemic. In steel, however, West African infrastructure and knowledge are not sufficiently developed to allow such a shift, he said. While West African wheat millers have been relatively unaffected, brewers have seen consumption declines of around 50 percent. Importers of timber, meanwhile, are not willing to spend money due to lack of forward visibility, he said.
Whatever happens to oil, piracy in West Africa is an issue that Hollnagel thinks about every day. The area over which piracy is being carried out is continuing to expand, and an international mission is needed to combat it, he said. Hollnagel bemoaned the lack of a common regional strategy on piracy of the kind that emerged in East Africa. “The shipping industry needs to pressure the politicians to make a stand.”
This article has been taken from the August/September 2020 edition of HLPFI.
