The recent announcement by Shell that it will be divesting from its downstream operations in South Africa has been turned into a political football to score cheap points by some in society. The sensationalism surrounding Shell’s exit is associated with the upcoming national elections. However, a more comprehensive analysis paints a picture of a company implementing its global strategy, regardless of what the issues may be in the South African context.
It’s important to highlight the facts. This is not the first time that an oil major has taken a decision to divest from some of its key business operations. Similar decisions were taken by Chevron in 2018, including Engen and Puma. Why was the same level of attention not given to these companies over similar decisions made in the past? Perhaps the context was not favourable for any political party to do so. That said, we cannot ignore the fact that such decisions by oil and gas companies are not new or unique in the chemical industries.
The decision taken by Shell to divest from its downstream business operations is aligned with its 2024 Energy Transition Strategy. Shell has openly communicated its strategy to reduce carbon emissions and focus on its more profitable upstream businesses. In the actual strategy document, Shell Chairperson Sir Andrew Mackenize states, “We aim to grow our public charging network for electric vehicles and remain one of the world’s largest blenders and distributors of biofuels. As the energy transition progresses, we expect to sell more low-carbon products and solutions, and fewer oil products including petrol and diesel.”
Furthermore, it is important to consider that Shell has made similar decisions in other countries, not just South Africa. This includes countries such as Singapore and Malaysia. Shell has sold its 61-year-old refinery in Singapore, announced plans to sell its 950 service stations in Malaysia, and the company recently announced its plans to sell its onshore subsidiary in Nigeria. These decisions are more aligned with Shell’s 2024 Energy Transition Strategy than they are with any of the other factors being highlighted in the mainstream media.
What does this mean for us in South Africa? It means that we have been presented with a massive opportunity. Why is this an opportunity and how can we seize this opportunity?
First, the decision by Shell may present an opportunity for substantive transformation and local economic development rather than a loss of foreign investment. The petroleum sub-sector in the chemical industries remains largely untransformed. Many of the transformation initiatives have led to BBBEE companies becoming “post-box” type companies without any involvement in actual oil and gas production or petroleum operations. Shell’s exit from its downstream operations presents an opportunity for increasing transformation in the sector. The gap in the market will be filled by another oil or energy major. The question is whether our local South African companies will be supported to seize such an opportunity or will it be left to international oil and energy majors such as Vitol to step in.
The second opportunity lies in the potential for new jobs to be created. Jobs will not be lost. In fact, as we have seen with Astron Energy after Chevron exited South Africa in 2018, it is highly likely that most jobs will be sustained. Shell has actually been “job-shedding” since 2019 with employment across its three businesses in South Africa declining from 1,423 to 1,062 employees in the country. A new business with a new strategy could turn this tide towards more positive jobs figures.
The third opportunity lies in SMME and skills development. The takeover of Shell’s downstream businesses could present an opportunity for new venture creation and local skills development which is much needed in the petroleum sub-sector. This is not to suggest that Shell has not been contributing to SMME or local skills development. Shell contributes significantly to skills levies being the 11th largest contributor in the chemical industries. What it does present is an opportunity for a more rigorous focus on SMME and skills development through a more innovative strategy.
There was no need to justify why South Africa remains a desirable investment destination. The government of Singapore did not attempt to explain why Singapore remains a desirable investment destination when Shell recently decided to sell its 61-year-old refinery in the country. The Malaysian government did not bother explaining why Malaysia is still good for business after Shell announced its plans to divest from 950 service stations throughout the South East Asian country. Similarly, the South African government should interpret Shell's exit from its downstream operations as an opportunity rather than a loss.