Zimbabwe Review

Reflections on Zimbabwe

Exit British/Dutch Shell, enter Malaysian/S. African Engen: investor re-alignments in Zimbabwe

Posted by CM on July 19, 2008

A recent news report by Bloomberg:

Royal Dutch Shell Plc, Europe’s biggest oil producer, will sell all its petroleum assets in Zimbabwe after President Robert Mugabe was reappointed last month in a disputed election following a decade of recession.

“It coincides with the political debate but that’s not the background,” Spokesman Rainer Winzenried said  from the Hague. Shell is reviewing refining and marketing businesses worldwide to “see whether they are profitable enough to meet our expectations,” he said.

Shell’s assets, including half of a venture with BP Plc that sells 172 million liters (45 million gallons) of fuel a year, 20.73 percent of an unoperational refinery and 226 fuel stations, will be sold to a unit of Petroliam Nasional Bhd., Malaysia’s state oil company, Winzenried said. BP has first rights to buy Shell’s stake in the venture.

Zimbabwe “still has good infrastructure which we believe will form the basis of renewed economic growth once the current political situation is resolved,” said Rashid Yusof, chief executive officer of Petroliam Nasional’s Cape Town-based unit Engen Petroleum Ltd. The Malaysian company is also known as Petronas.

In a recent post I asked: Would a pullout of Shell Oil from Zimbabwe amount to anything?

The gist of my post was that a pullout from Zimbabwe by Shell and other oil “majors” would not mean much as an economic sanctions measure because of how drastically reduced their influence on the country’s oil supply has become in recent years. A pullout by them as a sanctions measure would therefore not be felt much by the economy or by Mugabe’s government. I made the point that they were probably not benefiting from their investments there, and were holding on in the hope of better times when the country’s politics have been resolved.

I believe the Shell spokesman when he says the company’s decision to pull out of Zimbabwe “coincides with the political debate” but is not necessarily the reason for it. It must be pretty clear that Mugabe is not going anywhere any time soon, and that this is almost necessarily means economic normality is not on the immediate horizon. Shell’s are therefore not likely to begin earning the company dividends again any time soon, particularly when the “majors” have lost a lot of their formerly dominant market share to many smaller players.

The remark about Zimbabwe’s still good infrastructure (and the base this represent for possibly quick economic recovery in the post-Mugabe era) by Engen’s CEO is one reason why companies like Shell have held on to their non-performing investments for several years.

An interesting thing the pullout of Shell and the deeper involvement of Engen represents is the shift from the country’s sole dependence on Western investors, to the increasing stake taken in Zimbabwe’s economy by players from China, Malaysia, South Africa and other “emerging economies” who do not have quite the same political distaste for Mugabe’s government as Western countries do, and who think more in the economic long term.

The full implications of the fundamental re-alignments that are taking place will probably only become fully apparent in hindsight years from now.

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