Geneva - Commodity trading houses are
expanding aggressively in Africa as they look to add volume and
take on assets that promise to benefit from a continent
achieving some of the highest economic growth in the world.
Merchant traders have historically been mostly concerned
with shipping Africa's oil onto global markets but are now
viewing Africa as a destination market for fuels and are
investing in the storage and retail networks the continent needs
But their growing involvement in a region where several top
firms have faced legal problems or payment delays may worry
would-be investors at a time when the firms, typically privately
owned, are scouting for new forms of capital.
While several firms have ruled out following commodity
trading house Glencore in a public listing of shares,
some are issuing bonds or partial sales to fund their quest for
Some of the most alluring assets are in Africa's fuel
market, which is set to grow by 40% by 2020 to 4.3
million barrels per day, according to Ecobank Research.
"If you want to be in Africa, you have to be prepared to
invest. Sub-Saharan Africa is growing at a very decent rate and
the highest regional area in the world today," said Graham
Sharp, co-founder of oil trader Trafigura and a senior adviser
to consultants Oliver Wyman.
"There are some great opportunities there, but it's not in
the traditional trading business."
Trafigura and commodity firm Vitol have both bought huge
networks of oil service stations from oil majors BP and
Royal Dutch Shell over the past few years.
Trafigura is now considering floating its subsidiary Puma
Energy, an energy distribution company that has invested over
$800m in Africa over the past 10 years.
One reason the fuel business is so attractive is that
African countries have made slow progress in building their own
refineries, leaving them increasingly dependent on imported
fuels and the traders that can source and deliver them.
Trading houses have spotted this deficiency and, using their
newly acquired service stations and storage assets, are
extending their reach to landlocked interior countries such as
Zambia and Uganda.
"Intra-regional flows of petroleum products in Middle Africa
represent a major growth area, particularly with the advent of
new oil producing countries ... and the increasing energy demand
of Middle Africa's consumer markets," said Rolake Akinkugbe,
Ecobank's head of oil and gas research.
Trading houses are also using their growing cash reserves to
start exploring and pumping oil, a sector long dominated by
listed oil majors.
"They want deals that put more oil on their books to build
trading mass, and that's what they've always done," said Gary
Still, an executive director at UK consultancy CITAC.
"But we're also seeing trading houses like Glencore and
Vitol becoming very interested in the upstream. I think they've
got the money for these projects and will go for it," he added.
Glencore has signed a contract to export Chad's oil in 2013
after it agreed to invest more than $300m in the central
African country's Badila and Mangara oilfields to boost oil
exports via the Cameroon pipeline. Its warehousing and logistics
unit Pacorini has also made its first break into Africa.
Vitol also signed a long-term contract with former French
colony Gabon to export its oil.
In the more traditional business of trading, low margins are
pushing traders to seek out higher oil volumes by negotiating
for contracts with African governments and state oil firms.
Know-how and connections through local staff or "fixers" can
give a firm a competitive advantage.
Jean Claude Gandur, chairperson of AOG, stunned the industry
when he completed a sale of his upstream business Addax
Petroleum to China's Sinopec Group for $7.2bn in 2009.
Now he plans to invest $400m in the African oil
sector and aims to buy Nigerian acreage. The group's expansion
in Nigeria may benefit from having a former executive Afolabi
Oladele of state oil company NNPC on its board.
Swiss-based Mercuria also employed a son of the former
Nigerian opposition leader Moshood Abiola to help with business
development in west Africa.
But deals do not always go according to plan in a region
plagued by corruption and oil-fuelled civil strife.
Gunvor, historically strong in Russian oil markets, hired a
team of traders from Addax Petroleum in 2009-2010 to expand in
It now accuses a former employee of fraud and embezzlement
with respect to a Republic of Congo oil contract after Swiss
authorities launched a money laundering probe. Gunvor itself is
not subject to the investigation and is a plaintiff in the
Trafigura, which corporate filings show gets nearly 30% of its oil turnover from Africa, was locked in a legal
dispute last year after buying a cargo of oil the South Sudanese
government said was looted by its northern neighbour.
The proceeds from the cargo, worth around €58m
($75m), were later seized by an English court to
A court document dated November 7 and seen by Reuters showed
that a settlement had been reached, though some of the details
remained confidential. Trafigura declined to comment
Even so, Trafigura has agreed to begin exporting Dar Blend
crude, it said on Wednesday.
Glencore was the first to secure an agreement to market
newly independent South Sudan's oil, but the deal was later
scrapped after opposition from some South Sudanese officials.
In Nigeria, top trading houses like Mercuria and Glencore
are owed dozens of millions of dollars for fuel deliveries that
in some cases date back over three years.
"Africa can be a minefield," said Akinkugbe at Ecobank.
"You have to do your homework and have a local champion who
can help bridge the knowledge gap."