14 Mar Who Spent $53 Billion to Acquire Their Position In The Very Exciting Tanzania Market?
NOT a typo . . . $53 Billion. So please read on . . .
There are many exciting and flourishing sectors in all of East Africa and specifically Tanzania. In this blog post I focus on just one area in Tanzania that caught the attention of one company and they spent $53 Billion to get into that same market.
Legend has it that the first President of Tanzania, Julius Nyerere, understood back in the 1960’s that his his country had vast natural resources that could help lift up the economic status of many Tanzanians. However, President Nyerere also knew that it took very disciplined management of such resources to ensure the country maximized the benefit of them. Therefore, with Tanzania having never dealt with the study, exploration and processing of very valuable natural resources, President Nyerere decided not to pursue this area in fear that Tanzania’s inexperience in this are would come at a high cost with regard to the management, negotiating and control over such areas.
Fast forward to the early 1990s and Tanzania’s second stage Government headed by President Ali Hassan Mwinyi was well on their way to implementing the policies to liberalize the economy of Tanzania. This meant opening up the market to Foreign Direct Investment and embracing capitalism and free enterprise.
At that point in time, some exploration / production companies, in the area of natural gas, began doing work off the southern coast of Tanzania. I remember one of the executives of the exploration company, from Canada, who was on our CEO Rountable Group in Tanzania. The gentlemen was connected to the Songo Songo project, named after a small Tanzania island in the Indian Ocean. He talked of what they felt were huge gas reserves, many yet to be discovered off the coast of Tanzania. The gas from Songo Songo is now fed to the mainland via a pipeline that was completed in 2007.
In 2016 the situation has changed considerably. The reserve estimates from the 1990s and even later have been dwarfed by the actual exploration finds. The UK’s BG Group entered the Tanzania gas stakes in 2010. BG says they spent $1.9B and the estimated gas resources were 16 trillion cubic feet.
But have you ever heard of BG Group (British Gas Group)? Most have not. But I bet you have heard of SHELL. As in Royal Dutch Shell? Just recently Royal Dutch Shell closed on the takeover of BG Group. And yes, the price was $53 Billion.
The word is, SHELL controls the largest amount of gas reserves in the world and their plan is to keep it that way. So when these huge finds in Tanzania were discovered it only made since for them to get involved and even take over control of some of the biggest reserves. Therefore, they just went out and purchased BG Group.
The impact of the gas findings in Tanzania will be extraordinary. There is all ready talk about critical management of the resources / results, possible hyperinflation, etc. In fact, the Tanzania Treasury is gaining upwards of $300M in capital gains tax revenue as a result of the SHELL takeover of BG.
Not only will SHELL export the gas to the rest of the world, LPG trunk and secondary lines are being planned for throughout Tanzania. This is right in line with the Government’s policy to ban the use of charcoal for cooking in order to reduce deforestation. Imagine the economic impact.
This is just one example, in one sector, in Tanzania. Most of these facts do not make it to the western news media as Africa is usually not part of the “news cycle” unless there is some type of disaster. No, not even a $53B deal!
What about your sector / market? You might be surprised to find out what is happening. There is only one way to find out . . . ask!