The reality on the ground in MozambiqueMay 11, 2020
David Scheepers, CEO of Capital Star Steel, talks to The Energy Year about the Mozambican government’s efforts to combat the spread of Covid-19 in the country and what organisational qualities will determine whether companies survive and thrive in a post-Covid-19 world. Capital Star Steel manufactures high-frequency welded steel pipes for the oil and gas, water and mining industries across Africa.
How do you view the local policy responses to Covid-19?
I believe that the decision by the Mozambican government to structure the lockdown the way it did was quite exceptional. We are all aware that Mozambique does not have the types of reserves that many of the industrialised countries such as South Africa have. Tackling this crisis and its consequences in the most efficient way possible is a tough exercise for any government out there, and I think the Mozambican government’s response has been quite successful so far.
I must also compliment the commitment and seriousness taken by the Mozambique populous to adapt to the new reality. The large majority of the population is wearing face masks on the streets and seems to be following the government’s instructions. While the country still has a relatively low rate of reported Covid-19 cases, people are managing themselves as if the pandemic was truly amongst us. That sort of behaviour demonstrates a well-structured plan and a population that understands the long-lasting consequences of this global pandemic.
How has the outbreak affected the manufacturing industry?
As far as manufacturing is concerned, operations are limited to less than one-third of the pre-crisis staff complement. We have been faced with the challenge of being completely cut off from our primary export market in South Africa. We have looked at the situation and we are trying to make the best of it.
We have a strategic workforce, so we have managed to introduce new rotation practices in line with securing the wellbeing of our employees. We have utilised the downtime to undertake some significant maintenance work that was going to be done later in the year. I would think that maintenance programmes would be a primary activity for many companies that have closed down, so we are doing that.
What will the dual shock caused by the pandemic and the oil price crash mean for the country’s LNG projects?
A large number of associates both internationally and in South Africa are quite worried about the fact that ExxonMobil has suspended the FID for Rovuma LNG in Area 4. We understand that the project may be pushed back two to three years. However, it is important that we look at the reality.
Each of the country’s LNG developments – Area 1 onshore, Area 4 offshore and Area 4 onshore – is to be considered a mega-project on its own. The Mozambique LNG project in Area 1 has been suspended for months, but it will come back on stream, while Coral South in Area 4 will continue as planned. The development of Area 1 is well underway, and that on its own will be able to lift the country’s economy.
When people talk about the doom and gloom at ExxonMobil, they need to understand that Area 4 was always going to be running later than Area 1. People are reacting to what is making news out there rather than focusing on what is really happening on the ground. Mozambique is a very interesting place to be in, and we remain quite excited about what the country’s future holds for investors.
How will the crisis change existing decision-making processes regarding supply chain management and business expansion into other areas?
The world is reacting at an extremely fast pace with regards to what is happening globally. In 2019, China produced over half of the world’s steel. The consequences of Covid-19 could easily split the world up into two camps of manufacturers – Chinese and non-Chinese, with the latter having a very different supply chain philosophy.
Many of the Area 1 project’s suppliers are from Italy and France. For us, we may not seem to be a preferential source of supply for various reasons. One is the highly competitive nature of Chinese manufacturers. However, given that China is no longer such a low-cost manufacturer, that could change too going forward. I think the government has to be more stringent on compliance with local content requirements in the post-Covid-19 world. That will create opportunities for local players to get more involved in Mozambique’s LNG developments.
We have to live in a world of change by the day, not by the week or by the month. Business as usual is no more the case. Nobody knows what the new world order will be. If we think that we can still keep the original business plan and amend it in some way to fit the post-Covid-19 world, then we are fooling ourselves.
As a company, we are fortunate in the sense that our primary strategy has had to change several times in the past 20 years. We are highly mobile and highly innovative. If we must change our existing business model to take up the opportunity that is coming post-Covid-19, then we will do so. We have already anticipated downturns and put structures in place when it was necessary. If the world can change in a day, then one’s decision making must change in an hour.
It is an exciting time to live in. It will not be the survival of the wealthiest or fittest companies, but the survival of the nimblest that are able to predict the changes going forward. For instance, we are currently investing in a hot-dip galvanising facility, as we have spotted some demand in this area. We made the decision to invest in galvanising in one month and, if needed, we may shift our entire business model around this additional facility to focus on it going forward. What is a given is that we are in Mozambique, we have a good workforce and we can operate with a high-level of innovativeness.
Why will consolidation be key for many industry players to continue their activities?
Before Covid-19, the market was driven more by aspiration rather than necessity. In the post-Covid-19 world, the only way for many companies to survive will be by pairing up with their peers and competitors to establish value-driven collaborations. Generally speaking, I believe a lot of companies will look at this crisis as an opportunity to restructure their balance sheets and reduce operating expenses. Ultimately, many of us will aim to become a lot more streamlined to withstand future situations like this.