Pol Palacios “The challenge is to facilitate the movement of capital, which is one of the objectives of the AfCFTA”
Why investing in Africa and why now? A foreign investor’s perspective. Pol Palacios, Co-founder and CEO XWells Energy Limited.
In what field and where does your company operate, in the world and in Africa?
Our company, XWELLS, is in essence international, since it was founded by partners of 7 countries on 3 continents. For the record, it was dreamed, conceived, assembled and decided in Africa, on an offshore ship off the coast of Angola and in a small living room in Luanda, incorporated in the United Kingdom, then deployed very quickly in Mexico, in Congo, in Southeast Asia for the financial part and in Ukraine, recently, within the framework of industrial and logistic projects.
Today we operate as operational and strategic consultants in the energy sector in general, with a strong focus on deepwater offshore oil and gas drilling and production projects, and in the financing of innovative energy projects and the transition to sustainable technologies. Our clients are either listed majors, national companies whose technological development we support, or highly capitalized independent operators who enter a space that was once exclusively reserved for large transnational firms.
In Africa, our activity, projects and investments are mainly focused on Senegal, Côte d’Ivoire, Ghana, Angola and South Africa, with the intention of using the AfCFTA lever to spread from these countries and deploy cross-border synergies, for example in Mali, which we are currently looking at closely, or in Zambia.
What are your short, medium and long-term investment projects?
We are planning to continue developing our activities this year, in the short term, in the field of drilling. This is notably by becoming a key player in the modernization of the rigs available to the local market. The aim is to replace a fleet of obsolete, polluting drilling rigs that have reached their technical limits, both onshore and offshore. Beyond the simple supply of equipment and the operational maintenance service that goes with it, we are unique in the sense that we also provide engineering expertise and a capacity to manage complex projects. In our operations, we strive to mobilize local skills to the maximum.
In this particular field, and at the time of this interview, we are in advanced discussions with two national companies in Africa who are looking, on the one hand, for recent equipment at a competitive price, and on the other hand, for independent support – I insist on this word – to carry out their project, through a local partnership with them. It is clear to our prospects that they do not want simple service providers repatriating value elsewhere. We see an extremely positive short-term future in these integrated projects. Two similar projects are being negotiated in Latin America, in an environment made very competitive and unstable by the global health context born in 2020.
In the medium term, we are looking to deploy value-creation hubs in Africa, which we see as regional operational bases that will allow us to provide training, deployment and business intelligence while serving our customers. In particular, we have studied new countries, or countries that represent growth relays in our sector, such as Senegal or Ghana, where the development of offshore gas reserves, for example, represents an opportunity that we cannot ignore.
In the long term, our clear ambition is to be a major player that has contributed to the creation of a new South-South trade axis across the Atlantic, and to foster the links between Latin America and Africa, in order to provide a credible alternative to the “All-Asia” or “All-Europe” at the commercial, financial, technological and human levels.
What are the constraints you face in your expansion in Africa, in the countries or regions you have chosen?
I will not talk about health constraints, which in my opinion are a problem that I hope will be resolved one day, not so far from now. In this regard, I note that African countries have, on the whole, finally responded to this crisis with an extraordinary resilience and an efficiency that must be recognized, especially in light of the modest resources that some have at their disposal.
The fact remains that when you want to develop business in the countries we are targeting, you encounter a number of obstacles, or rather slowdowns, I would say. The first is the difficulty, perceived for some countries or real for others, to move funds and therefore make payments efficient, fast and especially safe. Banks have a long way to go on this point, and I see the competition from innovative digital financial services companies (Fintech) as a salutary kick in the pants. A recent example: it is not possible, in February 2021, to make a transfer online from our accounts held in a renowned Fintech, nor from our bank in Scotland to a supplier in Congo, even though he is banked in a bank belonging to a leading European group, while we send money between Mexico and the UK in a few hours and between the UK and Hong Kong in a few seconds, both in local banks and in subsidiaries of international banks. What is worse is that the reasons for this impossibility are opaque. Are they due to an African banking sector lacking connection or to a mistrust of the international banking sector towards the continent, maintaining an isolation that favors very expensive transfers or tools, which constitute a gold mine if we think of the economic flows that are certainly generated by the diasporas? The question is open, but what I want to say here is that banking and financial African players should not expect a service from the outside world adapted to the needs of the latter, but should instead propose a adapted for themselves and the rest of the world – acting in a spirit of commercial conquest.
I call with all my heart for the immediate emergence of African Fintechs with a global vision, to come and lead a sector that will otherwise be monopolized very quickly by European players controlling prices and rules. And in particular I call for the 2nd generation of FinTech – mini-currency exchanges, integrated multi-currency payment systems, local currency accounts allowing savings and direct transfers. The dematerialization allowed by digitalization nowadays normally allows a Malian Fintech to compete on the global market, if it has the support of regional central banks and a serious and direct political support inspired by pragmatism.
The other challenge we face in developing business in Africa in general is what I would call the different perception of business time. Institutional decision-making processes are particularly slow and complex compared to what is done elsewhere, and entrepreneurs, who need a fast and flexible flow, see some of their projects stalled. This has happened to us on projects that were of definite and direct interest. This is happening to us as we speak in a case where we were discussing how to deploy, on behalf of a government company, high-tech equipment whose access is very restricted and competitive. After 6 months of evaluating whether or not our offer was relevant and whether or not to align multiple and complex interests, the equipment – which is leased from very agile international players with whom we had negotiated very privileged conditions for our client – had disappeared from the global market. We know that when you have access to African decision makers, the decision can be immediate. Therefore, we see that it is important to ease access of entrepreneurs to decision- makers and to cut, frankly, many intermediaries who are in many cases quite useless.
Is the entry into force of the AfCFTA, which is intended to promote investment in Africa, an opportunity for you and your company?
This entry into force is good news and an opportunity for us and for millions of actors. I would correct the phrase “encourage investment in Africa” in the sense that it potentially contains the seed of a cognitive bias meaning investment in Africa from outside, often implicitly imagined as “where the capital is”, i.e. Europe, the US or the East. I believe it is time to rethink the very term investment in Africa. Nobody talks in the press about “investment in Europe” or “investment in Asia”. No. They simply talk about investment in this or that sector. And this investment is made in the countries, by the countries and their actors, for the countries and their actors. Therefore, this must emerge as second nature in Africa. Too often I still see extremely rich people taking their wealth out of the country and putting it into goods or investments elsewhere than in Africa. I often say that the only local content that counts is capital.
Therefore, the challenge is to facilitate the movement of capital – that is one of the objectives of the AfCFTA. While for the moment the bulk of the treaty is about the free movement of goods, there is a protocol on investment under discussion that should change that. By facilitating the movement of capital, the AfCFTA will allow for more flexibility in the allocation of financial resources on the continent. What I mean by this is that there must be cases where the presence of African capital does not necessarily correspond to the geographical location of the opportunity.
It is clear that with a reduction in customs barriers, we can consider concentrating regional oil services in centers of excellence that later supply secondary centers, where probably the activity is less strong or reduced, and on the contrary mobilize in the most active centers, the resources of others, by facilitating the transfer of equipment and materials or qualified personnel. Today, in the oil industry, it is common to see duplication of equipment on both sides of a border, and given the competitiveness of this sector and the need to reduce costs, it is clear that the AfCFTA is an opportunity.
What do you expect from this Agreement?
It is difficult to comment on this point, because I believe that it is up to Africans in the countries party to the agreement to define their expectations and not to outsiders like us to do so by skewing the very existence of the agreement to suit our interests.
On the other hand, if the agreement facilitates the competitiveness, speed and development of our local partners, I am thinking in particular of Côte d’Ivoire, there is no doubt that the benefit for us will be enormous.
On a personal level, I hope that the agreement will contribute to accelerate the access of the greatest number of people to more prosperity and finally to peaceful and multilateral transactions and trade with perhaps more modern mechanisms avoiding the race to the bottom in terms of social welfare and environmental standards that has unfortunately been the fate of the European Union for the past 30 years.
I am concerned that the AfCFTA could lead to a drain on capital and investment to those countries that are weakest in terms of societal, industrial or environmental standards, rather than creating a virtuous spiral that favors the best performers. I am also concerned that the AfCFTA will not be balanced by a very cautious policy on capital and equipment investment from outside Africa. In this case, the AfCFTA would be, as we have seen in Europe, a pretext for relocation that is poorly controlled and, above all, does not require any counterpart from international partners. In my opinion, the main thing to watch out for in the new agreements is preserving national sovereignty, particularly in the area of monetary creation and in the legal field, even if well-designed AfCFTA homogenizations are desirable. The point is to maintain the intrinsic competitiveness of the different countries in the zone and once again avoid introducing systemic unfair competition between players, as we see in Europe, leading to complete deindustrialization for some countries.
In two words, the main key to a prosperous AfCFTA zone is, in my opinion, a wise organization of the framework in which competition and transnational trade flows are exercised and a legal and stable framework for the rules of trade. This is, while maintaining the extreme flexibility of the way business is built on relationships and trust, which is the norm in Africa. Africa must above all not sacrifice this on the altar of what our Anglo-Saxon friends refer to as “process and compliance” – an understatement of what should be called bureaucracy.
Do you feel that your partners around you are aware or informed about the AfCFTA? What is the perception of this Treaty and its impact?
Quite honestly, I feel that absolutely nobody talks about it around me, especially in the Latin American and North American context. We, sometimes, have the impression that from the Americas, Africa is a distant planet. Therefore, there is a huge amount of education and communication work to be done around this.
But, as a little provocation, I realize that this sentence: “there is an enormous amount of pedagogical work to be done”, in the end, with whom, in whose interest?
If it is with other countries and continents, probably not, in the end. For this puts us back, once again, in a position where Africa must still depend on others and explain who it is, what it wants and why.
After all, it is mainly in Africa that we must organize ourselves to give life to this market, and the others will discover it in time. I hope, with a smile, that our competitors discover this mine of opportunity as late as possible. And if possible when it is too late and XWELLS will have many subsidiaries and partnerships and 100% African joint ventures, led by African men and women to African customers, and capturing benefits and values in Africa to invest in Africa or, mirroring what I said in the first question, from Africa.
To conclude, is this the right time for you to invest in Africa? Why is it so?
I believe that it has always been the time to invest in Africa, that it has never stopped and that it will not stop. Since the earliest times. After all, it is Africa, through its blood, energy and talent, which has taken a huge part in the construction of the world. Now is just time for it to reap the dividends.
Today as tomorrow, Africa holds the strategic energy resources, conventional like oil and gas, but obviously also clean and decarbonized, as for example the Inga dam and its continental potential or its colossal reserves of nuclear fissile materials, not to mention the sun, the wind on land and offshore. These are resources without which humanity can neither achieve the energy transition, nor even survive with the current model of civilization that as we all know too well is neither sustainable nor tenable.
Through the new economic models, it is inventing, Africa is therefore true to what it is, as the cradle of humanity: the living source of planetary renewal.