Africa Oil & Gas: Saudi Arabia pledges multi-billion dollar investment into South Africa’s energy sector

SA President - Saudi Arabia.jpgSaudi Arabia is to pump $10 billion-worth of investment into South Africa, to be focused on its troubled energy sector, according to a South African government spokesperson.

  • Saudi Arabia is to invest $10 billion in South Africa.
  • The funds will be concentrated on reviving South Africa’s ailing energy sector.
  • South Africa President Cyril Ramaphosa is on a mission to raise $100 billion in foreign direct investment as he attempts to revive the national economy after years of corruption and ahead of an election next year.

The pledge was made during South African President Cyril Ramaphosa’s state visit to Saudi Arabia this week, where he met with Crown Prince Mohammed bin Salman.

The majority of the cash will be siphoned into South Africa’s energy sector, “including building refineries, petrochemicals and renewable energy,” said government spokesperson Khusela Diko on Thursday, as reported by Reuters.

Saudi Arabia’s pledge forms a sizeable chunk of Ramaphosa’s mission to generate $100 billion of foreign direct investment. While South Africa is the African continent’s most industrialized country, its once-promising economy has suffered years of sluggish growth thanks to a fall in the price of commodities and endemic governmental corruption.

Ramaphosa needs to stay popular with the South African electorate and continue to buoy “Ramaphoria,” the positive momentum that sent the Johannesburg stock market soaring after he took power following the departure of scandal-ridden former President Jacob Zuma in February of this year.

South Africa’s economic fundamentals have not looked so promising in recent months. The country’s gross domestic product shrunk by 2.2 percent quarter-on-quarter in the first three months of this year, according to Statistics South Africa.

Power cuts are rife in the country thanks to its ailing state-owned utility Eksom, which is hungry for investment. According to Ben Payton, head of Africa research at consultancy Verisk Maplecroft, 12 of the country’s 15 coal plants are due to decommissioned in the next 20 years. Eskom “is in no position to finance new facilities,” he told CNBC via e-mail.

But, investment and reform could be a long way off. “Projects in the energy sector are almost invariably delayed due to opposition from NGOs (non-governmental organizations) or trade unions,” said Payton. “South African government agencies are often unreliable partners,” he added, citing the regular failure of municipal governments, who purchase from Eskom, to meet their payments.

Meanwhile, Saudi Arabia’s crown prince, who has made diversifying the kingdom’s economic reliance on oil a cornerstone of his leadership, could view the South Africa pledge strategically.

Crown Prince Mohammed’s vision for Saudi Arabia “relies on a much more assertive foreign policy and more active presence on the world stage” than previously, Torbjorn Soltvedt, principal Middle East and North Africa analyst at Verisk Maplecroft, told CNBC via e-mail.

“Riyadh will welcome the opportunity to increase its share in Africa’s most sophisticated economy,” said Soltvedt.source CNBC; edited by Justina Crabtree

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