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Shell plc has confirmed weekend media reports that it plans to divest from its shareholding in Shell Downstream South Africa.
This has been seen as yet another vote of no confidence in South Africa’s slow-growth economy and risky investment environment.
One plausible explanation – which points to South Africa’s sluggish embrace of a global trend – is the slow uptake of EVs in the domestic vehicle market.
Shell, which is undertaking a strategic asset review, pointedly said on Monday that it “… has undertaken a comprehensive review of the downstream and renewables businesses across all regions and markets in line with Shell’s focus on performance, discipline, and simplification.”
Its divestment decision was based on this review.
Adding flesh to the bare bones of its statement, it is revealing to note that in Shell’s latest energy transition strategy report in March, the company said it planned to divest from 1,000 service stations in 2024 and 2025 as it pivots to EV charging options.
“We are upgrading our retail network, with expanded EV charging and convenience offers, in response to changing customer needs. In total, we plan to divest around 500 Shell-owned sites (including joint ventures) a year in 2024 and 2025,” the company said.
Shell has more than 500 service stations or forecourts in South Africa, where the EV market remains stuck in first gear. South African pure EV sales surged last year, off an extremely low base, to a grand total of 931.
This is out of the 532,098 new vehicles sold last year in South Africa, making it less than o.2% of total sales, according to data published by the Automotive Business Council, also known as Naamsa.
Hybrid EV sales were perkier last year, reaching 7,693 – still less than 1.5% of the total.
In contrast, more than 80% of new vehicles sold in Norway last year were electric. Shell, by the way, does have a retail presence in Norway.
So, if you are going to start divesting from service stations – in this case, petrol service stations – to expand your EV charging offerings, it makes sense to do so in a market like Norway rather than, say, South Africa. And the number of Shell stations here fits the company’s announced strategy like a glove. (There are about 735 Shell stations across the country, as per Shell’s service station locator map).
Late to the party
South Africa’s Department of Trade and Industry (DTI) published its white paper on EVs late last year.
But it was typically late to the party, taking two-and-a-half years to churn out 56 pages – a puzzling length of time for a report that’s hardly a doorstopper.
As my colleague Tim Cohen noted when it came out: “… you get the impression the government is embarking on this whole process with the enthusiasm of a soccer supporter at a rugby game. And consequently, the whole thing is happening at the speed of a golf cart.”
There is ultimately a price to be paid for crawling along in the slow lane of a major global trend, while other countries roar past in the fast lane.
For South Africa’s vehicle makers, who export 65% of their vehicles to the European Union, it is vital to rapidly switch gears before regulations aimed at phasing out petrol and diesel-powered vehicles slam the door completely shut.
The pace of the demise of internal combustion engine, or ICE cars, is probably exaggerated – South Africa’s platinum producers certainly hope that is the case – but it is happening.
Who knows, maybe South Africa’s ham-fisted response to the rise of the EV market is partly rooted in its concerns about platinum group metals. Prices for these metals – used primarily as autocatalysts in ICE engines – are currently depressed, partly because of the hype around EVs.
When you account for about 70% of global production of a commodity, you kind of want to keep that ace up your sleeve.
But South Africa looks as if it may ultimately be playing a losing hand.
The departure of Shell from South Africa’s downstream sector highlights the risk of tardy responses to a changing global business landscape and the dropping of the policy ball.
When global companies are seeking to divest some assets to plug into new technologies and opportunities, the axe is going to fall on the laggards.
In this sense, Shell’s decision is indeed a reflection of SA’s poor and muddled investment and policy environment. Which is hardly a shell-shocker.
Good investing! DM
