Investing in the future
Maputo in the morning
South Africa stalwart Grindrod Group has put variety at the heart of its investment portfolio, as Mike King reports
The credit crisis and falling demand in key shipping markets will affect South Africa's Grindrod Group at some point. Yet managers believe a diversification strategy geared around the expansion of non-shipping services in Africa will stand the Durban-based company in good stead.
Central to this plan has been the establishment of a network of port facilities across southern Africa, each a critical cog in the company's landside and shipping supply chain network which includes agency, trading and a growing fleet of owned vessels, according to Dave Rennie, managing director of Grindrod Freight Services."Our port strategy has been rolled out in a much more substantial manner in the last three years," he says in conversation with Port Strategy. "With our focus on Africa, we saw there were a number of opportunities to improve efficiency at ports through investment and improved management. We saw we could create gateways or trade corridors targeting the major commodity players exporting to the Far East and elsewhere."
Grindrod's terminal roster now spans southern Africa, from sulphur import facilities at the port of Dar es Salaam in Tanzania, in the east feeding the 'copper belt' of Zambia and the Democratic Republic of Congo, to the port of Walvis Bay in Namibia in the west. In South Africa, the company has facilities at Durban, Cape Town and Richards Bay handling dry and liquid bulk, cars and general cargo.
The company saw earnings grow some 94% year-on-year to Rand1.1bn in the first six months of this year. Mr Rennie says it is difficult to separate out port profits from the overall figures, but predicts the division will start accounting for 25%-30% of overall profits "in the years to come".
Achieving that target will require further expansion, most notably in support of new mining ventures in Africa. "We are looking at a number of projects in and around existing ports and further into Africa and we are looking to invest as opportunities arise," he says. "If mining exploration turns into bankable projects then we will be there with supply chain support, and that means road, rail and terminals."
"That's our strategy, so it's just a matter of timing."
Grindrod's commitment to port expansion was made clear last year when the company teamed up with DP World to buy a concession to run the port of Maputo in Mozambique from an international consortium led by the UK's Peel Ports.
A masterplan for Maputo's development was scheduled to be unveiled last month and will take in wharf development, stevedoring partnerships and dredging.
The first stage of the port's car terminal expansion is already finished and "subject to demand this will be increased in size", says Mr Rennie.
Further investment in Maputo's Matola Coal Terminal is ongoing, initially taking capacity to four million tonnes and, by 2011, to 10m tonnes.
"Once the masterplan is complete, we will be looking at further investments covering the concession period," he says.
Mr Rennie is confident that the collapse of the bulk shipping market this year will not undermine growth in trade to and from Africa.
"The market is a concern, but it is sentiment driven at the moment," he argues.
"We are taking a medium to long term view of terminal investment and we think the potential in Africa is so great that the demand for quality handling at ports will be there when the supply-demand balance returns to shipping."
The expansion of Walvis Bay in Namibia and the opening of new inland terminals across southern Africa to support shipping supply chains will be next on the Grindrod agenda and the company is also tracking developments in Angola and northern Mozambique, where mining companies are competing to secure new mineral concessions.
Grindrod's experience of overcoming the particular problems of operating in Africa where public-private partnerships are relatively new and bureaucracy can require delicate handling gives the company a competitive edge, believes Mr Rennie.
"We understand the special logistics requirements and working conditions of Africa," he insists. "And we understand we need to meet the requirements of mining majors at a price supported by commodity prices."
Mr Rennie says Grindrod has not ruled out port investments outside Africa, but is not actively pursuing any opportunities as Port Strategy goes to press. "We don't preclude overseas investment, but our focus is on Africa," he says. "That's where the opportunity is over the next decade and that's where infrastructure needs improving most."
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