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Strategic Risk Management

Strategic Risk Management. NOT AN OFFICIAL UNCTAD RECORD. Meeting the challenges of increased oil and gas revenues Options to invest revenue windfalls and sustain future growth in Africa. Jean-François Casanova , CEO, Strategic Risk Management, France.

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Strategic Risk Management

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  1. Strategic Risk Management NOT AN OFFICIAL UNCTAD RECORD Meeting the challenges of increased oil and gas revenuesOptions to invest revenue windfalls and sustain future growth in Africa Jean-François Casanova , CEO, Strategic Risk Management, France. African Oil Conference - Nairobi, May 24th, 2007 DAY 2, Session 5, Room B, 8: 45 – 10:15

  2. Making money while providing future development “I really like the idea of making money and doing good and I am perfectly happy if it happens in that order” James Cameron Chairman of Climate Change Capital

  3. Africa challenges of increased oil and gas revenues Major imbalances within Africa

  4. At least a light of hope Africa energy leaders are taking off to gather with growth in line with the best GDP over 6%

  5. A barrel at USD 50 means an additional revenue of 300Bln per year Estimated amount: more than USD 1.5 Trillion

  6. What is done with all this money ?

  7. Major Oil exporters are relatively risk adverse

  8. 25.00% Illiquid Asset Outperformance over Traditional SML: 5.8% 20.00% Venture Capital* Private Equity* CLO Equity Proxy JPM Emerging Markets HFRI Distressed Securities Index 15.00% Buyout Mezz* HFRI Fund Weighted Composite Index NAREIT-All Annualized Return S&P/BARRA 500 Value CSFB Conv Securities DJ Wilshire 5000 10.00% S&P 500 S&P/BARRA 500 Growth CSFB HY Index U.S. LT Gvt ML Corp LB AAA Corp ML Mortgage LB Aggregate Bd CSFB Leveraged Loan Index S&P Incremental return MSCI EAFE U.S. IT Gvt 286 bps vs. ML Corp: ML ABS 5.00% U.S. 30 Day Tbill U.S. Inflation Gold 0.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% Annualized Return Volatility But taking risk pays ! From a pure investment perspective, investing in Emerging market gives a substantial premium Source: CSFB, Ibbotson Associates, Venture Economics, Callan Associates

  9. Middle East exporters are less risk adverse…

  10. … and meet more easily future development • Gulf Cooperation Council experience • Saudi Arabia, Kuwait, UAE, Bahrain, Qatar, Oman • Seventh emerging market GDP USD 733 Bln • Close by it size to Mexico or South Korea

  11. Non Oil GDP are higher and much less volatile !

  12. As an additional benefit Dependence on import & public expenditure declines years after years

  13. And Private investment increases as public expenditure gain room to expand

  14. First conclusion Create the environment and profitable investments opportunities will arise

  15. Investors Policy & Government Agro-Business Bio-fuels Industry Automotive Transportation Energy Equipment Manufacturer Clean carbon and making money: Bio-energy as an Entrepreneurial Solution for African investors? The tropics are the main area for biofuels production today! These are from the originals from NASA

  16. One of our favourite option for meeting African future development FUEL DEMAND FOR LIGHT VEHICLES IN BRAZIL 6 10 BEP TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED) US$ 61 billions TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV) GASOLINE PRODUCTION Accumulated economy of 7 years and 9 months of pure gasoline consumption. 180 GASOLINE CONSUMPTION 160 140 120 100 80 + US$ 16 billions 60 40 20 0 1970 1975 1980 1985 1990 1995 2000 2005 YEAR Ethanol Experience in Brazil: Oil economy and environmental benefits Total economy of 778 million boe or 15 months of the present Brazilian petroleum production. This curve shows how much gasoline would be necessary to satisfy the fuel demand for light vehicles supposing the non-existence of the Brazilian Ethanol Program IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 644 MILLION TONS OF CO2WAS AVOIDED Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2006 and Laura Tetti – USP – 2002

  17. A comprehensive development model for Africa • Forward integration by farmers and backward integration by the many end users of Bio energy • More acreage put into production, more income for farmers • Creation of thousands of jobs in newly constructed plants • Appreciation in farm and other real estate values • Creation of ancillary industries and services in various sectors • Supply chain and logistic companies to meet requirements by palm, oilseeds and ethanol producers • Training and development firms to support managers and employees of ethanol plants and for related industry players • R&D firms to advance the technology and discover new technologies • Local population may get access to cheaper fuel • Potential to bring in venture capital to provide these start-ups with capital required • Higher number of local plant owners will yield a higher economic impact through tax receipts to local governments

  18. Is this growth model suited for Africa, and how can it produce an attractive rate of return over time? The Methodology for investing is about evaluating investment allocation • Strategies and risks associated • Is it really entrepreneurial? Free market or state control ? • Within the Bio energy value chain: who will really make the money as power in the channel shifts over time (growers, refiners, big energy companies, wholesale distributors, retail sellers)? • Analysis goals • Identify portfolio strategies • Determine investment allocation guidelines • Identify the level of risk capital available or the investment requirements for risk capital • Assess the risk to the overall portfolio • Earnings at risk and equity value implications • Credit at risk and downgrade risk implications • Iterative process • Evaluate current “risk capital” available • Ranking of the investment opportunities • Structuring of investment scenarios among business units

  19. Second conclusion • Use petrodollars windfalls to develop Africa to a new Agricultural age for producing Energy • Make money and do good in creating Value through a purchase transaction in which you buy or build asset at a bargain • Be part of a Global Entrepreneurial Revolution

  20. Don’t stay on the side line, be part of the African development “Be the change you wish to see in the world.” M. Gandhi

  21. Strategic Risk Management For any Question : Jean-François Casanova 52, rue de Ponthieu 75008 Paris Tel :      +33 (0)1 45.62.16.64 Mobile:   +33 (0)6 15 38 64 08 E-mail : jcasanova@riskvalue.com 21

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