Sub-Saharan Chemicals Market
Key Sectors Drive Movement in Africa
Urbanization And Diversification - Africa is set to enter a growth cycle. Although Asia is anticipated to continue dominating the global chemicals industry with expected market-share growth from 32.3% in 2010 to 40.4% in 2020 (fig. 1), Africa, along with the Middle East, will also experience growth in the chemicals segment.
This has been predicated by significant increases in gross domestic product growth and foreign direct investment (FDI) in parallel with decreased conflict and foreign-debt-to-GDP ratio since the early 2000s, writes Avril Harvey, team leader for Chemicals Materials & Food at Frost & Sullivan. The average African GDP growth in 2013 was 4.8%.
A number of influencers will contribute to this significant growth within the chemicals sector, namely mega trends, construction and economic growth.
Mega (Macro) Trends
Frost & Sullivan defines a mega trend as a long-term global transformation process. Mega trends arise from changes that influence business, economy, society, cultures and personal lives, thereby defining our future world and its increasing pace of change. These trends not only affect all key organizational functions but also allow companies to predict market direction and future demand and to respond to opportunities and threats.
One of the key mega trends that will influence chemicals sectors in Africa is increasing urbanization. By 2020, about 43% of people on the African continent will live in urban areas. Infrastructure development will also play a significant role, as it is estimated that $810 billion will be required in the next five years to upgrade, rehabilitate and expand Africa's infrastructure, whereas just more than half of that amount is being spent now.
These key mega trends will act as drivers on specific African industries. Increasing urbanization, for example, will have a strong effect on the development of infrastructure in Africa. Development and high growth are expected in electricity, road and rail, health care, water sanitation, and port infrastructure. A total of $363 billion has currently been spent on infrastructure projects (based on active projects in 2011), with the bulk of this in the transport and energy sectors.
The mega trend of increasing urbanization gives rise to a subtrend of construction, driving greater demand for building materials, paints and coatings, and construction chemicals in key African countries. South Africa is the leader in investment into infrastructure development; however, Nigeria, Mozambique, Kenya, Angola and Zambia also represent high value growth opportunities.
Revenue from infrastructure chemicals is anticipated to grow from $416.8 million to $453.6 million by 2015 in South Africa and from $62.6 million to $75.1 million in Kenya, with the bulk of these chemicals being coatings (fig. 2).
Other sectors driven by mega trends that represent growth opportunities in Africa are mining and agriculture. Revenues from mining chemicals are forecast to grow at a compound annual growth rate (CAGR) of 4%, and agrichemicals are expected to increase in value from $1.1 billion to more than $5 billion by 2020.
Economic Growth on the Continent
Much of Africa's growth has been dependent on resource extraction and, in particular, oil exports. This trend is expected to continue over the medium term. However, during the long term, many African countries are likely to become more diversified, with growth expected in the manufacturing, agricultural and services sectors. Diversification is the key to unlocking Africa's potential and growing middle class. Per capita incomes have grown substantially in the last 10 years, but this growth is expected to be insignificant compared with the growth that is predicted over the next 10 years due to beneficiation activities and the diversification of economic activities.
Some of the most diversified economies in Africa are in northern and southern Africa, including Egypt, South Africa and Namibia (fig. 3). A number of countries, such as Kenya, Mozambique, Madagascar and Rwanda, are transitioning into more diversified economies and growing GDP per capita, thus representing attractive expansion and investment destinations in Africa.
Africa is not without challenges - such as crime and corruption, lack of skills and some difficult business environments. However, companies have managed to overcome the risks by tailoring their strategies and adapting their business models to successfully tap into the unique market environment.
Companies wishing to enter the African market in key industry sectors, such as mining and agriculture, need to tailor their strategies accordingly to best drive growth through geographical expansion and mergers and acquisitions.