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African Growth Series - Africa's East and West Growth Frontiers

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Nigeria and Kenya remain two of Africa’s most robust economies. As the new gateways to emerging markets within their respective regions, Frost & Sullivan believes these two countries possess numerous …

Nigeria and Kenya remain two of Africa’s most robust economies. As the new gateways to emerging markets within their respective regions, Frost & Sullivan believes these two countries possess numerous domestic market opportunities across various industries.

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  • 1. African Growth Series - „Africa‟s East and West Growth Frontiers‟ Kenya and Nigeria – Growth Predictions and Opportunities within Key Industries Frost & Sullivan Africa February 2013© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property ofFrost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
  • 2. Focus Points1. Occasion for the Analyst Briefing2. Africa – Current state of the African economy3. Key sectors to watch out for in 2013 1. Information & Communication Technology 2. Agriculture 3. Cement Manufacturing Industry 4. Infrastructure 5. Healthcare: Life Sciences 6. Energy & Environment4. Key challenges and growth opportunities `5. Growth predictions for 2013 by sector 2
  • 3. Briefly Discuss Occasion for the Analyst Briefing• Urgency of the topic • Africa is emerging as the next growth frontier and the continent that has shown significant opportunities for organisations wanting to grow into emerging markets. What are the hot growth countries amongst the African nations ?• Newsworthiness of topic • Nigeria and Kenya remain two of the Africa’s most robust economies. As the new gateways to emerging markets within their respective regions, these two counties possess numerous domestic market opportunities across various industries. Given their prospects, what are the core opportunities that exist within these two unique markets?• How this will affect the participants • Learn more about Frost & Sullivan’s growth predictions for 2013 about the key sectors in Nigeria and Kenya 3
  • 4. The BIG global picture – game changers beyond 2020 Russia: $7 Poland: Trillion $650 Billion Turkey: $790 Billion China: $8 Algeria GDP: Trillion $310 billion Egypt: $490 Vietnam: $175 Billion Billion Mexico: $1.5 Nigeria GDP: India: Trillion $510.5 billion $4.5 Trillion The Philippines: Brazil: $2.7 $250 Billion Trillion Angola GDP: $201Note: The figure denotes GDP at billion Indonesia:market prices $800 Billion South Africa: $555.5 Billion BRIC Countries Other Emerging Countries (Africa) Next Game Changers includes: Mexico, Argentina, Poland, Egypt, Turkey, Indonesia, Philippines, Vietnam 4
  • 5. Will Africa Provide Sustainable Growth Opportunities? Average Expected GDP Growth (Africa), 2011-2016 Tunisia Morocco Algeria Libya Egypt Mauritania Mali Niger Chad Sudan Economic growth is up and is Ghana Nigeria Ethiopia Somalia Cameroon expected to stay up. Gabon Democratic Uganda Kenya Republic of > 7.0% Growth Congo Tanzania 5.0% > 7.0% Growth Angola 3.0% > 5.0% Growth Zambia Mozambique Zimbabwe Madagascar Namibia Botswana South Africa Note: Chart reflects average, yearly GDP growth from 2011-2016 5
  • 6. Summary of Key Opportunities by 2020 across keyapplication sectors Manufacturing: $130 billion Manufacturing, food packaging Energy: $450 billion and fortification. Infrastructure Development: Electricity infrastructure, renewable >US$500 billion energy, rehabilitation of Transport infrastructure and existing structures rehabilitation, housing, ICT, buil ding and other Agriculture: US$120 billion materials, construction and PPE Includes fertilizers, crop protection, animal health, feed and additive products, and plant biotechnology. Oil & Gas: US$300 billion Africa – The Infrastructure, extraction chemicals, and Summary rehabilitation Water: US$250 billion Includes sanitation, water infrastructure and chemicals, renewable water, and water and wastewater treatment. 6
  • 7. Our Presenters TodayInformation & Communication Technologies - Ishe Zingoni, Industry Analystfor ICTAgriculture - Carolyn Krynauw, Research Analyst for CMFCement Manufacturing Industry - Yeukayi Kadzere, Research Analyst forIndustrial Automation, Mining & ManufacturingInfrastructure - Kudzanayi Bangure, Programme Manager for InfrastructureHealthcare: Life Sciences - Ryan Lobban, Industry Analyst for HCEnergy & Environment - Cornelis van der Waal, Business Unit Leader forEnergy & Environment
  • 8. ICT: Data Centre Markets
  • 9. ICT: Data Centres Major infrastructural developments have increased bandwidth availability in Africa, leading to the proliferation of data centres• African countries have benefitted from unprecedented levels of infrastructure Africa Undersea Cables, 2012 investment in the telecommunications sector.• Major undersea cables have landed on African continent as follows: • Seacom, July 2009 • TEAMs, Sept 2009 • MainOne, Q2 2010 • EASSy, July 2010 • GLO1, Q3 2010 • WACS, 2011 • ACE, Q2 2012 • SAex, Q2, 2013 • WASACE, 2014?? • BRICS, 2014??• Together with terrestrial networks, this has led to substantial reductions in the cost of bandwidth. • 90% decline in wholesale Internet prices in Kenya.
  • 10. ICT: Data CentresStrong uptake of outsourced IT services in both Nigeria andKenya is expected to drive growth in the data centre market Nigeria Kenya Data Centre Market Data Centre Market 2017 CAGR 2017 CAGR 2012 20.3% 2012 18.3%0.0 10.0 20.0 30.0 40.0 50.0 60.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Revenues ($ million) Revenues ($ million)Data centre Data centre $11.5 M $25 M market sizemarket size Co-location, Disaster recovery, Co-location, Disaster recovery, Key servicesKey services Web hosting Web hosting BFSIVerticals Oil & gas, manufacturing, ICT Verticals ICT GovernmentMajor market MTN Business, 21st Century, Major market KDN, Comtec, Safaricomparticipants Vodacom Business, IS participants Business, Access Kenya
  • 11. Agricultural SectorNigeria and Kenya face similar challenges, but they can beovercome Key Challenges New Solutions Commercial (outsourced) data centres areShortages of power investing substantially in back-up power and generators.Lack of in-house IT capabilities Outsourcing trendBudget constraints affecting enterprises Move from CapEx to OpEx model
  • 12. Agricultural Sector
  • 13. Agricultural SectorNigeria places renewed emphasis on the agricultural sector The Nigerian Government’s renewed focus on the agricultural sector will provide greater business opportunity than that offered by Agrochemicals in Kenya Kenya. Estimated 2015 Value: $430 million Agricultural Contribution to GDP: Nigeria and Kenya, 2012 GDP ($ billions) 100 75 50 25 0 Nigeria Kenya Agriculture ($ 84.5 10.1 billions) GDP ($ billions) 272.6 41.8 % of GDP 30.9 24.2 ` Agrochemicals in Nigeria Emphasis is placed on increasing the Estimated 2015 Value: appropriate use of agrochemicals. $1,038 million
  • 14. Agricultural SectorFertiliser use is expected to increase in future, howeverNigeria plans on being self-sufficient in the near future Nigeria Kenya Agrochemical imports are estimated at 80% - Kenya imports almost all of its agrochemicals – this is not 90%, however this is expected to decrease in future. expected to change. Agrochemical Market (2012) $850 million Agrochemical Market (2012) $380 million Fertilisers 80% Fertilisers 98% Crop Protection Chemicals 20% Crop Protection Chemicals 2% Growth Rates 8% - 10% Growth Rates 4% - 6% ` Key players: Notore Chemical Industries Key Players: Syngenta, Bayer Ltd, Syngenta, BASF, Jubaili CropScience, Monsato Looking forward Looking forward 1. Self-sufficient in fertilisers by 2015 1. Improved agricultural sector growth rate 2. Private sector is key 2. Increased competitiveness 3. Commercial agriculture 3. Emphasis on horticulture 4. Marketing boards
  • 15. Agricultural SectorNigeria and Kenya face similar challenges, but they can beovercome Key Challenges New SolutionsCounterfeit or tampered agrochemical products The role of ICT in Ghana and Uganda Changing mind-set and tailoring packaging andLow purchasing power NPD Drive for commercialisation and thePrevalence of smallholder farmers development of an agro-processing industryThe logistics of the product reaching the farmer Government-led inclusion of the private sector
  • 16. Cement Manufacturing Industry
  • 17. IPC: Cement IndustrySub-Saharan Africa, which has a sizeable infrastructuredeficit, is considered “the world‟s last cement frontier”Industry Drivers Kenyan Cement Industry Critical housing/infrastructure gap in Africa  Net exporter Increased urbanisation in Nigeria and Kenya Growth of the “middle class” segment  Produced 3.7 million tonnes against domestic demand of 3.1 Nigeria had a 2012 housing deficit of 16 million homes million tonnes in 2011 Massive investment by governments into ports, bridges, railways and roads  Low cement consumption per capita of 79kg in 2011 Per Capita Cement Consumption, 2011 Egypt 600kg South Africa 230kg Nigeri 106kg a Kenya 79kg0.0 100.0 200.0 300.0 400.0 500.0 600.0 KG/capita Nigeria Cement Industry  Net importerIndustry Trends  Produced 12.9 million Large influx of Asian imports Massive capital spends by cement producers to against demand of 17.1 million tonnes in 2011 ` increase production capacity  Low cement consumption Nigeria will be a net exporter by 2014 per capita of 106kg in High retail prices of cement in Nigeria at $220/tonne 2011 compared to Kenya’s $120/tonne
  • 18. IPC: Cement IndustryNigeria and Kenya‟s annual cement demand to grow atCAGR‟s of 17.5% and 10.1%, respectively, between 2011 and2017 Cement Imports into Nigeria  East African 2004 2011 2012 Community population of 300 million  (Regional) Cement demand of 8.2 million metric tonnes in 2011  New market in the newly formed South Cement Demand Growth, Nigeria Cement Demand Growth, Kenya Sudan CAGR CAGR 2017 10.1 2017 17.5% 2011 % 20110.0 10.0 20.0 30.0 40.0 50.0 60.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Million tonnes/annum Million tonnes/annum Market share of key industry Market share of key industry participants, Nigeria, 2011 participants, Kenya, 2011 National Other, Other, Cement, Ashaka 3.0% 7.0% 5.0% Cement, Mombasa 4.0% Cement, Unicem, 5.0% 9.0% ARM Bamburi Dangote Lafarge Cement, Cement, Cement, WAPCO 68.0% 11.0% EAPCC 45.0% 16.0% 25.0%
  • 19. IPC: Cement IndustryHigh energy costs are the most significant operatingchallenge faced by cement manufacturers in Nigeria andKenya Key Challenges New Solutions Privatisation of electricity sector; pendingElectricity shortages Petroleum Industry Bill Switching to coal milling plants for firing kilnsHigh energy costs ( Low Pour Fuel Oil) e.g. by EAPCC In-house clinker production; migration fromGovernment price intervention, Asian imports, CEM I to CEM II and CEM III; establish plantspoor distribution network inlandCapital investment constraints Strategic partnerships; IPOAggressive expansion plans by competitors Regional economic integration
  • 20. Infrastructure
  • 21. Infrastructure$604 billion is required annually, over the next five years torehabilitate and improve Africa‟s infrastructure In KenyaNigeria has the most ambitious $7.54infrastructure development plan inSub-Saharan Africa billion is currently being invested in Infrastructure Investment infrastructure 50 developmentInvestment ($ Billion) $38.99 B 40 $34.00 B 30 $21.05 B 20 10 0 In Nigeria $38.99Infrastructure development is responsible for morethan 50% of Africa’s improved economic performance billion ` is currently beingIt will take 50 years for most countries in Africa to invested inreach universal access to modern infrastructure infrastructure development
  • 22. Infrastructure Infrastructure development is driven by increasing global demand for mineral resources Key development drivers: Largest investment in transport and energy & power sectors Most significant support sectors for industry B $19.76 growth $7.54 B Infrastructure Investment (2010-2015) Required Investment Current Investment Serious lack of investment in structured $19.8 B low cost housing developmentKenya programmes will lead to the Funding gap: $12.2 B development of mega-slums $66.1 BNigeria Funding gap: $27.1 B Linkages: Production of cement, bitumen and other building materials; transportation of goods 0 10 20 30 40 50 60 70 i.e. pharmaceuticals Investment ($ Billion)
  • 23. InfrastructureLack of skills and expertise continue to be one of the greatestchallenges to infrastructure development Key Challenges New SolutionsLack of engineering skills and expertise Partnerships and apprentice programs Use of PPP’sAccess to financeRemote areas Development of self-sufficient villages
  • 24. Life Sciences
  • 25. Life Sciences Kenya and Nigeria remain East and West Africa‟s most robust life sciences markets Pharmaceuticals will be critical in addressing the disease burden to support continued Kenyan Pharmaceutical and sustainable economic growth. Market Key Drivers: $414 million (2011) Underlying infectious disease burden CAGR 13.3% Africa’s emerging middle class and Number of Competitors: 42 chronic medicine demand Local manufacturing for regional markets Investment in diagnostic infrastructure Streamlining of regulatory measures Anti-infective Therapeutic Market Component, Kenya & Nigeria, 2011 Nigerian PharmaceuticalKenya Market $1.1 billion (2011)Nigeri CAGR 11.7% a Number of Competitors: 140 0% 20% 40% 60% 80% 100% Anti Infectives Other Source: Frost & Sullivan analysis
  • 26. Life Sciences Rise in disposable incomes will benefit Africa‟s over-the-counter and chronic medicine markets Nigeria Kenya Innovator Generic 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Local Manufacturer Import 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% • Nigeria’s over the counter market will become a • Kenya will become the strategic manufacturing hub highly lucrative market for the African pharmaceutical market • Key Players: GSK, Emzor, Fidson, Pfizer • Key Players: GSK, Novartis, Pfizer, AstraZeneca High Growth Opportunities, Nigeria, 2011 High Growth Opportunities, Kenya, 2011 200 60 Cardio 50 Analgesics 150 Cardio 40 Revenue $ million Revenue $ million Analgesics 100 30 Diabetes Diabetes 20 50 Oncology 10 Oncology 0 0 12.0% 14.0% 16.0% 18.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% % CAGR (2011-2018) % CAGR (2011-2018)• Linkages: chemicals and plastics markets (local manufacturing and packaging), ICT (mHealth, reimbursement, payment). Source: Frost & Sullivan analysis
  • 27. Life Sciences Distribution, accessibility and challenges pertaining to price remain the primary challenges faced within the African life sciences markets Key Challenges New Solutions A broad distribution network is necessary toDistribution penetrate African markets.Price Competition and Affordability Second brand and differential pricing Accessibility and logistical challenges haveAccessibility and Logistics created opportunities in mHealth. Source: Frost & Sullivan analysis
  • 28. Energy and Environment
  • 29. Energy and EnvironmentThere are Great Differences Between East and West AfricaEnergy, and specifically electricity, is the backbone of any economyIt is crucial for governments to create an Significantly smaller enabling environment through reliable and market but more affordable electricity supply stable, transparent and predictableKey Country AnalysisNigeria:• Significant undersupply• Poor governance• Limited deregulation• Significant demandKenya: Significant upside• Steady growth potential but more• Increased reliability on diesel corruption, red tape and poor `• Significant RE opportunity governance• Improved governance and management
  • 30. Energy and EnvironmentThe Nigerian Electricity Industry holds Much Larger LongTerm Potential, but Current Operating Conditions are Tough ` Criteria Nigeria Kenya Installed Capacity +/- 8 700MW (56%) +/- 1 800MW Level of Deregulation Medium (1 350MW) High (25% non-KENGEN) Demand Growth 10%+ 8% Thermal (41%), Main Feedstock Thermal (65%), Hydro (35%) Hydro (44%) Genset Market Size $950 million $45 million Relative Electricity Price $0.09 per kWh $0.14 per kWh Main Challenge Market Deregulation Access to Finance Level of Opportunity Significant Growing
  • 31. Energy and EnvironmentDespite the Large Differences these Countries Face the SameChallenges Key Challenges New SolutionsAccess to Finance More rapid introduction of IPP’s Reduced government involvement (especially inMarket Deregulation Nigeria)Supporting Infrastructure Focus on gas infrastructure (both countries) Economic reform to stimulate industrial andOff-taker Growth especially manufacturing growth
  • 32. Conclusion Nigeria and Kenya – Next growth frontiers of West and East1. Africa is the next growth frontier and East & West of Africa are predicted to be the next growth pillars. Despite the low base, the growth experienced by the continent is attractive and it appears to be more sustainable than in the past2. Challenges exist across the various sectors that we presented. Business models & solutions are rapidly changing to tap into these attractive opportunities. There are many examples of how organisations that have adapted to this change have had tremendous success.3. The paradigm is shifting from „should we invest in Africa‟ to „managing risk of not being in Africa‟4. What is your emerging market growth strategy ?5. What does it take to penetrate these countries in Africa ?6. Do you have the business model that adapts to the challenges ? Source: Frost & Sullivan analysis.
  • 33. Next StepsDevelop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities
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  • 36. For Additional Information Cornelis van der WaalMani James Business Unit Leader for Energy &Regional Director for Africa Environment+27 (0)21 680 3208 +27 (0)21 680 3266Mani.james@frost.com Cornelis.vanderWaal@frost.comVassilissa Kozoulina Samantha JamesSales Director for Africa Corporate Communications+27 (0)21 680 3279 +27 (0)21 680 3574Vassilissa.Kozoulina@frost.com Samantha.james@frost.com

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