What Is Your Strategy In Africa?

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AFRICAN MEGA TRENDS TO 2020 ...

AFRICAN MEGA TRENDS TO 2020
Frost & Sullivan Africa has along with our customers, and our customer’s customers, identified and
honed down five Mega Trends that highlight the growth opportunities and challenges experienced by
chemicals companies in Africa. These Mega Trends include ongoing trends such as:
• Urbanisation and infrastructure development. An important and necessary building blocks for
Africa. New identified opportunities include:
• Energy Demand
• Water and Food Scarcity
• Supply Chain Efficiencies
• Emerging African Economies
The last Mega Trend is especially exciting as we move beyond the traditional focus on South Africa,
Nigeria, Kenya, and Ghana to highlight the MATZ and RUBEN countries.

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  • 1. MARKET INSIGHT What IsYour Strategy In Africa? By Avril Harvey – Team Leader, Chemicals, Materials and Food Group Africa
  • 2. Frost & Sullivan | Market Insight Frost.com 2 AFRICAN MEGATRENDSTO 2020 Frost & Sullivan Africa has along with our customers, and our customer’s customers, identified and honed down five Mega Trends that highlight the growth opportunities and challenges experienced by chemicals companies in Africa.These Mega Trends include ongoing trends such as: • Urbanisation and infrastructure development.An important and necessary building blocks for Africa. New identified opportunities include: • Energy Demand • Water and Food Scarcity • Supply Chain Efficiencies • Emerging African Economies The last Mega Trend is especially exciting as we move beyond the traditional focus on South Africa, Nigeria, Kenya, and Ghana to highlight the MATZ and RUBEN countries. Urbanisation and Infrastructure Development By 2025, there will be six new mega cities in Africa (mega cities are defined as cities with populations of more than 5 million).These include cities such as Nairobi, Dar es Salaam and Luanda. Growth in urban populations will continue to impact industries like water treatment, construction chemicals and paints and coatings as infrastructure is needed for supply of housing and potable water and energy.As such investment in infrastructure in the key African economies must increase to keep up with this demand. Despite this need, research shows that most key economies in Africa are not reaching the required level of spend on infrastructure. Kenya has had the fastest growth in investment in its infrastructure sector, where investment increased by 15% to $2.9 billion. Despite this increase total spend compared to budget is just over 50% and it is estimated that Kenya still requires $4 – $5 billion per year through 2020 for infrastructural projects. Lagos in Nigeria is the 7th fastest growing city in the world and yet the Nigerian infrastructure deficit is measured at nearly $20 billion per year and due to delays in projects, only 60% of the estimated budget was spent on infrastructure activities. Ghana has experienced significant lack of access to funds to complete its planned affordable housing projects and it is believed that an infrastructure deficit of $2.5 billion will hinder expected GDP growth of 8% in 2014. Even South Africa has only reached just over 75% of infrastructure budget during the past three years. Energy Demand Another related challenge in Africa, which presents opportunities for growth is the inadequate supply of power. In South Africa, some progress is being made to increase the mega watts produced through the building of the Kusile and Medupi power stations, in addition to new coal power plants, there has been significant success in introducing renewables to the energy mix. Currently renewables only represents 1% of the total energy mix but may contribute up to 12% to the energy mix by 2020.There are 64 approved renewables projects in South Africa now which includes wind, solar photovoltaic and concentrating solar power.The capacity for these projects is equivalent to 3900 MW and is valued at more than $10 billion in investments.The long term plan for South Africa (REIPPP) is to have 30% of
  • 3. Frost.com 3 Frost & Sullivan | Market Insight energy mix from renewables. Nigeria and Ghana have insignificant wind and solar projects producing energy in the respective countries, but the potential is high and this could see increased growth in the future.This is mainly due to limited investment and the cost of these projects. However, hydro energy is growing in both these countries as fossil fuels decline. Kenya has a fair share of fossil, hydro and other renewables such as geothermal, wind and solar. Energy from fossil fuels declined significantly over the 2010 to 2013 period as renewables are taking the market share and will continue to do so in the short to medium term. The big game changer in Africa is set to be natural gas, with the potential for this to be the primary choice for technology and feedstock by 2020. The Shale Gas revolution is also taking the world by storm, with the United States leading the way. Reserves in Africa are minute, but South Africa is one of the regions with reserves of 468 trillion cubic feet.The impact of shale gas on the economy could be significant if locally processed. It could save on imports, increase local manufacturing and reduce input materials such as ethane in other applications. Water and Food Scarcity Green economy definition as per United Nations Environment Programme– “improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression,a green economy can be thought of as one which is low carbon,resource efficient and socially inclusive.” In South Africa, a green economy initiative in the agricultural sector could increase jobs by 170,000 and increase crop yields by 24% by improving the management of natural resources and investing in the environment.It would also significantly increase the amount of available water says a study on the South Figure 1: Natural gas in Africa, 2014 - 2020 Source: IMF, Work Bank, Frost & Sulllivan
  • 4. Frost & Sullivan | Market Insight Frost.com 4 African Green Economy Modelling”. Other key findings in the study point to investment in a green economy which could contribute to an increase of 46 % in more restored land by 2030. This will allow for more water to be available without reducing land required for the agriculture sector. In addition, it could create jobs for 737,000 people compared to 568,000 under a business-as-usual scenario. Kenya also has initiatives do drive its green economy activities with preliminary modelling on key sectors which include agriculture and energy. Investing in green initiatives in the agricultural sector of only 2% of its GDP, crop yield could increase by 15% by 2030. Supply Chain Efficiencies Low projected growth in theWestern markets,and stagnation in the BRIC economies,means that there is renewed interest by multinationals and South Africa chemicals companies in Africa. The African continent currently houses some of the fastest growing economies and has large growth potential. There are challenges that need to be overcome in order for companies to “win” in the African market. The lack of adequate infrastructure and power supply issues can escalate costs beyond competitiveness. Although countries like Tanzania and Ethiopia have begun to address poor infrastructure, reaching lower tier cities and rural areas remains a challenge.The distances between commercial clusters, reaching large numbers of traditional outlets, political and safety risks and lack of technology for tracking and monitoring supply also poses a risk. A key difficulty has also been finding and financing the right distributor which requires development, training and access to capital, and third party logistics (3PLs) with sufficient vehicles, the required skills and professionalism and ability to incentivise workers. Finally,counterfeit and parallel imports continue to be dumped on African markets. Emerging African Economies Much focus has been placed on the big three African economies of South Africa, Nigeria and Angola Figure 2: The supply chain of the future. African growth projections to 2020 Source: United Nations, Frost & Sullivan
  • 5. Frost.com 5 Page Header - 9pt Gills Sans Regular which together contribute 85% of the GDP of the top ten countries in Africa (representing 75% of GDP). However, growth in Africa for chemicals and materials should not rely on these economies. Following an analysis on African GDP figures, expected GDP growth rates (2015 to 2019), GDP per capita, inflation rates, the manufacturing size of each country, and the ease of doing business, Frost & Sullivan has identified a second and third tier of countries – which includes Mozambique, Angola, Tanzania and Zambia (MATZ) and Rwanda, Uganda, Botswana, Ethiopia and Namibia (RUBEN) countries. The below tables highlights some of these important metrics. A few points worth mentioning include the manufacturing size in Angola ($7,220.4 million in 2012) and Tanzania ($2,609.2 million in 2012); the high rankings of Rwanda 32/189 and Zambia at 83/189 on the ease of doing business rankings – Mauritius has the highest ranking 20/189 in SSA; and finally the significant forecasted GDP growth rates for Tanzania (7.0%) and Mozambique (7.8%). Strategy The African MegaTrends highlight many of the challenges in African markets that need to be overcome; however, for many companies these challenges also represent opportunities for development and new business.Thus, the race is on for Africa and as the saying goes “if it is easy to do business, it is probably too late for entry”. Source: IMF, Work Bank, Frost & Sulllivan Table 1: Metrics for MATZ and Table 2: Metrics for RUBEN *2011
  • 6. Precious Metals Market Opportunity and the Role of South Africa 6 © 2014 Frost & Sullivan Text Auckland Bahrain Bangkok Beijing Bengaluru Bogotá Buenos Aires Cape Town Chennai Colombo Delhi/NCR Detroit Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make orbreak today’s market participants. For more than 50 years, we have been developing growth strategies for the Global 1000, emerging businesses, the public sector and the investment community. Is your organization prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? Contact Us: +27 (0) 21 680 3260 • enquiries@frost.com • www.frost.com • Mumbai Moscow Oxford Paris Pune Rockville Centre San Antonio São Paulo Seoul Shanghai Shenzhen Silicon Valley Singapore Sophia Antipolis Sydney Taipei Tel Aviv Tokyo Toronto Warsaw Washington, DC Dubai Frankfurt Iskander Malaysia/Johor Bahru Istanbul Jakarta Kolkata Kuala Lumpur London Manhattan Mexico City Miami Milan Cape Town First Floor Maitland 2 River Park Liesbeek Parkway Mowbray 7700 Cape Town South Africa Tel: +27 (0) 21 680 3260 Fax: +27 (0) 21 680 3296 Email: enquiries@frost.com