The document discusses how South African chemicals companies can cope with the economic downturn. It provides an overview of the state of the global and South African chemicals industries. Key challenges include a weakened supply chain and rising raw material prices, while opportunities lie in infrastructure growth, emerging markets, and understanding customer needs. The document recommends focusing on green products, alliances, cost efficiency, and expanding into new geographic areas. It concludes that focusing on fundamentals and best practices will help chemicals companies navigate the economic environment.

1. quot;How Should South African Chemicals Companies
Cope with the Economic Downturn?quot;
Mani James, Programme Manager
Chemicals, Materials and Food
March 19th, 2009

2. Focus Points
• Economic Downturn – the global chemicals industry
• Analysis of the South African chemicals Industry
• Key product trends
• Key industry challenges and drivers
• How to cope with the economic downturn
• Key end user market trends
• Best practices in the South African chemicals sector
• Conclusions
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3. Economic Downturn
• Global chemical production is
decreasing at an alarming rate, down CHEMICAL PRODUCTION GROWTH BY REGION %
over 4% in November as demand ANNUAL CHANGE
from core sectors collapses 20
• Some major announcements by ME/Af
15 AP
companies in the chemicals sector
WE
include:
Percentage of growth
10 NA
• A US chemicals, coatings and
glass producer is considering 5
%
more job cuts and restructuring 0
after it was reported the
company may cut up to 4,500 -5
jobs
-10
• US chemicals major DuPont
reported a $629m (€478m) loss -15
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
for the fourth quarter
• Chemical industry participants are
cutting back production, shuttering Source: Frost & Sullivan
or idling plants and conducting
massive layoffs to stay afloat
• The Africa and Middle East chemical
sector is however growing at 14%
3

4. How is the South African chemicals sector faring?
• Consistent demand for various types of
2008 South african Chemical Industry segments
chemicals has seen the Middle East and
Composistion
Africa record positive growth of over 14%
• Demand for chemicals is expected to be Specialty
steady as sub-Saharan African countries Chemicals
are witnessing impressive GDP growth and 11%
are continuing to invest Inorganic Base
• Core sectors driving demand are Chemicals Chemicals
infrastructure development, housing, 8% 41%
energy and transportation Intermediate
Chemicals
• Countries such as Nigeria, Angola,
13%
Mozambique, Zambia, Uganda and
Polymers
Ethiopia in particular are all expected
and Plastics
to grow between 3% - 5% in 2009 27%
• Africa has oil and gas feedstock, a
sizeable population and relatively low
Source: Frost & Sullivan
cost labor which makes it a viable
attractive investment destination
4

5. How is the South African chemicals sector faring?
Com parison of PPI index for dom estic output in the South African
chem icals industry
350
36% Feb-08
Jul-08
300 D ec-08
-0.1%
250
10%
200
Index
12% 17%
150
9.7%
Source: Frost & Sullivan
100
50
0
Bas ic organic Bas ic inorganic Fertilis er and O ther bas ic Paints , vanis hers O ther c om pound
c hem ic als c hem ic als pes tic ides c hem ic als and related produc ts ; c hem ic al produc ts
artis ts ' c olours ; ink
5

6. Key Product Trends
6

7. Key Product Trends
Sector Trend Indications and hot spots
Base Petrochemicals and liquid fuels are likely to experience growth in
chemicals line with global trends. Nigeria, South Africa and Angola are hot
spots
Polymers and Infrastructure spending by government and companies looking
Plastics for alternates to traditional products is likely to drive growth.
Angola, Nigeria, DRC, Mozambique and South Africa are hot
spots
Agrochemicals Developing and emerging economies will continue to invest in
food-related activities. Nigeria, Mozambique and Zambia are hot
spots
Intermediate Demand in metals is likely to decline in the wake of the global
Chemicals crisis and manufacturers are expected to cut down production in
line with global trends
Speciality Spending on pharmaceuticals and other speciality chemicals is
Chemicals expected to reduce considerably.
Source: Frost & Sullivan
7

8. Key Industry trends
Industry Challenges and Drivers
8

9. Major Challenges
Key market challenges to the South African Chemicals industry, 2008
Current
Weakened
economic
supply
situation
chain
Key Market
Key Market
Challenges
Challenges
Low product Rising raw
brand material prices
awareness
Source: Frost & Sullivan
9

10. Major Drivers
Increased
demand for Product
Infrastructure commodities in improvement
growth – focus on sub-Saharan Growth in core through
2010 African sectors beyond technological
economies 2010 advances
Consumer Sustained growth in
spending to key end user
increase industries
Market drivers
Note: The length of the arrows represent the degree of impact.
10

11. How to cope with the economic downturn
High
Green
Products Emerging
Market
Steady
Opportunities
Spending
Strategic
Alliances
Understanding
Customer Needs
Cost Supply Chain
Effective Network
Areas Production
to
Concentrate
Mergers and
Acquisitions New Geographic
Expansion
Low
Low High
Impact on Business
11

12. Best Practices in the South African chemicals industry
Low-cost performance
Low-cost performance
driven products
driven products
Technologically
Technologically Exceeding customer
Exceeding customer
superior products
superior products expectations
expectations
Industry
Industry
Best
Best
Practices
Practices
Well established
Well established Excellent product
Excellent product
R&D capability
R&D capability performance
performance
Established
Established
distribution
distribution
network
network
nationwide
nationwide
12

13. Key End User Market Trends
• Chemical companies are expanding operations into more sub-Saharan African countries.
• Companies such as Sasol and Omnia have committed close to ZAR 50 billion in capital
expenditure spending until 2011
• French energy group Total and Algeria's Sonatrach confirmed plans for a $3bn gas-based project
in Arzew
• The large emerging economies, particularly China and India, are eyeing Africa as part of
efforts to source energy and raw materials to feed their rapidly expanding manufacturing
sectors
• Middle Eastern feedstock supplies have been largely allocated, and this is also motivating
chemical majors to look further afield into sub-Saharan Africa
• With a population estimated at over 805m, Africa presents a large opportunity in terms of
chemical consumption.
• The food, plastic products and textiles industries are driving growth in African demand for
polymers - including thermoplastics, isocyanates, fibres and paints
• Reduction of fuel imports and a high oil price have fuelled the demand for alternative fuel
sources such as biofuel
• Chemical product manufacturers in construction chemicals will capture growth opportunities in
governments’ expanded infrastructure programmes
13

14. Conclusion
• The South African chemicals sector has been largely unaffected by the
current global economic turmoil
• Core sectors driving demand are infrastructure development, housing,
energy and transportation:
• Focus on 2010 initiatives
• Sub-Saharan African countries – hot growth spots and growth potential to
be tapped
• Focusing on fundamentals is key
• Concentrating on strategies that are aligned with growth prospects
• Adapting best practices, and doing so before being forced into it by the
competition
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15. Next Steps
Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep
abreast of innovative growth opportunities
(www.frost.com/news)
Register for the next Chairman’s Series on Growth:
(www.frost.com/growthEU)
Join us at our 3rd Annual Customer Contact Executive MindXchange (June
2009, Europe)
Join us in London on 19 – 20 May at Growth, Innovation and Leadership
2009: A Frost & Sullivan Global Congress on Corporate Growth Event
(www.frost.com/giluk)
Request a proposal for a Growth Partnership Service to support you and your
team to accelerate the growth of your company.
15

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17. For Additional Information
Steve Lee
Strategic Account Manager
Chemicals, Materials and Food, Asia Pacific
(65) 6890 0914
steve.lee@frost.com
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