Despite all the challenges facing the chemicals industry in South Africa, there is still the chance to do business there. Indeed, many analysts are confident that the industry will grow, as local economies grow. Whilst much of the continent is impoverished, conditions are improving, and as they do so they will require more and more chemical products. As André de Ruyter, Senior Group Executive at chemicals giant Sasol explains in the wider context of Africa as a whole. “There is a tipping point in GDP per capita at which people become significant chemical consumers and Africa is still not yet at that point. Our [Sasol’s] local production is built upon the parts of the South African market that do behave like Western European or North American markets. At the same time, it is clear that the policies currently instated in many Sub-Saharan African countries are indeed conducive to economic growth.
The political stability, adherence to sound market policies, and respect for democracy found in most Sub-Saharan African countries reflect that countries understand the need for business-friendly policies to attract investment. This is coupled with the potential for market growth and access to natural resources. Moreover, there has been the development of markets such as agriculture in which we can introduce our fertilizer products and minerals extraction business; explosives in particular have been a focus area for us as Africa’s mineral wealth is increasingly explored and developed.”
Frost & Sullivan analyst, Dilshaad Booley agrees that local demand will foster growth, stating, “Petrochemicals growth will be driven by the demand from end-users, such as the paints and coatings, automotive, mining and construction sectors, where large amounts of chemicals are still procured locally, as the local refinery capacities meet the bulk of local demand.” He continues by adding that, “The market for petrochemicals is expected to grow at a compound yearly growth rate of close to 2%, owing to limited investment in local refineries and old technology limiting efficiency.”
This positive viewpoint is echoed by global market analyst, Hilton Lazarus, Head of Chemicals and Allied Industries at IDC, who writes when asked about the future said, ““There are many opportunities in the sector in the near future and I believe that, in order to successfully explore these possibilities, South African companies must start looking beyond the borders and enter into new countries on the continent.”
And according to Paul Victor, acting CFO at Sasol, the growth will be widespread, as he believes that, “There are a number of key industry subsectors, including explosives, agriculture products, such as fertilisers, and polymers that will drive new growth and development.”
Prof. Thokozani Majozi of the University of Witwatersrand, Johannesburg, is more cautious. Whilst agreeing that domestic demand will grow, albeit steadily for the next few years, he still maintains doubts over South Africa’s lack of domestic raw material production. He states that, “The chemicals industry still relies on imported raw materials, which are subject to international levies that reduce manufacturers’ profit margins.” He also has fears over the countries fossil fuel usage, saying, “The renewed emphasis on green economies implies significant reduction in both gaseous emissions and liquid discharges, which does not bode well for an economy that is largely based on coal.”
As discussed earlier, these challenges do need to be addressed, but could provide a chemicals demand (from the need for fuel additives or bioethanol mixes etc.) as much as they could drive business away. More significantly than the problems, is the way that industry leaders and government handle them, as André de Ruyter, Senior Group Executive at Sasol states, “With the appropriate policies there is significant room for investment in the South African chemical industry”.
Paul Victor offers some good advice for potential investors in South African chemicals, listing a number of potential problems that businesses need to manage, including, “Compliance with local regulations, addressing government policies and protecting investments with proper financing. In addition, foreign investors need to understand that, much like China, patience is required to establish good relationships with government and business stakeholders. Africa has a strong rate of growth and the industry will benefit from expanding markets and trade well into the foreseeable future.”
So it seems that the South African chemicals industry is currently a slowly emerging waiting game. Both distant and recent history has been difficult, but it now seems that domestic recovery is on the way, at the same time as the opportunity for exports is arriving.
Victor confirms this, stating that exports will be the most important market for all African chemical products, although adding that, “domestic markets will become increasingly important in the near future.”
Which of these revenue streams arrives first, and which will be the most successful remains to be seen. However, it does appear that there will be demand for products. Despite the challenges that the country faces, and there are many, if end users require, then someone will supply. Will that supplier be you?