So you’re thinking about trading chemicals in Africa. Great idea!
Africa has a remarkable opportunity for expansion and has shown consistent growth over the last 35 years. Despite uncertain politics, unstable energy supplies and volatile currency exchange rates, the chemicals industry is booming, whilst demand for fertilisers is certain to grow. This was shown in research by Frost and Sulivan that states that the African chemicals’ industry will grow by 10% by 2020, almost twice the rate of Western Europe and North America.
However, there are many challenges facing a chemicals trader wanting to profit from African growth, and with equally booming (and better developed markets) in Asia and South America. Most investors will ask; why sell chemicals to Africa?
1. Demand.
One of the clearest reasons to start trading chemicals to Africa is because they are needed there. The continent has a rapidly expanding middle class which, much like the rest of the world, will desire the luxuries of modern life, and will require the chemicals to make them, run them, clean them and dispose of them. As a recent Dow chemicals report stated, “A growing middle class in Africa has transformed it into a large emerging market for a wide range of products including consumer and construction chemicals.”
A point supported by Paul Victor, acting CFO at South African chemicals giant Sasol, when he predicts that, “domestic [African] markets will become increasingly important in the near future. Africa has a strong rate of growth and the industry will benefit from expanding markets and trade well into the foreseeable future.”
Although his collegue, André de Ruyter, Senior Group Executive at Sasol is a little more cautionary, explaining that, “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.”
But outside of this expectant demand, there is a very real and present need for agrochemicals in Africa. This is due to the vast amounts of undeveloped farming land that Africa has, which includes 25% of the world’s arable land and 60% of the world’s uncultivated arable land. Plus the African climate encourages an array of pests and problems, many of which have solutions on sale at low prices in Western markets.
Demand for these products is clear, with the Kenyan Ministry of Agriculture estimating that about 30% to 40% of total crop production is lost to pre- and post-harvest handling and pests. Sometimes the conditions are so bad that the destruction is even worse, as the Ministry states, “The losses are even higher in the case of pest outbreaks that can inflict up to 100% crop losses if not controlled.”
As a result of this increased demand for chemicals, whether agrochemicals or not, many of the world’s largest firms have begun to invest in the continent. For example, a few years ago, Dow Chemical had only minimal presence in Africa, with offices in only Egypt and South Africa. But recently, expansion has begun, and Dow now has branches in Ethiopia, Nigeria and Morocco, as well as currently setting up a base in Angola, whilst sales reps are also present in Kenya, Ghana and Algeria. As Ross McLean, Dow’s president for the region said at the World Economic Forum on Africa in Cape Town, “We wanted to get closer to our markets and connect with our customers. We have been building foundations to get ready for a real growth take-off.”
At present the company is expecting to see Africa’s share of company sales increase from 3% to 5% by 2025. Revenue from sub-Saharan Africa has already increased by more than 10% each year for the past 5 years.
- Government Support
Clearly, Africa need chemicals, either now or in the medium term, which is something that many governments there recognise and are increasingly providing support for, especially as food prices and supply is often a political topic in elections.
As Shem Oirere of FCI (Farm Chemicals International), reports when she writes of East Africa that, “The drive by … Tanzania, Kenya and Uganda to increase food production to meet the needs of the rising population – now estimated at 125 million – has pushed the supply of quality agrochemicals to the top of the region’s agricultural agenda.” And she continues to note the policies that have been implemented there to aid food production, giving the example of Tanzania’s Ministry of Finance which recently announced “exemption from the 18% value added tax (VAT) for the supply of fertilizers, insecticides, fungicides, rodenticides, herbicides, anti-sprouting products, plant growth regulators and similar products that are necessary for use in agricultural production.”
Action like this, can give trading chemicals to Africa a real advantage over other regions, and should be taken as a real sign that Africa is open for business.
- The Importance of Imports
Moreover, governments are often aware of the limitations of domestic producers, and actively encourage foreign companies to import. The significance of these importers is acknowledged by the Kenyan Pest Control Products Board (PCPB), which notes that up to 90% of the pesticide market is based on imported products. However, Barasa Wanyonyi, PCPB Senior Registration Officer, does point out that, “The largest percentage of the pesticides sold in the Kenyan market are from international companies who have appointed certified local agents to supply the products on their behalf.“
Government statistics show that the most popular agrochems imported to Kenya are glyphosate, sulphur, amitraz, dimethoate, 1.3 dichloropropene, 2.4-D amine, mancozeb, copper oxycholide and methyl bromide. Although Kenya is an net-exporter (mostly to Tanzania, Uganda, Burundi and the Seychelles) of cybermethrin, chrolofenvinphos and permethrin.
With demand for a multitude of chemicals rising, and a clear need for agrochemicals, maybe now is the time to consider expanding trade the dark continent. Government backing for foreign chemical companies and network of local agents waiting to facilitate transactions and logistics must also encourage traders who are still uncertain about branching out to Africa.
Or is there a reason not to trade chemicals with Africa?