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Emerging economies to drive global speciality chemicals growth

21st September 2016

By: Anine Kilian

Contributing Editor Online

  

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The consumption of speciality chemicals globally is expected to increase by 5% between 2015 and 2019, driven primarily by emerging markets, says Frost & Sullivan Chemicals Materials and Food Industry analyst Constance Nyambayo.

Countries that have traditionally been at the forefront of the chemicals business are gradually being overtaken by emerging economies.

“Growth in developed nations is constrained by high competition and adverse demographic factors and, as a result, a shift from the chemical business epicentre in North America, Western Europe and Japan to the Middle East, where feedstock is cheaper, is anticipated,” says Nyambayo.

The chemical industry in Africa continues to face strong headwinds this year amid volatile currencies, droughts affecting agriculture, low oil prices and low commodity prices.

However, maturity cycles of chemical segments in sub-Saharan Africa are vastly improving and the value chain is becoming increasingly commoditised; hence, innovation remains one of the few sources of competitive advantage, she says.

As the most advanced economy in sub-Saharan Africa, South Africa’s market is at the forefront of innovation. Other markets with high gross domestic product (GDP) per capita, such as Namibia and Botswana, are also ripe for entry.

However, as growth slows down in these markets, owing to market maturity, countries such as Nigeria, Kenya, Mozambique and Ghana are emerging as key market players for speciality chemicals.

“It is notable that inorganic chemical exports from Zambia increased by more than 200% between 2012 and 2013. Although growing from a low base, the chemicals industry in the cluster, which includes Zambia, Angola, Uganda, Rwanda and Uganda, is becoming increasingly sophisticated and is, therefore, likely to present a viable market in the next five to ten years.”

To speed up their own development, Nyambayo notes, chemicals companies in the sub-Saharan Africa region can leverage the best practices of Western companies – adopting some, and adapting others, according to local needs.

By understanding their customers’ processes and substrate choices, chemical manufacturers have the opportunity to create demand through innovation, which can be achieved by ensuring maximum engagement and providing technical support for process development and optimisation.

“Industry leaders have expanded and opened research and development centres in Asia, the Middle East and Africa in a bid to increase their innovative strength in the emerging markets,” she notes, adding that these centres are hubs for innovative solutions targeted specifically at the needs of customers within these regions.

Nyambayo adds that high-growth regions, like those in sub-Saharan Africa, offer more dynamic prospects for the speciality chemicals industry owing to the rise in consumer-driven economies and industrialisation.

Higher levels of trade liberalisation, the spread of process technologies, the breakdown of economic barriers and rising standards of living in developing countries are broadening the playing field in the speciality chemicals sector.

In 2014, foreign direct investment (FDI) projects in the chemicals sector totalled $7-billion, comprising 8% of total capital investment into Africa. This represents an increase of almost 2 000%, albeit off the low amounts of FDI coming into the sector in 2013.

“The sub-Saharan Africa chemicals market is currently fragmented owing to its relatively low technology requirements.”

Maturity cycles in chemical segments, however, are beginning to speed up and what were considered as speciality chemicals are fast becoming commoditised.

She notes that chemical companies are being forced to move up the value curve and, as a result, the complexity level of chemicals in the region is constantly changing.

Additionally, she points out that global chemical companies are decentralising their research to labs that are closer to their markets, allowing for collaboration with customers.

While it is unlikely that the market in sub-Saharan Africa will be disrupted by revolutionary discoveries, it will certainly assist in catching up to global advancements.

KEY MARKET DISRUPTORS
A new technologically driven competitive environment is taking shape where continuous research and development (R&D) has become the critical differentiator – and a valued tool – to compete effectively with price-driven producers from the Middle East and the Far East, says Nyambayo.

“An intensified R&D focus on product and application development allows producers to more closely address customer needs and to secure both technical and commercial links, enabling the chemical industry in sub-Saharan Africa to generate value beyond the traditional payment-per-tonne supplier role.”

Nyambayo states that chemical companies can better design products by understanding their customers’ substrate choices and working closely with their industrial customers to create tailormade, environment-friendly and cost-effective solutions.

She says the slow global growth environment, coupled with significant shifts in markets, technology and resources creates a challenging environment for chemical companies, however, one with significant potential if well managed.

“The sub-Saharan Africa speciality chemicals industry is still in its infancy stage, but will be forced to grow by the emergence of new and more discerning consumers, industrial growth and the entrance of major international participants,” she notes.

 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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