Global trends indicate that the chemicals sector is increasingly being driven by environmental, social and governance (ESG) considerations and that decarbonisation is often a key rationale behind investments and divestments in the sector, except for Africa, where investments understandably lagged again this year.
These are the findings of the latest ‘Chemicals Executive M&A Report’ for 2022, released by global management consulting firm Kearney.
“The reasoning for this is because there are simply not that many attractive target companies with suitable ESG credentials available to acquire for chemicals organisations looking to invest and consolidate on the continent,” Kearney partner Prashaen Reddy explains.
It is noted that, as the least industrialised continent, Africa’s chemical industry is emergent, and its markets are immature in comparison to its Asian, European and Middle Eastern counterparts.
Despite this, the chemicals sector is considered a key component of Africa’s economy, which is also intrinsically interlinked with other sectors, and is responsible for key outputs and crucial commodities along several industries’ entire value chains.
ESG and decarbonisation increasingly being the dominant rationales behind merger and acquisition (M&A) deals in the global chemicals sector has resulted in a strong investor appetite for M&A targets with good ESG credentials, allowing Africa’s chemical companies that embrace ESG to position themselves to attract funding, the report states.
"Although, realistically, Africa will still need to harness its abundant hydrocarbon-based energy reserves to remain economically competitive, there are proven methods to make even fossil-fuel-burning facilities cleaner and more sustainable, resulting in significant reductions in carbon emissions, such as the use of low-carbon fuel, low-carbon hydrogen and low-carbon ammonia,” Reddy explains.
Africa’s nascent chemicals sector has an opportunity to leap ahead of the curve, by building sustainability and green design principles into new chemical facility developments from the outset and by working to decarbonise current offerings through technologies like carbon capture and sequestration (CCS).
Echoing global trends, African national oil companies (NOCs) continue to feature prominently in the chemical industry M&A space.
“Chemicals M&A activity has been relatively quiet in Africa over the past 12 months. Africa’s oil-rich nations, such as Nigeria, Angola and more recently Namibia, which have traditionally focussed on the extraction, production and supply of crude oil products, are now considering the diversification of their product portfolios as part of their future-proofing efforts. This should start to show results in the medium term,” explains Reddy.
These new opportunities arising are in downstream beneficiation of energy products further along the value chain.
“We may, therefore, see a spate of acquisitions of facilities that produce petrochemicals, ammonia and fertilisers, for example, by these NOCs over the coming years. These acquisitions would operate synergistically alongside their current oil and gas-focussed strategies,” Reddy says.
There are signs that Africa is determined to take ownership of beneficiation and manufacturing and become a net exporter of chemicals, well-poised to supply the mature markets of Asia, the European Union, the US and its emergent ones, the report indicates.
"Today’s chemicals sector businesses must navigate the mega-trends of rapid population expansion, climate change, digitisations and decarbonisation. Traditional chemical and energy giants, and NOCs, are repositioning themselves to stay relevant in a greener future.
“We hope to see Africa’s emergent chemicals sector leading the charge towards an environmentally and socially sustainable chemicals industry worldwide,” Reddy says.