InterviewNorth Africa chems investments present risks - consultant

14 October 2009 17:35  [Source: ICIS news]

LONDON (ICIS news)--There is currently little incentive for chemical producers to invest in north Africa, particularly with the imminent influx of supply from neighbouring Middle Eastern markets, a consultant said on Wednesday.

Edouard Croufer, global director of chemicals at consultancy Arthur D Little, said that, although “in principle all the ingredients are there”, gaining a foothold in countries such as Libya, Algeria or Egypt is not worth the risk right now.

“The biggest problem for north Africa – other than the political instability – is the huge amount of capacity coming in from the Middle East,” said Croufer.

“Is this the right time to go ahead and build something south of the Mediterranean? Not at the moment.”

On paper, at least, north Africa is well positioned logistically, with access to markets in southern Europe, Asia and the Middle East, and labour costs are relatively inexpensive.

However, aside from the availability of raw materials in Libya, Nigeria and Algeria, there is too little to justify any major investment in the region, Croufer said.

Heightened competition from thriving markets such as the Middle East, comparatively poor infrastructure and a lack of skilled workers mean that the major chemical players have, as yet, been unwilling to commit there.

“If you could get the gas for an attractive price, then you could probably justify building there,” said Croufer.

“But why would somewhere like Algeria give you gas at an artificially cheap price when they could instead ship it to Europe, who would be happy to pay the right price rather than taking it from Russia?

“When the world needs additional capacity in the future, it will indeed be tempting to build in Algeria or Libya,” said Croufer.

Last week, a consultant with Accenture said that planned and speculative capacity increases could see north Africa’s petrochemical output surge by around 40-50% by 2020 from current levels.

“In the long term, I’m sure it will happen because there will be a need for product; the local population is large and their economies should improve. But is it going to be the next big centre of production for chemicals? I don’t think so,” said Croufer.

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ICIS has launched weekly pricing reports in Africa for polyethylene and polypropylene. For more information contact Nadine Spoeri

By: Andy Brice
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