05 November 2010 17:13 [Source: ICIS news]
By Stephanie Wilson
LONDON (ICIS)--Two years ago the credit crunch hit and the global economy suffered its most profound shock since the 1930s.
While the worst of the storm appears to be over, one question still remains among market players: where will future growth come from?
For many, its time to look to Africa.
African countries are not simply spectators to the economic rise of India and China, but a party to it, as consumption picks up and chemical companies begin seriously to consider investment in the continent.
Major economies are scrambling to get a foothold in resource rich Africa, which is projected to account for some 20% of the world's oil exploration by 2020.
The plastics industry in the region is one of the fasting growing chemical sectors and projecting some of the highest growth figures outside of India and China.
Polyethylene (PE) and polypropylene (PP) markets are already well established and expected to grow by some 10-15% overall in 2011, according to a number of producers, compared to the more marginal expectations for the developed - and arguably oversupplied - European, Chinese and Middle Eastern markets.
Outside of the more established South African market, western Africa - specifically Nigeria - is cited as the fasted paced market in terms of growth for polyolefins, with growth of some 7.5% expected, compared to a more moderate growth estimate of 4-5% for eastern Africa.
A global manufacturer explained: “All production in eastern Africa put together totals around 400,000 tonnes, Nigeria alone has 500,000 tonnes of production and much of it is consumed locally."
The seller went on to add: “The average African consumes 400g of plastic annually. When you compare this to [the figure of] 50kg per person in the US or 25-30kg in Europe, you can see the scope for growth that we are talking about. More and more, it is becoming a consumers' market.”
For Indian and Chinese manufacturers, traders and compounders, the region also provides a strategic link to the European market.
A source from Kuloday Plastomers, an India based PE and PP converter that manufacturers plastic bags for European major consumers such as Aldi., Lidl, Tesco and Asda, explained that the company is looking into the viability of opening a compounding unit in Africa.
“A site in Africa would be beneficial as it would provide a link between our business in Europe and India; it would be a very good place to open a conversion unit,” the source outlined, before adding: “Factor in the low labour costs in regions like eastern and western Africa - and good supply - [and] it makes for an intriguing investment opportunity.”
However, investing in such developing regions still remains a risky business.
While the number of democracies has climbed from just four in 1990 to 17 today, tensions in oil rich areas, poor infrastructure and high transportation and freight rates continue to hinder much of the potential growth.
Within the continent itself, polyolefins players face major challenges when it comes to logistics, as one producer explained:
“Prices in central Africa can wind up $200-300/tonne higher than the CFR [cost and freight] prices you’d see at the coast because of the transit. It can take days to get material from South Africa to anywhere north of the Katanga Province in the Democratic Republic of Congo, for example, because the roads are so bad - a 40 minute journey can take up to 4 hours.”
However, many are hopeful that with the Chinese interest in oil and industry in the region, more foreign investment will come.
A southern African trader explained: “The Chinese are building roads and railways in Malawi - they are keen to secure more oil [from Africa] although the Indians are stepping up their activities in Africa too”.
A Libyan trader agreed: “Africa needs investment and expats; it can’t grow on its own. It’s very good for Africa to have a few investors because it will drive competition. Investment will lift Africa out of its troubles.”
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