South Africa to Show Demand in Chemical Subsectors

Along with a wealth of gold, copper, diamonds, chromium and platinum, Africa contains 10 percent of the world’s oil reserves. Proven reserves for Africa have grown by nearly 120 percent in the past 30 years and this growth is expected to continue. African countries now make up 11 out of the top 50 countries in terms of proven oil reserves. Nigeria and Angola are among the top 20 oil producers in the world, according to a report by KPMG.

Demand in chemical subsectors

Despite some of these impressive figures, the industrial base in much of Africa remains undeveloped and economic growth is coming from a very low base. As a result, opportunities in the chemical sector are likely to be focused within a small number of subsectors.

Demand for chemicals in the agriculture subsector will continue to grow based on several factors. Africa has 25 percent of the world’s arable land and 60 percent of the world’s uncultivated arable land. Africa’s current low crop yields per hectare represent significant growth opportunities and even with an existing cultivated land, a doubling of cereal yields would turn Africa into a major food surplus region. In addition, the agribusiness value chain including storage, logistics, packaging and processing will add more opportunities for investors.

The consumer subsector will also see strong growth in the years ahead because of favourable demographics and rising consumer expenditure.

South Africa’s chemical industry

South Africa has long been the leader in chemical production for the continent. The chemical industry accounts for about 25 percent of the nation’s manufacturing sales, with synthetic coal and natural gas-based liquid fuels and petrochemicals dominating the sector. South African chemical producers are currently facing poor domestic demand and a volatile exchange rate that hampers exports. The country’s plastic and basic chemicals output declined throughout 2013.

Chronic problems include ongoing uncertainty about the outcome of wage negotiations, potential electricity supply shortages and slower growth in consumer spending that is undermining confidence within the petrochemicals sector. Nevertheless, domestic producers have benefitted from both a weak rand, which has sustained competitiveness and relatively cheaper costs when factoring in the transportation of imports, which has helped maintain current production levels.

The chemicals industry is a key sector of the South African economy. It accounts for about 25 percent of the nation's manufacturing sales and is the most developed of its kind in Africa, according to the Chemical and Allied Industries' Association, an industry group.

Responding to industry issues

The chemical industry today faces a challenging environment and competitive landscape. KPMG's chemical specialists can help chemical companies understand and react to a number of industry-wide issues, including portfolio management, complex regulatory environments, driving operational excellence, targeting emerging growth and adapting to innovation and global mega trends.

Complex regulatory environment

Chemical companies are faced with an increasingly complex regulatory environment which shows no signs of being applied on a homogenous global basis.

Emerging market growth

Chemical companies are increasingly seeing the advantage of expanding their footprint as well as a number of new chemical majors establishing themselves from within high growth markets.

Driving operational excellence

Finding innovative ways to drive operational excellence across the organisation enables chemical companies to continue to be successful in uncertain times.

Innovation and global mega trends

Chemical industry leaders of the future need to successfully innovate to develop products that react to the emerging global mega trends, such as population growth, water and food scarcity, sustainability, including energy use and climate change.