Recovering commodities and hotspot anchor projects - what’s in it for us?
23 May 2017 - by Duncan Bonnett
Commodity prices, whether energy or solid minerals, have fallen dramatically over the last couple of years and there is little anticipation that they will reach the heady days of 2013 and 2014 any time soon. However, there are green shoots of optimism amongst extractives companies that they will be able to make final investment decisions on major projects in sub-Saharan Africa in the next year to 18 months.
These projects, and the changing patterns of urbanisation, infrastructure development and industrialisation across Africa present very real, long-term opportunities for companies based in South Africa.
Many companies in South Africa will doubtless look at this with scepticism and adopt a wait and see attitude before belatedly looking for supply opportunities into these developments and the ancillary projects that support them – but they will be disappointed as they will arrive too late.
A quick analysis of project data reveals that the East African Oil and Gas sector holds around US$100bn in investment opportunity directly and through ancillary and downstream developments over the next decade, a figure likely to rise as these investments draw in secondary rounds of development in unrelated sectors such as social infrastructure, leisure facilities and more integrated town planning, as well as secondary industrial development. There are similar developments afoot in West Africa, with oil exploration and development taking place from Ghana through to Senegal and Mauritania, to add to the developed fields of Nigeria and Central Africa,
Recovering copper and coal prices are starting to see renewed optimism in Southern Africa’s copper and coal producers such as Zambia, DR-Congo, Mozambique, Botswana and Zimbabwe. It’s worth remembering that in 2003 the DR-Congo’s copper output had fallen to a little over 30 000 tons a year, but a decade later had reached the 1 million ton mark. There is enough in the project pipeline to double this figure again, should prices and the political situation turn favourable, allowing for investment in the necessary infrastructure (especially power) to develop new and existing resources.
In many of these development hotspots, the opportunity lies not only in the direct projects, but in the support infrastructure around them – roads, ports, rail, power, housing, retail and commercial property, hotels and the like, many of which are already being developed or are at advanced planning stages.
As companies based in South Africa or Southern Africa, how do we take advantage of these developments and what are the key issues that we need to be aware of when engaging in the region? Over the next few months, we’ll analyse some of the key issues that companies that are serious about engaging for the longer term and gaining traction in regional markets need to be aware of, need to plan around and need to build into their business strategies in order to reap maximum benefit going forward. These issues include:
In summary, at the turn of the century, only South Africa of sub-Saharan Africa’s (now) 48 countries had a GDP of over US$100bn in today’s terms. A decade later, Nigeria and Angola have joined the club and by 2022 – just five years from now - it is expected to be a far less exclusive club, with Sudan, Ethiopia and Kenya all part of the club and Tanzania, Ghana, Cote d’Ivoire and DR-Congo all with economies of between US$50bn and US$75bn. These ten countries will have a combined GDP of US$1.9 trillion in five years, surely reason enough to engage in serious discussion about how best to tap into these dynamic markets?
Duncan Bonnett is a partner at specialist Africa-consultancy, Africa House, and is Director: Market Access and Strategy. Duncan has over 20 years' experience in consulting to companies, governments and industry bodies on how best to access business opportunities in Sub-Saharan Africa. Duncan's core competencies include market identification strategies, market feasibility studies and market entry strategies. Duncan has worked in over 20 countries in Africa during this time, as well as several in Europe, Latin America and Asia providing strategic market intelligence for governments and companies in these regions.