Global trends unearthed and analysed indicate that the chemicals sector is increasingly being driven by Environmental, Social, and Governance (ESG) considerations. It also indicates that decarbonisation is often a key rationale behind the 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, now in its ninth edition.
“The reasoning for this is because there are simply not that many attractive target companies with suitable ESG credentials available to acquire for chemicals organizations looking to invest and consolidate on the continent,” explains Prashaen Reddy, Partner at the firm.
As the least industrialized continent, where up to 600million people still live without electricity, Africa’s chemical industry is emergent, and its markets are immature in comparison to its Asian, European, and Middle Eastern counterparts.
Nevertheless, the chemicals sector is a key component of Africa’s economy. A large complex industry, with diverse sub-sectors, Africa’s chemical industry is intrinsically interlinked with other sectors – fuels, pharmaceuticals, plastics, and manufacturing, to name a few.
The sector is responsible for key outputs and crucial commodities along several industries’ entire value chains.
In South Africa, the continent’s most developed chemical market, the sector accounts for around 25% of manufacturing sales. (Chemical and Allied Industries’ Association: https://home.kpmg/za/en/home/industries/chemicals.html)
ESG and decarbonisation increasingly being the dominant rationales behind M&A deals in the global chemicals sector have 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.
“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 elaborates.
Africa’s nascent chemicals sector thereby 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 capturing 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, who 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,” he 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 EU, the USA, and its emergent ones.
“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.”
