Global developments unearthed and analysed indicate that the chemical compounds sector is increasingly being pushed by Environmental, Social, and Governance (ESG) concerns. It additionally indicates that decarbonisation is commonly a key rationale behind the investments (and divestments) in the sector, except for Africa where investments understandably lagged once more this year.
These are the findings of the most recent Chemicals Executive M&A Report for 2022 released by international administration consulting firm Kearney, now in its ninth edition.
“The reasoning for this is because there are merely not that many engaging target corporations with appropriate ESG credentials obtainable to accumulate for chemical substances organizations seeking to invest and consolidate on the continent,” explains Prashaen Reddy, Partner on the firm.
As the least industrialized continent, where as much as 600million folks nonetheless stay without electrical energy, Africa’s chemical industry is emergent, and its markets are immature in comparison to its Asian, European, and Middle Eastern counterparts.
Nevertheless, the chemical substances sector is a key component of Africa’s financial system. A giant advanced industry, with numerous sub-sectors, Africa’s chemical industry is intrinsically interlinked with other sectors – fuels, prescribed drugs, plastics, and manufacturing, to call a number of.
The sector is responsible for key outputs and essential commodities alongside a number of industries’ entire worth chains.
In South Africa, the continent’s most developed chemical market, the sector accounts for around 25% of manufacturing gross 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 robust investor urge for food for M&A targets with good ESG credentials, allowing Africa’s chemical corporations that embrace ESG to place themselves to draw funding.
“Although realistically Africa will nonetheless have to harness its ample hydrocarbon-based vitality reserves to stay economically competitive, there are proven strategies to make even fossil-fuel burning facilities cleaner and extra sustainable, resulting in vital reductions in carbon emissions, such as the utilization of low-carbon fuel, low-carbon hydrogen and low-carbon ammonia,” Reddy elaborates.
Africa’s nascent chemical compounds sector thereby has a chance to leap ahead of the curve, by constructing sustainability and green design ideas into new chemical facility developments from the outset, and by working to decarbonise present choices by way of applied sciences like carbon capturing and sequestration (CCS).
Echoing world developments, African National Oil Companies (NOCs) continue to feature prominently within the chemical trade M&A area.
“Chemicals M&A activity has been relatively quiet in Africa over the past 12 months. Africa’s oil-rich nations’ similar to Nigeria, Angola, and more recently Namibia, who have historically focussed on the extraction, production, and supply of crude oil products, at the second are considering the diversification of their product portfolios as a part of their future-proofing efforts. This should begin to show results in the medium-term,” explains Reddy.
These new opportunities arising are in downstream beneficiation of vitality merchandise additional along the value chain.
“We could therefore see a spate of acquisitions of facilities that produce petrochemicals, ammonia, and fertilisers, for example, by these NOCs over the approaching years. These acquisitions would operate synergistically alongside their present oil and gas-focussed methods,” he says.
There are indicators that Africa is set to take ownership of beneficiation and manufacturing and turn into a web exporter of chemical compounds, well-poised to provide the mature markets of Asia, the EU, the USA, and its emergent ones.
“Today’s chemicals sector companies should navigate the mega-trends of rapid inhabitants expansion, climate change, digitisations and decarbonisation. Traditional chemical and energy giants, and NOCs, are repositioning themselves to remain relevant in a greener future. We hope to see Africa’s emergent chemical substances sector leading the charge towards an environmentally and socially sustainable chemicals trade worldwide.”
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