Top 5 food markets in sub-Saharan Africa

By Kurt Davis

The food sector is the focus of investors who are seeking to capture the opportunity of a rising middle class in Africa. 

They were lost in Luanda, Angola's bustling capital, until they found the McDonalds. Being American in a familiar place in a foreign country is home until you see the price for the burger meal: $14. 

This being Africa means there must be a local twist, says the American tourist John, and sometimes the twist is the price.

Investing in the sub-Saharan African market is the right move at the right time. Call it the “last frontier” or the “last big opportunity.” Either way, the numbers speak to great prospects.

The International Monetary Fund’s (IMF) latest Regional Economic Outlook for sub-Saharan Africa projects GDP growth to reach 5.5% in 2014 from around 5% in 2013. The accelerating growth is expected to be buoyed by large investments in infrastructure and mining, maturing investments in transport and telecommunications, and a rebound in agricultural output.

The sustained boom creates more consumers. Global management consulting firm Mckinsey & Company projects that more than half of African households will have discretionary income by 2020, rising to 130 million households from 85 million today. Restaurants want a piece of the pie.

Kentucky Fried Chicken (KFC) and McDonalds are the big first movers. Other American brands, including Burger King and Pizza Hut, are salivating at the growing opportunity. But franchises are not the only players as local brands, including South Africa's Debonairs Pizza and Nando’s, continue to expand across the region.

Here are the top 5 countries for restaurant expansion in sub-Saharan Africa:

Nigeria

It has a Johnny Rockets! But the entrance of lesser known brands Johnny Rockets and Dominos underline two big things about Nigeria: (1) its approximate 170 million-plus population (biggest in sub-Saharan Africa) and (2) its GDP, which stands north of US$520-billion - the largest in sub-Saharan Africa.

Nigeria’s population is likely to overtake the United States by 2045, according to the United Nations, and its GDP is likely to surpass US$1.6-trillion by 2030 with a yearly growth rate of 7.1%, propelling it into the top 20 for economies by GDP. In a similar time frame, global management consulting firm Accenture in a recent report projects consumer spending to grow to $167-billion by 2020.

Tapping into this market is obviously imperative to gaining market share in sub-Saharan Africa. But creativity is necessary – for example, throw in jollof rice or seafood okra to excite the local palate. Nigerian tastes span local delights to British adoptions and American transformations.

Kenya

Kenya is a favored destination for investment in Africa. It is sub-Saharan Africa’s sixth largest economy and population. And its birthrate remains in the top quartile globally. The IMF projects the Kenyan economy to grow 5% in both 2014 and 2015, compared to 4.7% in 2013. All this being said, the underlining numbers in Kenya indicate more spending consumers in one of Africa’s biggest food-loving countries.

Accenture projects consumer spending to grow to US$38-billion by 2020. back in 2012, an Africa-focused private equity firm invested in Nairobi Java House, a local Kenyan coffee house and restaurant, signifying a new focus of investment firms. A large expansion by Kentucky Fried Chicken (KFC) only further underlines the opportunity. And Subway has entered and likely confronting Subzone, a healthy eating alternative in Nairobi that has a similar look and appeal of Subway.

The Kenyan palate, to a distance observer, initially seems fulfilled by the simple presence of meat – ideally chicken. But locals will suggest that you have only tapped the surface if you leave with that belief. Asian influence, British and American influence (from Kenyans studying abroad), and a well-travelled middle class undoubtedly implies greater diversification.

South Africa

The former “largest economy” in sub-Saharan Africa is still trying to get its growth back on track. The IMF projects the economy to grow 2% in 2014, only barely surpassing the 1.9% growth in 2013. Weaker economic numbers worry investors and politicians alike. Yet consumer spending remains strong with untapped potential.

Consumer spending, projected at US$315-billion in 2020 by Accenture, will be approximately double that of Nigeria. The South African palate is nuanced accompanied by larger pockets. Local brands, including Spur and Ocean Basket, compete strongly against Western brands inside (and outside) South Africa. It is also easy to find a McDonalds and a KFC in country.

Skeptics routinely suggest that the food service business is approaching saturation in South Africa. Yet all the numbers indicate growing competition, but nowhere near any level where investors cannot snag great returns.

Uganda and Tanzania

This grouping will not excite Tanzanians and Ugandans – the countries are definitely different in many ways. But they do have a lot in common too. As the 5th and 7th most populated countries in sub-Saharan Africa, Tanzania and Uganda already possess large consumer bases. This base will only expand with birthrates in the top 20 globally – Uganda at the 3rd highest and Tanzania is the 18th highest.

Tanzania and Uganda embody the East Africa boom. Underpinned by recent natural resource discoveries, both countries possess fast-growing economies. The IMF projects the Tanzanian economy to grow 7% in 2014, compared to 6% in 2013 while the Ugandan economy grows at 6.25% in 2014, compared to 5.75% in 2013. As commercialisation of these resources take hold and pipeline projects mature, these growth figures may very much be higher in a few years.

If not for the supply chain challenges, many investors think these two countries would rise to the top as investment destinations for the food service industry. Yet a lack of commercial quality inputs, ranging from potatoes typically for French fries to meats (i.e. chicken and beef) stymie operators and create deficiencies throughout the value chain. Focused efforts on agriculture from central governments and local investors will continue to improve the industry’s prospects.

Honorable mention: Angola and Ethiopia

This article is re-published with permission from Frontier's content partner, Ventures Africa.

Ventures Africa chronicles business and investment news, and the success stories of African entrepreneurs and business leaders.

Top property markets in Africa

Andrew Golding, the chief executive of Pam Golding Properties, tells Frontier why he is optimistic about the property sector in Africa.

Which African countries have the best opportunity for property investors?

Each African country has its own specific dynamics and opportunities. Pam Golding operates in all the SADC countries, and in Kenya and Uganda in East Africa. 

Mozambique is 'the flavour of the month' at the moment, due to its booming resources sector. There is a lot of activity across all the segments of the property sector, with cranes dominating the skyline of Maputo. One can find upmarket leisure developments just south of Maputo that cost US$10-million a unit. Two years ago this would have been unthinkable. Mozambique has a shortage of A grade residential accommodation, but this area is developing rapidly. We are very optimistic about the extent that this is going to happen.

The same thing is happening in Nairobi (Kenya) where the market is really doing well, and has similar characteristics as South Africa's. There is shortage of stock and yet there are many buyers with purchasing power.

We are seeing more investment in residential and commercial market segments across the board. There is a culture in many countries of investing in residential property - the buy-to-let market. Nairobi has strong buy-to-let developments. There is definitely a strong but small residential market in Lusaka (Zambia). Namibia, Zimbabwe and Swaziland are enjoying quite a strong residential market characterised by shortage of stock, moderate to good price growth (depending on the focus market), and a strong buy-to-let market.

The two countries with massive growth opportunities that we are now targeting are Angola and Nigeria. The Nigerian market is huge (150 million people) and potentially an enormous opportunity, but with a lot of potential pitfalls.

Uganda is an interesting market. We have just been appointed to do a project there - a residential golf estate located between Entebbe and Kampala, a beautiful site on Lake Victoria. The developer who is associated with a hotel which is already operating is now launching 100 residential units at an average cost of US$1-million per unit. All indications are that the project will be finished successfully. In Uganda and several other countries, there is a lot of demand for upmarket property.

Other notable markets are the Indian Ocean Islands of Mauritius and Seychelles. They continue to tag along remarkably well. The Marina development in Seychelles that we are involved in is almost complete. We have sold 450 out of 550 properties, to the value of more than US$500-million. The country continues to attract buyers looking for that sort of lifestyle, whether it is leisure or permanent. There is a big cross-section of nationalities that have bought property here. 

We are about to launch a new big development in the north of Mauritius. We have been involved in this project for the last 10 years. There is also potential of at least 500 units in the form of an integrated resort scheme in the south. The scheme will allow owners to buy in at an entry level of between US$1 -1.5m.

What is your strategy for entering new markets?

We have a few models. In Zambia we have a franchise in which we are shareholders. In Kenya, it is a 100% franchise. It depends on the individual operator that we find in a specific country. The key to success is finding somebody who fits into our corporate culture and who we believe we can have a long-term relationship with. In Nigeria, we are an equity participant in a business. Our entry strategy is guided by various factors such as the appetite of the investors - whether they want us there or not, or whether they would benefit from our participation as shareholders as opposed to being an operator.

What are the trends in South Africa’s property market?

Two years ago and 18 months ago someone turned on the lights, and suddenly the stock started to dry out in one or two pockets. Now most of the metros are characterised by the same phenomenon - a critical shortage of stock, buyers competing with each other, and property starting to sell at asking prices or even above asking price...

Click on this link to read the rest of the interview

Top 10 African cities of the future

By 2040, Africa will experience faster economic growth than any other region and is expected to have the biggest labour force in the world, according to PwC’s latest Global Economy Watch, which puts the spotlight on the largest cities in sub-Saharan Africa.

As companies around the world look to exploit the widely reported untapped potential on the continent, the question now is, where can one focus if they want to expand their activities in sub-Saharan Africa (SSA)?

Most major corporations are already active in at least one of the four largest cities in SSA – Lagos, Kinshasa, Nairobi and Johannesburg. But, according to PwC economists, it is the ‘Next 10’ biggest cities in the region that should be exciting foreign investors. The population of these cities is projected to almost double by 2030, growing by around 32 million people.

Next 10 biggest cities

1. Dar es Salaam (Tanzania)
2. Luanda (Angola)
3. Khartoum (Sudan)
4. Abidjan (Cote d'Ivoire)
5. Nairobi (Kenya)
6. Kano (Nigeria)
7. Dakar (Senegal)
8. Ouagadougou (Burkina Faso)
9. Addis Ababa (Ethiopia)
10. Ibadan (Nigeria)

Top 3 cities

1. Lagos (Nigeria)
2. Kinshasa (DRC)
3. Johannesburg (South Africa)

The latest UN projections show that by 2030 two of the ‘Next 10’ – Dar es Salaam and Luanda – could have bigger populations than London has now.

Cities are the typical entry points for businesses trying to expand into new overseas markets, because they enable closer interaction with customers in a relatively small geographic space, which in turn helps contain distribution costs.

One of the key factors that drive economic growth is the number of people of working age. PwC expects a bigger and younger urban population to be associated with strong GDP growth. The firm’s analysis shows that economic activity in the ‘Next 10’ cities could grow to about $140-billion by 2030. “This is roughly equivalent to the current annual output of Hungary,’ says Stanley Subramoney, Strategy leader of PwC’s South Market Region

This is a comparatively conservative estimate by PwC that assumes no real exchange rate appreciation despite relatively strong projected growth in these SSA economies.

More people, bigger business opportunities

One of the key factors that drive economic growth is the number of people of working age. PwC expects a bigger and younger urban population to be associated with strong GDP growth. Several trends are responsible for the increasing appeal of the region to international investors. These include high GDP growth rates, rapid urbanisation and the “demographic edge”. Other economic factors are the big new discoveries of natural reasons, substantial investment in infrastructure, sustained growth in per capital incomes and the growing ability of countries to raise project financing on international capital markets.

The three big hurdles 

There are however three problems that could slow the pace at which the ‘Next 10’ biggest cities in sub-Saharan Africa grow, says the report. These are issues that African countries have been trying to tackle for many decades with limited success:

Low quality of 'hard' infrastructure like highways, airports and trains, which increases the cost of doing business, eats away at business profits and discourages investment.

Inadequate 'soft' infrastructure like schools and universities, which could lead to a persistent skills gap that hampers long-term business growth.

Growing pains stemming from the inability of regulators and policymakers to manage effectively a larger and more complex economic system as growth proceeds. These problems could, for example, lead to credit or property bubbles as a result of rapid economic growth, or a failure to tackle issues relating to corruption and excessive bureaucracy that deter international investment.

Looking ahead

The challenges that policy makers face is to convert Africa’s demographic dividend into economic reality by overcoming these hurdles. “History suggests this will not be a quick or easy process. Investors should form their own plans to mitigate these problems by supporting infrastructure skills and development programmes,” says Stanley.

Source: APO

Top 5 tourism opportunities in Africa

By Kurt Davis

Which countries offer the best business and investment opportunities for investors in Africa's tourism sector?

Africa’s tourism potential remains largely untapped. The continent accounts for 15% of the world population yet receives only about 3% of world tourism receipts and 5% of tourist arrivals, writes African Development Bank Group Vice-President and Chief Economist Mthuli Ncube in the foreword of the inaugural issue of the Africa Tourism Monitor in 2013. 

To maximize Africa’s tourism potential, he continues, critical investments are needed in key infrastructure sectors.

Access to better roads and increased airline connections are a start. But these efforts must be followed by improved energy access and bolstered telecommunications. An ease in the complexities of border crossing and accessing information could also move the sector forward.

Many African countries are making these improvements on a national level. But, elevating levels of tourism requires a boost in investment from the private sector. This article highlights the countries offering the best countries for investment in Africa’s tourism sector.

Uganda

Uganda is one of the fastest growing countries for tourism, based on tourist arrivals, in Africa. Between 2009 and 2012, tourism arrivals grew more than 43% and tourism receipts grew nearly 62%. The “Pearl of Africa”, named top tourism destination for the year 2013, continues to generate big returns in 2014, with receipts predicted to grow nearly 15% year-on-year in 2014.

The country is home to numerous untapped rural attractions, including Lake Bunyonyi and Ssese Islands. Located in southwestern part of Uganda, Lake Bunyonyi bears a resemblance to a scene from “Lord of the Rings”, according to Lonely Planet. Ssese Islands are one of the numerous attractions sitting on Lake Victoria. These locations among other sites require a boost in hotel offerings, especially 4-star and above, and improved logistics. Navigating the country as a tourist is not necessarily straightforward, thwarting revenue potential.

The Pearls of Uganda, a tourism initiative and partnership between Solimar International and the Uganda Community Tourism Association (UCOTA), will further boost the outlook for the tourism sector. Creating a network between tour operators, hotel providers and related parties should help the country manage its brand and better coordinate the sharing of information. Still promoters of the program openly admit that the projected bump in revenues – 60% in three years – depends largely on increased private investment.

Tanzania

Tanzania is already a top five country for tourism receipts in Africa, only trailing Egypt, South Africa, Morocco and Tunisia. Arrivals and receipts grew nearly 24% in 2012 and sector experts indicate that the final numbers for 2013 will show similar growth. Those tourists most familiar with the country know the picturesque Mount Kilimanjaro and striking Zanzibar beaches. But those locations only represent a tip of the tourism opportunities in the country.

Serengeti National Park is one of many national parks in the country, but is sadly the only truly famous one. Other national parks and reserves far from Dar es Salaam, such as Arusha National Park, can be difficult to reach. Negotiating the bumpy roads and unrealistic logistics of tour operators and drivers can be a burden too big for the traveller least familiar with the country.

An increase in airline flights to Dar es Salaam and other cities will only create a heavier burden for the sector. Investing in players in the sector, including tour operators and hotel operators, will pay greater dividends as high prices skyrocket in the face of limited offerings. The country, contrary to popular belief, is not approaching a break-even threshold, according to a local investor, and will not breach that threshold for some years. That observation says a lot for a country already a top player in Africa’s tourism sector.

Tunisia

Tunisia is another country already at the top of Africa’s tourism market, based on dollars and arrivals. Yet its full potential is clearly unrecognized at today’s level. Tourism receipts are still rebounding from their demise during the Arab Spring. Numbers should pass pre-revolution levels this year and establish a new high for the sector. Renewed flare-ups in 2013 have been quelled and should not hinder continued growth.

Opening the market for airlines in the country is a move in the right direction. But efforts by the government have slowed drastically as officials look to prop up the struggling national airline Tunisair. Still a small entrance from new operators has paid some dividends in easing access to the country and attracting a more varied group of travelers. Over the next few years, the openness – even if less than desired – will nicely compliment the return of visitors who stayed away during the previous couple years.

Competition plagued the returns of operators in the sector. Engaged private investors can reap benefits through guiding companies in how to boost operational efficiencies and manage balance sheets. Poor purchases of assets and poor pricing schemes created some bankruptcies in sector but also opened way for the stronger players to take greater market share in dollars AND brand.

Senegal

Senegal is not the star on this list. But it is definitely one of the countries with the greatest upside. The country hosts numerous picturesque sites, including Île de Gorée (one of U.S. President Obama’s previous visits in Africa). Yet most sites slide under the radar of persons not from Belgium or France.

Local operators argue that the sector benefited during the Arab spring as French travelers happily traded in an unsafe North Africa, specifically Tunisia and Egypt, for Senegal. Untouched beaches and deserts will nevertheless stay relatively bare over the long term until investment in hotels and related facilities begin to match sector demand. The government consequently has promoted expansive tax incentives and custom exemptions to buoy investor interest. Yet these efforts will not pay its truest dividends until the country’s infrastructure improves. Current plans to renovate the international airport in Dakar and introduce new toll roads is definitely a start in the right direction.

Namibia

Namibia is a personal favorite. It is definitely overshadowed – by word of mouth and number of arrivals – by Mozambique, a fellow southern African country on the opposite coast. But the growing violence in the north of Mozambique and uncertainty with safety led to a decrease in days stayed by the typical South African tourist and equally boosted the popularity of Namibia as a result. Yet, the popularity has yet to spread beyond South Africa and neighboring Angola. And sites, such as Swakopmund and neighboring Cape Cross, only make headlines in a Lonely Planet travel guide.

Between 2009 and 2012, tourism receipts grew approximately 40%, based on projected numbers for 2012. Tourists generally travel beyond the quite mellow country capital of Windhoek to the aforementioned tourist sites and other related sites along the coast. The country’s vast landmass in between sites requires tourists spend more time and money than that spent in regional competitors. A boost in foreign investment can help the facilities, including lodging, throughout the country capture greater profits.

A push in strategic marketing and tour packaging could also reap rewards. Betting mainly on South African and Angolan travelers will only sell the sector short. Messages coming from the government indicate that officials and investors are taking notice. The boom in mining and the travel companions associated with sector definitely helps interested parties take notice.

This article is re-published with permission from Frontier's content partner, Ventures Africa.

Top 5 infrastructure investment opportunities in Africa

By Kurt Davis

The 'Top 5 public private partnership opportunities in Africa' highlighted the best countries for PPPs in Africa. This article examines the best countries for infrastructure investment, if we assume all things to be equal in each country’s PPP system. 

Only one country - Nigeria - makes both top 5 lists, largely because it's government has made great strides in recent years to match its enthusiasm to develop infrastructure with the demand for infrastructure investment in the country. Over time, all political indicators point to a greater PPP environment in the other four countries on this list, and greater growth in PPPs across the continent. Still, in the short term, private investors should not be deterred by the challenges in the PPP markets, as officials in these countries have indicated that they are keen to bolster the PPP market, especially from a legal perspective, and participate with investors.

Angola

More than ten years after a 27-year civil war that left nearly 1.5 million people dead, Angola is taking off like no other country. Situated on the western cost of southern Africa, the country is home to a wealth of natural resources, most notably oil (making Angola the second largest oil producer in sub-Saharan Africa). A boom in real estate construction (including hotels) and financial services unsurprisingly accompanies the oil boom, making Luanda unrecognisable from 10 years ago.

On the surface, it is a perfect turnaround. But, as it goes in any other country, every boom has its challenges. The all-encompassing challenge in Angola’s growth story is infrastructure. New buildings, more people, and a deficit in power sums it up, says a major Lusophone private investor. Hydropower is an obvious solution and the government is making great strides in restoring its capabilities. Still the hydropower facilities and greater distribution systems for power remain a shell of themselves after their decimation in the civil war.

Fundo Soberano de Angola, the US$5-billion sovereign wealth fund for Angola, is targeting infrastructure investments across the country. Yet, despite the government’s pledge to transfer annual surpluses from the oil reserves account (with annual receipts as high as US$3.5-billion), greater investment will be required from foreign investors. The quality of the transport network, including airports and ports, is sub-par to support the country’s growth. Private investors will find an interested government partner and a lucrative return in connecting the resource-rich Democratic Republic of Congo with the Atlantic Ocean and partners in the transport-capable country of Namibia.

Mozambique

As the other big Lusophone country in southern Africa, Mozambique shares a similar story of civil war and decimation. Booming with gas reserves and the accompanying real estate sector, the country is in great need of a transport upgrade. Recent estimates by professional services firm, PwC, values transport projects in the pipeline at US$17-billion, including increased rail links to the ports and expanding port capacities. Yet, by all accounts and estimates, more money will be required to ensure that major ports, including Nacala, Beira and Macuse, reach full potential. Equally, transport networks from those ports to neighboring Zimbabwe, Malawi and Zambia require financing currently not available in the market.

A recent announcement by the Minister of Public Works Cadmiel Muthemba indicates an openness on the government’s side to erect more toll roads. The country currently has only one toll road - the N4 toll road connecting Maputo to South Africa - which is operated by South Africa’s Trans Africa Concessions (TRAC). Private operators see enormous return potential in several routes, including highways between Manica and Tete, between Nampula and the port of Nacala, and between Marracuene and Inhambane.

Speaking at the ‘Africa Rising’ conference back in May, hosted by the International Monetary Fund (IMF) in Mozambique, the Minister of Planning and Development Aiuba Cuereneia stated the country’s notable gains in paved roads and the projects in the pipelines. Equally, during Q&A, he conceded that more financing was required, specifically from foreign investors, to match the plans envisioned by the government.

A power deficit is also quite noticeable in the country. A changing environment for public private partnerships should breathe life into this sector in the near term.

Cote D’Ivoire

Talk of a country booming under the public radar. Cote d’Ivoire has made amazing strides since the assumption of power by President Alassane Ouattara in 2011. The economy expanded 9.8% in 2012 and 8.7%  in 2013, with an estimated 8.0% predicted in 2014, according to the IMF. Yet it remains a fragile state, especially with elections around the corner in 2015.

The country is the largest producer of cocoa as well a global player in the palm oil and cashew nuts markets. Cargill, Cadbury and Hershey’s among many others call the country an agriculture hub - yet the country is nowhere near its potential. Infrastructural upgrades in the transport sector, specifically ports and road infrastructure, will greatly boost the country’s capacity for moving agricultural products and growing its position as a food basket and trading partner to neighboring Sierra Leone, Liberia, and Ghana.

The arrival of energy companies, following the discovery of oil reserves, will help fill government coffers for spending on infrastructure. But the boost in cash, particularly in the short term, is not sufficient to jump the infrastructural hurdle left by years of civil war. The power necessary to buoy the energy, agriculture (including agri-processing) and manufacturing sectors going forward is simply not there, creating big opportunities for investors. But it cannot be ignored that Cote d’Ivoire did not make our list for public partnerships in sub-Saharan Africa, as the government will have to do more to appease investor concerns and mediate risk. More details around regulation should appear after next year’s election.

Nigeria

As mentioned before, Nigeria is the only country to appear on both the top five list for public private partnerships and top five list for greatest infrastructural opportunity. Nigeria has one of the greatest infrastructural needs on the continent, particularly due to its size and population, and its politicians recognize this grave infrastructural challenge, consequently enacting laws to promote public private partnerships across the country.

The estimated cost of infrastructure investment required over next 10 years hovers between $8-billion and $10-billion. The newly-established sovereign wealth fund for the country cannot pay the bill for everything. Thus private investors will have a wealth of opportunities to keep picking from in the near future, especially in Nigeria’s power and accompanying transport sectors. Recent laws and change in government approach has numerous private operators waiting at the gates to make a deal. Some parties do complain that the due diligence process is absurdly arduous but this should gradually change over time.

Ethiopia

Ethiopia has the highest spending on infrastructure as a percentage of GDP in Africa. The government is dedicated to delivering high quality infrastructure to the country as the impetus for investment in the country’s other business sectors, particularly manufacturing/industrial and agriculture. For a country with 90 million people and relatively un-urbanized compared to its peers, improved transport - specifically roads and rails - is critical to moving goods to disperse populations.

The country’s leadership currently envisions an energy surplus following the completion of its latest dam project. But this should not lead investors to think the investment opportunities are limited for the power sector. Power purchased at the borders with Djibouti and Somalia can go north of US$0.75 per kWh depending on the time of the year. Thus, Ethiopia's vast land mass - ripe with energy opportunities from geothermal to gas to wind - offers boundless potential for growth.

Power generation could solely justify Ethiopia’s ranking in the top five. But, it would be a failure to ignore the demand for increased investment in power distribution. Any opening to foreign investment in the telecommunication sector will offer investors access to a country desperate for improved telecom infrastructure. Creative operators are already considering opportunities in water and sewage treatment which will become a graver concern to the country’s population as it approaches and surpasses 100 million persons.

It is not about the potential return with Ethiopia, in the eyes of those investors currently looking at the country, but rather all about timing (as to when a sector is more liberalized or the project gets approved). Whether today or in a year, the country will remain very attractive for infrastructure investment.

This article is re-published with permission from Frontier's content partner, Ventures Africa.

The hottest selling oil and gas products in Africa

The oil and gas sectors will continue to thrive due to the rising demand for energy on the continent.

By John-Paul Iwuoha

The severe shortage of electricity in many parts of Africa is causing people who can afford it to spend more on petrol and diesel to generate their own electricity. Millions of individuals and companies in Africa now spend a lot of money every year on oil products like petrol (gasoline), diesel and kerosene to provide their own electricity, and the demand is expected to continue increasing. 

There are more than five major products that result from refining crude oil, but I will focus on the top four that are highest in demand and most popular with consumers in Africa. There are many other products that are applied for various uses such as road construction, aviation and marine fuels, and in chemical and manufacturing industries.

Petrol

Petrol (technically known in the oil business as Gasoline, Premium Motor Spirit or ‘PMS’) is one of the most popular and widely consumed oil products in Africa. It is estimated that Africans consume more than 100 million litres of petrol every day. The number of vehicles (especially private cars) is increasing across Africa. The volume of petrol Africans buy will continue to increase as more people buy cars or depend on petrol-powered buses and other means of transportation. The electricity problem is also likely to encourage the petrol business as most individually-owned power generators run on petrol.

Diesel

Diesel is technically referred to in the oil business as ‘AGO’, an abbreviation of ‘Automotive Gas Oil’. It is commonly used by heavy-duty engines which power many of the large trucks, tankers and trailers that transport heavy goods (and people). Diesel may not be as popular as petrol (or gasoline) but it remains a very important fuel to the economy. It helps to move most of the heavy goods (like agricultural produce, building materials, imported goods and raw materials) that drive trade and commerce. There is growing potential for trucking and haulage businesses across Africa. As the demand for trucking and haulage increases, so will the volume of diesel that will be consumed. Diesel is also commonly used as fuel for bigger power generators that produce electricity for factories and medium-large companies. As more of these factories and companies demand more electricity and (if) the electricity supply situation worsens, the demand for diesel is also likely to increase.

Kerosene

Technically known as ‘Household Kerosene (HHK)’, Dual Purpose Kerosene (DPK) or Paraffin, kerosene is one of the most widely consumed fuels in Africa. It is commonly used in homes and households to provide heating, lighting (in kerosene lamps) and for cooking food. Especially in low and middle income households, kerosene remains the cleaner, more effective and often cheaper alternative to charcoal and firewood. Kerosene is very likely to remain a hot-selling fuel as environmental awareness discourages more people from destroying our forests to produce wood for firewood or charcoal.

Cooking Gas

Cooking gas, also known as ‘Liquefied Petroleum Gas’ or LPG is expected to become the preferred fuel for household cooking and heating in Africa’s future. Although cooking gas is not yet as popular as Kerosene in many parts of the continent, it is considered a cleaner, more efficient and cheaper option than kerosene. Unlike Kerosene, charcoal and firewood which produce soot and other harmful particles when they burn, cooking gas burns more efficiently and is much safer for the health of humans and the environment. 

As more Africans join the economic middle class and migrate to the cities, the demand for cleaner and cheaper fuels like cooking gas will surely increase. Climate change concerns and a growing consciousness to preserve our natural environment will lead to higher adoption of cooking gas as the preferred fuel for households.

Tips for succeess in the oil and gas business 

You may need a lot of start-up capital

Most entrepreneurs often do not consider the oil and gas business because they think it’s exclusive to the ‘big boys’ who have a lot of capital at their disposal. While this is not entirely false, it is not impossible for individual entrepreneurs and small businesses to play in the oil and gas business. You don’t have the money? Start small. Look for like-minded partners to invest or you could consider other proven ways to raise capital for your business. You could start a low-capital kerosene retail business in your neighbourhood or invest in a cooking gas refilling station. If you can find the capital, you could become a supplier of diesel or petrol to businesses in your area who will need it to power their generators.

Watch out for the risks

While there is money to be made in the oil business, you shouldn’t forget that the products you will be dealing with are very high inflammable. So, safety should always be a priority for you. Applying safety procedures at all times and using the right safety gear (like fire extinguishers etc.) are very important. Theft and loss (through spillage) are also common ways to lose your products. Taking out an insurance cover is always a good strategy to protect you in this regard.

Get the necessary licenses and permits

The oil and gas sector is usually well-regulated. In most countries, a permit or license may be required for anyone who wants to start an oil and gas related business. You will need to contact the relevant government office in your country to find out the required registration, licenses or permits for businesses that operate in the oil business. If you don’t comply with the rules, your products may be seized, you could pay a fine or serve jail time for running an unauthorized business. In countries that offer subsidies to operators in the business, it may be difficult (if not impossible) to claim these subsidies if you’re not registered with the relevant government agency, trade or workers’ associations.

It works best if you can find a niche for yourself

There already exists a huge demand for oil and gas products on the continent. However, there is a lot of competition because it’s relatively esasy to start if you have the capital. To avoid the crowded marketplace and unhealthy competition, this business will work better if you can find dedicated customers or an undersupplied area of town and dominate it. For these two customer segments (dedicated customers and areas suffering from scarcity of oil products), there is a good potential to make more profit. Rich homeowners, businesses, factories, schools, office buildings and shopping malls are just some examples of customers who can become dedicated to a supplier who can meet their needs for petrol and diesel. You just need to think of creative ways to separate yourself from the crowded competition.

Browse insights, credible business opportunities and investment opportunities in the oil and gas sectors here 

John-Paul is chief editor at www.smallstarter.com, Frontier's content partner. 

Top 5 real estate opportunities in Africa

Commercial property development in Africa provides the opportunity for good returns.

By Kurt Davis

Of the near 23 million m2 in shopping malls in Africa, 21 million m2 sits in South Africa and 0.5 million m2 is in the rest of sub-Saharan Africa. Similar figures are found in the office space sub-sector – 2 million m2 in sub-Saharan Africa (excluding South Africa) as compared to 4 million m2 in North Africa and 15 million m2 in South Africa. Navigating a blank slate in many instances, real estate investors approach the continent with the mixed ambition of Michelangelo and Donald Trump. Yet, as any veteran real estate investor will characterize the “Africa opportunity”, commercial real estate can surely earn north of 25% per annum returns, but only after navigating unexpected hurdles, including poor urban planning, unfinished neighbouring infrastructure (i.e., unpaved roads), and unreliable local developers. If you can stomach the risk and find the right partners, these five countries offer the greatest opportunity:

Nigeria

On the surface, Nigeria is the real estate investor’s dream canvass. It is Africa’s second largest economy (soon-to-be first by many accounts) with burgeoning middle class. Its 170 million-plus population loves to shop and consume. As companies flood the market, office space is lacking, such that prime office space rents as high as $85 per square meter, according to local renters.

The Ikeja City Mall, a 28,522 square metre mall in Lagos, which was backed by London-based private equity firm Actis in 2011, is unofficially considered the second mall to open in the country. Numerous malls have opened throughout the country since 2011. Even the recent boon in commercial space might not meet Nigeria’s rapidly growing demand.

Still, investors must approach with caution. Corruption and regulatory ordeals come without warning. Joining with a strong local partner is accordingly necessary to avoid the downward spiraling effect of a reactionary approach amongst unexpected obstacles you can assume to come.

Kenya

The growth of Kenya’s middle class and the country’s robust economy bids well for commercial real estate. The country may not see the same growth in malls experienced in South Africa. But the country is starting to hit a similar trajectory as economic growth projects well for the long term and tourism tries to find its footing again after terror threats. Office rents and space have moderated, as reported in local daily, The Star, and will exceed demand by 2016. But, as one local investor characterized it, building malls surpasses office spaces on the investor’s profitability meter based on consumer spending and natural returns per annum that follow from it.

Angola

Often loss in the discussion of burgeoning economies is oil giant Angola. A growing middle (and upper) class in Luanda makes the country an attractive hub for commercial real estate investors. As oil prices stay high, global companies flock to the country to capture a piece of the consumer market. Data on office space remains opaque but local developers estimate that rents for prime office space goes as high $100 per square meter.

The growing pockets (and expanding tastes) of Angolans have sprouted new malls with luxury occupants. The Sky Gallery, scheduled to open in June, will include Prada, Armani, and Gucci brands among many others. Once the mall reaches full occupation, the total cost of the project could exceed US$85-million, according to sources associated with the project. Investors warn, however, that these success stories should not obscure the ‘true’ challenge in Angola of finding a dependable and capable developer who can navigate the country’s ‘unclear’ property laws.

Tanzania

Offshore natural gas and a growing middle class underscores the changing real estate landscape and the country’s global reputation. Yet, as a country on U.S. President’s Barack Obama’s Africa tour, hotel supply barely met demand. The situation will gradually worsen as the gas comes out of the ground.

Prime office space rents as high as US$45 per square meter and new businesses are starting to arrive, so expect the price to increase. Accompanying high class apartments and condominiums for executives operating in these new facilities rent out as high as US$8,000 per month. Rapid urbanization in the financial capital, Dar es Salaam, and improved infrastructure has gradually created fertile ground for commercial property. Still a relatively new concept, local investors predict a rapid boon in a high rise commercial headquarters and multi-story malls in the near term.

Ghana

Prime office space in Ghana may be of interest to real estate investors, as rent go as high as US$50 per square meter. But it is not office space that has real estate investors giddy. One single mall dominates the discussion in Ghana. The Accra Mall, which reportedly attracts nearly 4 million visitors per year, is so busy that locals suggest carpooling to the mall on weekends as parking is limited. The West Hills Mall, which would be completed by the end of the year, should relieve congestion at the Accra Mall. But, if real estate investors are only partly correct in their projections, both malls will be clogged on the weekends and a third mall will ‘supposedly’ be required to ease the congestion.

This article is re-published with permission from Frontier's content partner Ventures Africa

View Frontier's database of business and investment opportunities in property/real estate sectors.

Top ten export products to Angola

Download Frontier's free eBook now and get advice on how to export goods to Angola, a fast growing economy with attractive business opportunities.

More businesses are now exploring cross border trade to take advantage of the huge export and import opportunities in fast-growing markets in sub-Saharan Africa. Angola is one such market promising market. 

With an estimated 43% of its population under the age of 15 and a rapidly emerging middle class that is fuelled by oil wealth, Angola has a huge consumer base with money to spend. 

The South African Institute of International Affairs put the scenario in context in a recent report on Angola: “…despite only having a population of around 19 million, the country is the third-largest domestic market for alcoholic drinks, behind South Africa and Nigeria. With so little being made or produced locally, there is enormous scope for exports...”

As the oil-rich nation continues to grow (about 6.2% this year, according to the IMF), so does its appetite for South African made products. Angola aims to attract US$4-billion a year in non-oil foreign investments by 2017. Foreign direct investment, excluding oil, was US$1.9-billion by the end of September 2013.

China is the top source of imports. Statistics by the National Freight Council in Luanda show 810 000 tons recorded in the second half of 2013, a significant rise from last year. Portugal is the second-largest trading partner with 410 000 tons of products, 8.8% less than the 450 000 tons recorded in the same period in 2012. Brazil, Vietnam, Turkey, Belgium and South Africa followed closely. Imports totalling three million tons were recorded in the period under review. Hydraulic cement was the biggest import product, at 526 000 tons.

Frontier has put together the top ten products that are in demand in Angola, and expert advice on how to get your goods into the country. 

Download the Top ten export products to Angola report.

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