Seeds of Opportunity: The African Growth Series
February 2022 | Issue 4
In this week's issue, you will learn more about:
- The African market entry strategy
- A new e-waste recycling facility in South Africa
- Internet access in South Africa
- Green Hydrogen: The new energy frontier in Africa
African Market Entry Strategy
What is the best way to assess new market opportunities in Africa?
Africa is the fastest growing region in the world and will therefore bring a whole load of new market growth opportunities. The continent’s population is growing rapidly, forecasted to add an additional 2.5 billion people by 2050. This increase comes with simultaneous economic growth which brings about higher standard of living, opening the continent further up for future investment opportunities.
So, how do international companies take advantage of this? Frost & Sullivan has been involved in several market expansion projects and has derived a niche market entry strategy for its clients. The African continent is unlike no other and the key to successfully enter any new market in Africa is to thoroughly understand the targeted market. There often and regularly exist a large discrepancy between adjacent economies, as one market is seldomly similar to the next, unlike markets in Europe. The best way to fully make sense of a market is to engage with local partners, operations, managements, or potential targets. This will provide the team with crucial information about market dynamics such as the economic and political environment but also builds early-stage relationships with potential local partner opportunities as well as inform about potential risks and risk mitigations. Eventually, in-depth strategic recommendations advised by professionals on the ground can be drawn to advise clients accordingly.
A new E-waste Recycling Facility in South Africa
According to the United Nations E-waste Monitor, South Africa generates about 360,000 tons of e-waste annually and Gauteng is responsible for about 55% of this waste. The province generates significant amounts of e-waste due to the widespread use of home appliances, cell phones and computers. To address this, the University of Johannesburg in partnership with the Gauteng Province Department of Electronic Administration are preparing to implement an e-waste program. The aim is to establish a new e-waste recycling plant that will dismantle smaller components of electronic devices; have the different metal parts be sent to various local dealers who then melt the metal, recycle it and reuse it. Through this the province is expected to stimulate the economy by supporting micro, small and medium sized enterprises while creating jobs.
Internet Access in South Africa
The number of people accessing the internet via a mobile device in South Africa grew to 62% of the population by January 2022. However, with there being 37.2 million users, there were 22,8 million people who did not use the internet at the beginning of the year. The government is pushing for everyone to have internet access as a basic human right. “Data has become a new utility like water and electricity that our home needs,” said Khumbudzo Ntshavheni, the Minister of Communications and Digital Technologies. During her state of the nation debate, she announced that all South African households will soon have access to a stipend of 10GB per month.
Four major factors have been pushing the demand for internet access; blended/online learning, the government mandating for internet access, educational and financial inclusion; as well as a strong push for the flexible ‘work from home’ sentiment from companies and employees.
Infrastructure plays a large part in accessing the internet therefore implementing advanced technology (5G) and the planned data spectrum will help public and private players invest in improving access to reliable high-speed broadband for their devices. With the rapid growth in smartphone uptake and the number of users expected to increase to 43,1 million in 2026, there are a lot of opportunities for manufacturers and telcos to grow with this demand.
Investment injections into logistics infrastructure
South Africa’s industrial property space continues to attract investments, with the planned R6 Billion worth Investec Property development in KZN being the latest. While the pandemic induced several challenges for other commercial property types, industrial real-estate focused on logistics has remained resilient. Interest and growth is largely being driven by the surge of the e-commerce sector during the several lockdowns. Supply chain constraints with last-mile logistics were also echoed, with new solutions targeting greater interconnectivity of supply chain links.
The Brickworks, which is a redevelopment of the old Corobrik site will be the largest business and logistics park in uMhlanga and KwaZulu-Natal. Its proximity to South Africa’s busiest port, major road networks (N2 and N3), and airport positions it well for servicing the local and international business markets. The overall 450 000m² of the gross lettable area will be developed in three phases with the earliest construction expected in mid-2022. The development is part of the City of eThekwini's Economic Development Incentive Policy (EDIP). This is a positive testament of how enabling policy can inject investment confidence to drive economic growth and is an important vote of confidence into the region's potential.
Green Hydrogen: The new energy frontier in Africa
The 2015 Paris Climate Agreement, which seeks to limit global increase in temperatures to less than 2°C this century, was signed by 195 countries, 33 of which are African. To achieve this ambitious target, significant carbon emission reductions and energy efficient systems are required. As part of the agreement, countries have set out a range of clean energy and energy efficiency targets (“Nationally Determined Contributions”) to cut emissions. Electricity generation is most commonly the leading contributor to CO2 emissions in most countries, at which the majority of NDC in Africa are targeted at. Massive strides have been made into the installation of renewable energy capacity, driving the decarbonisation of the energy sector. The biggest issue surrounding renewables is the difficulty of storing the electricity at scale and for prolonged time without long distant, inefficient transmission, as well as the irregularity of electricity supply from these technologies. While batteries have certainly helped at a micro-scale, they are not yet cost-effective at macro-scale.
Hydrogen, produced through electrolysis of water, is the perfect solution to the problem. Specifically green and blue hydrogen are suitable for further development in Africa. The development of a green hydrogen economy in Africa has since gathered considerable attention, driven by the continent's high renewable energy potential and investment coming from developed countries desperately looking for means of decarbonising their own industries. Green hydrogen is best positioned to reduce CO2 emissions in typically “hard-to-abate” sectors such as Industry (e.g., construction and steel manufacturing), centralised energy systems, as well as transportation and mobility. Natural gas will form the basis of hydrogen integration as methanation becomes commercially viable and pipeline infrastructure is upgraded to support hydrogen blends.
The EU has introduced its hydrogen strategy in 2020, proposing a shift to green hydrogen by 2050, mainly services through a steady supply coming from Africa. Africa is expected to become the preferred location for the green hydrogen economy due to its growing penetration in renewable energy, greater land availability, easy access to water sources and port facilities, enabling Africa to position itself as a major hydrogen export hub.
Development Finance Institutions (DFI) are thought to be the primary financiers of green hydrogen projects in Africa, as they have mandates for green investments. Additionally, Export Credit Agencies (ECAs) are expected to become major financial contributors; as well as alternative financing structures such as green bonds and green infrastructure funds.
Despite Africa’s dire energy need, over-supply of electricity has become a significant challenge, primarily driven by poorly maintained generation, transmission and distribution (T&D) systems. Hydrogen production and storage can be a useful technology to solve this problem. Excess electricity can be used to generate green hydrogen during times of oversupply, and in turn be utilised to generate electricity during an undersupply of electricity. Hydrogen is also a suitable clean resource to help decarbonise numerous other industries including transportation, building heat and industrial sectors.
Egypt’s 100 MW Scatec Ammonia plant is the perfect example of how to set up a green hydrogen economy. There are three main steps African countries need to follow in order to seize the green hydrogen opportunity:
1. Installation of a Pilot Plant: Government needs to partner with a private electrolysis company to develop commercial-scale pilot project including a renewable energy plant (Solar/Wind), electrolysis facility and a direct source of demand (i.e., Ammonia plant). This will aid policy makers in developing domestic capabilities, identifying unique local challenges, further developing R&D and crafting initial policies and regulations.
2. Development of Local Policies and Regulations: Once the initial pilot plant has proven commercially viable, government needs to develop comprehensive green hydrogen policy including realistic production targets considering domestic demand and global market trends, defining sector governance and outline policy framework, as well as outline funding structures.
3. Develop an International Export Market: Increased generation and experience with green hydrogen throughout the continent will result in falling production costs in response to economies of scale, R&D development and domestic experience. Export of green hydrogen can be either in the form of liquified green hydrogen to renewable energy deficit countries or in the form of green finished industrial products such as steel, polymers, metals, methanol, etc. A government supported company can be set up to form supply agreements with key export markets which will enable government to build, upgrade or retrofit the required infrastructure for shipping and pipeline channels.
In summary, green or blue hydrogen production is already gathering pace on the continent. While the production is not yet broadly cost competitive as compared to the conventional fuels, it would replace (natural gas, coal). Africa has the opportunity to position itself as a major producer and exporter of green hydrogen as the hydrogen economy in Africa develops, driven by R&D, integration of hydrogen in the value chain and increased capacity of renewable energy in the power mix.
Source: Frost & Sullivan, IEA, IRENA, PWC, Press Releases
To find out more about opportunities in Africa, please contact Lynne Martin.
Lynne Martin
Rebecca Mabika