Business
Africa’s fast growth transforming commodity flows
For centuries, colonial-era merchants tussled for access to Africa’s raw materials, and huge swathes of Africa’s geography became synonymous with the main commodity they exported: Gold Coast, Ivory Coast, the Spice Island of Zanzibar. But the continent’s booming economic growth and swelling population give it an opportunity to shift away from the traditional raw material export model towards consuming and transforming its own commodities and selling them to its own expanding local markets.
Miners, bankers and trading houses are seeking to position themselves to take advantage of emerging trade routes within Africa at a time when demand growth from China, the world’s biggest commodity consumer, begins to tail off. Management consultancy McKinsey estimates that African consumer spending will be $1.4 trillion by 2020 and forecasts a more than doubling of the working age population to 1.1 billion people by 2040.
“Any statistics you take are uni-directional so I don’t see why demand should look the other way,” said Venkatramani Srivathsan, head of Africa and the Middle East for Singapore-listed commodities trader Olam. “For businesses like ours looking into Africa as a market, as a destination, countries like Nigeria and Mozambique are very, very interesting,” he said in a telephone interview during the Reuters summit on African business, held in several African cities.
For Srivathsan, whose employer sources a quarter of its sales revenues from Africa and has invested 1.66 billion Singapore dollars ($1.33 billion) on the continent, the secret is knowing how to adapt to the tastes and changing consumption patterns of each individual market in Africa.
Olam, which invests in plantations, food processing and the packaged food business, has introduced subtle differences in its West African tomato paste to suit different palates and is adapting to Nigerian demand for more sophisticated biscuits. “You have to keep innovating. Even if you acquire brands you need to keep adapting to changing tastes and changing levels of income,” he said.
Wealthier consumer market
Top oil trader Vitol has also targeted investments in Africa’s downstream sector, and is bidding for a new refinery in Uganda, to help it meet demand for the $440 million-a-day fuels market. Oil traders still export Africa’s crude oil to sell as refined products in the West, but Vitol now sees robust growth in fuel demand on the continent of around 3 percent a year, driven partly by growing power markets.
It is targeting supplies of niche fuels like liquefied petroleum gas – which can be easily distributed in portable canisters – into large cities of North Africa and Nigeria, a country of 170 million people which recently overtook South Africa as the continent’s largest economy.
