Infrastructure to Drive South Africa, Kenya and Nigeria Coatings Markets

By Shem Oirere, Africa Correspondent | July 7, 2014

Increased infrastructure development expenditure by Kenya, South Africa and Nigeria will lend momentum to the countries’ industrial paints and coatings market according to a market study by research firm Frost & Sullivan.

However, the paint and coating dealers in these countries will have to embrace innovative marketing techniques and sustainable quality production to counter increased cost of raw materials and counterfeit products to sustain the momentum.
According to Frost & Sullivan’s Chemicals, Materials & Food Industry analyst Anthony Lawrence: “New projects announced in the oil and gas sector and allied industries in Kenya, South Africa and Nigeria are fueling demand for industrial paints and coatings products.”

“In South Africa, the government and other private companies such as Sasol and Petro SA are the key forces driving the launch of new projects and in turn widening market potential.”

In Kenya the government of President Uhuru Kenyatta has lined up several oil and gas projects to be implemented in phases resonating well with a deliberate effort to increase government spending on infrastructure.
According to the country’s Petroleum and Energy minister Davis Chirchir, the projects include those by Kenya Ports Authority, National Oil Corporation, Kenya Pipeline Company among state agencies driving the growth on which the projected expansion of the paints and coatings market is likely to be anchored.

The Kenya Ports Authority will soon be relocating the Kipevu Jetty in the Indian Ocean port city of Mombasa to a nearby spacious site and will enable its linking with an oil pipeline.
“The government has commissioned a feasibility study for an offshore jetty facility to reduce congestion and receipt of larger vessels with the National Oil Corporation of Kenya championing the construction of this facility through a Public Private Partnership,” a release by the Energy ministry said previously.

The country is also ready to implement the Lamu Port project Master Plan, which among other components is comprised of 32 berths at the city of Lamu for export of crude oil from South Sudan. Initial preparations for construction of initial three berths and associated port infrastructure is said to be underway according to the ministry’s release.

In addition, the Kenya Pipeline Company has commissioned a feasibility study to replace the current Mombasa-Nairobi product oil pipeline. It also plans to construct a 14-inch spur-line to Kisumu City in Western Kenya to complement an existing 6-inch multi-product oil pipeline with plans and negotiations underway to extend the pipeline into Uganda and later to Rwanda.

“Another multi-product oil pipeline is planned to be constructed from Nakuru town in Western Kenya to Isiolo town to serve Central Kenya demand,” the ministry said.
A crude oil pipeline from South Sudan to Lamu in Kenya via Isiolo and refined products multi-product oil pipeline from Isiolo to Ethiopia has also been planned for construction. Similarly, a new refinery is planned to be set up at Isiolo to process crude oil from South Sudan and Kenyan crude oil in case it is commercially viable.

Modernization of the Kenya Petroleum Refineries Ltd currently operating at 40 percent of its design capacity to process four million tons is expected to be completed by 2015.
Kenya’s overall spending on infrastructure went up by 21 percent last year to Sh268.1 billion ($3 billion) up from the Sh221 billion ($2.5 billion) in 2012. Finance minister Henry Rotich said the infrastructure investments “are the building blocks needed to achieve a more lasting stable growth.”

“Over the past two financial years infrastructure expenditure allocation has increased by more than 62 percent, a show of government desire to improve infrastructure that has often been cited by the private sector as one of the impediments to Kenya’s economic competitiveness,” said PricewaterhouseCoopers post-budget analysis on Kenya’s 2013 national budget.

A similar growth in infrastructure expenditure has been seen in South Africa over the past two years with the government of President Jacob Zuma announcing an anticipated expenditure of R847 billion ($78 billion) in the next three years. Outgoing  Finance minister Pravin Gordhan said  in February the government has spent R1.1 trillion ($102 billion) on infrastructure since 2009 especially on rail projects, considered a key consumer of paints and coatings products.
“Transnet (state rail operator) has increased capacity on its coal line. Plans are in place to further expand the coal, iron ore and manganese lines. The Passenger Rail Agency of South Africa refurbished 500 Metrorail coaches last year, and its new rolling stock procurement programme will get under way this year,” said Gordhan.

“The private sector is also making an increasing contribution to infrastructure investment,” added Gordhan.

However, it is Nigeria, which Frost & Sullivan said “presents the most opportunities due to the Government’s success in stimulating private and public involvement in development projects.”
“With the expected rollout of several new development projects by the government as well as private players, the local production capacity utilisation of paints and coatings in Nigeria will increase significantly from its 2010 level of 35 to 40 percent,” said Lawrence.
The analysis seems to concur with an earlier one by Business Monitor International  (BMI) which said Nigeria’s residential and non-residential building “will be the major driver of growth, with a growing middle class demanding more from the sector.”
“Improving power supply and transport links will also be a driver of growth, but the infrastructure sector is more exposed to the numerous risks in Nigeria’s business environment.”

The combined Kenya, South Africa and Nigeria sales volume of industrial paints and coatings across the three countries stood at 101.2 million liters in 2012 according to the Frost & Sullivan study, which is yet to be released officially and covers wood, powder, can and coil, marine, and industrial protective coatings.

“This is estimated to reach 142.1 million liters in 2017,” the study said.

The market analyst, however, cautions on the impact of the rising price of raw materials which it says is likely to push up the cost of industrial paint and coating production.

“The fluctuating exchange rates are also a cause for concern especially for Kenyan industry participants, as most raw materials used in the manufacturing of paints and coatings are imported,” it said.
It also singles out South Africa paints and coatings market players of being at risk of losing customers to “the influx of competitively-priced paints and coatings into South Africa from countries such as China and India is diverting customers from local manufacturers.”
“To remain competitive, local participants in the South African, Nigerian and Kenyan industrial paints and coatings markets should offer products with a high price-performance ratio and ensure availability,” the study said.“They must also provide robust customer service and technical support to build and strengthen relationships with suppliers, add value, and retain customers.”

According to Lawrence local market participants “should consider affiliating with well-established international brands in order to maintain high quality, while respecting the relevant health standards, as well as obtain environmental compliance accreditation. These affiliations will also assist in making customers completely aware of the grades of paints and coatings so that they can use the right product for the right application.”