Frost: Early Entrants Benefit from Growth in Sub-Saharan African Biofuels Markets
October 31, 2007 // Published as a news service by IHS
Despite various challenges and obstacles, in-depth understanding of current and future trading conditions will boost the chances of success. Early entrants are positioned to make sizable gains as these markets develop.
Recent analysis from Frost & Sullivan of the sub-Saharan African biofuels markets estimates revenues will reach $1.54 billion in 2010 and $1.82 billion in 2013.
"The African biofuels market is set for spectacular growth in a market where agricultural land and labor is in abundance and where government support will foster a protective market with guaranteed offset markets," said Frost & Sullivan research analyst Cornelis van der Waal.
"Early market entry, coupled with an extensive understanding of overall market dynamics, as well as long-term feedstock provision agreements will lead to increased market share."
Despite several potential hurdles, analysts said the probable return on investment (ROI) will be substantial. While government strategy will have a significant impact on the industry, it will by no means be the only factor that will determine the future of the sector.
Analysts said biofuels production in Africa is limited today. However, successful ethanol production is ongoing in several countries that are all currently finalizing their biofuel strategies. A number of companies have already started investing in the biofuels market in Africa and early participants are expected to gain considerable benefit from early market entry.
"Many acres of jatropha [a biofuel source] have already been planted, intensive skills programs are being set up and various international companies are investing in this 'non-existent' industry," said van der Waal. "Early market participants will not only have a significant advantage over future competitors, but will also be able to shape the industry in their favor."
The current market for biofuels in Africa is very ripe. However, analysts said sluggish government policy, fears centered around sustainable feedstock production and a general lack of skills in the African biofuels industry is restraining market expansion.
In addition, the severe lack of capital to develop this market is hampering the objectives set under the Kyoto Protocol. Alternative technologies, including fuel cells, are also putting a dampener on enthusiasm for investment.
"Although the African market as a whole and the South African market in particular hold tremendous potential, the slowness of governments to develop and implement policies is straining development," said van der Waal. "However, most strategies are expected to be completed by the end of 2007 and this will result in exponential growth and investment opportunities for local and foreign companies."
Source: Frost & Sullivan.