Africa accounts for nearly 15 percent of global population, but just 3 percent of the global gross domestic product. The continent has long suffered from wars, political uncertainty in time of peace, and a lack of basic infrastructure, healthcare and education. An abundance of oil, gas and other natural resources has hurt by fueling conflict and helping prop up various kleptocratic governments. Despite having large oil and gas reserves, the region lacks a significant refining sector. It doesnt have a large manufacturing sector and is not self-sufficient in food.

On the brighter side, the last 10 years have been quite good for Africa. The continents economy has grown at annual rates of 5 percent to 6 percent due to strong oil and gas and commodity sectors, growth in consumer spending and growing foreign direct investments. International investors find Africa attractive due to the fact that it is becoming more peaceful, governments are reforming their economies, and commodity price increases continue to bring funds to the region. Africa continued to grow during the recession, demonstrating that its economic growth is robust and not driven by cheap credit. In fact, the Economist Intelligence Unit forecasts that Sub-Saharan Africa will grow faster than Latin America and Eastern Europe in the near future.

Three factors will be key for continued growth in Africa: a continued boom in oil and gas and commodity markets; more consumer spending; and increased foreign direct investment into the region. Oil, gas and other commodities have always been key to growth in Africa. However, now the commodities boom is more diversified with a greater reliance on Asian countries. Since the recession, China has relied on growth via infrastructure investment rather than exports, and Africa has benefited from the resultant demand pull for commodities.

Beyond metals, there is certainly huge growth potential for agricultural commodities. At present, Africa uses only a fraction of its arable land due to various constraints. This represents an opportunity. For example, Addax Bioenergy is developing a project in Sierra Leone whereby sugar cane harvest is converted to ethanol for export to Europe.

The second key driver to growth in Africa will be foreign direct investment. As investor confidence in the region has increased, Africa has received increasing amounts of foreign investment, which is forecast to reach 120 billion by 2015. An interesting feature of this growth is the increasing share accounted for by China. As it faces manpower constraints, China is moving some of its manufacturing to Africa, which has lower manpower costs. China also hopes to create new markets for its low-cost exports as traditional markets in the west dry up due to the recession. Practically all sectors are ripe for foreign investment. Sectors such as infrastructure, telecommunications, oil and agriculture seem to be getting a lot of attention.

The third key driver is consumer spending. Africa has a young population with a median age of 20 years compared to 30 years for Asia. According to the Standard Chartered Bank, there will be more than 100 million households with an annual income of more than 2,400 by 2015. While this still seems to be a small spending threshold, it does show potential for the kind of frugal products being invented in Asia. The growth in mobile telephony is an example.

What does this mean for the lubricants industry? Kline has been tracking lubricant consumption in Africa and Middle East for over 10 years. The regions combined share in global demand has hovered between 7 percent and 8 percent. During 2008 and 2009, that share exceeded 8 percent, but this was due to the contraction in Europe and North America. Looking at lubricant demand in Africa and the Middle East together does mask the steady demand growth in Sub-Saharan Africa and the more variable demand in North Africa and the Middle East. Demand in the latter regions is largely influenced by infrastructure and construction projects, which can cause temporary lube demand that winds down at the end of a project.

Of course, Africa is not one homogenous region, but a collection of widely different countries with differences in language, economic development, customs and growth. With the exception of Egypt and South Africa, no country has significant lubricant consumption on its own. This fragmented nature of the market and low growth had in the past reduced its attractiveness from the perspective of major lubricant marketers. These marketers either exited this region or chose to serve it via mega distributors. Their actions have opened opportunities for other marketers, including regional majors like Engen and Sasol and other smaller domestic lubricant blenders.

Growth opportunities are present in all three lubricant market segments – consumer automotive, commercial automotive and industrial. Africa doesnt have a significant automotive manufacturing industry and is dependent on vehicle imports, which have shown strong growth in recent years. The commercial segment is also likely to be boosted by spending on road and rail infrastructure, growth in agriculture and its mechanization, and growth in mining. The industrial segment will see growth due to investments in key sectors like power generation.

The Economist states that Africa today is at the cusp of industrialization similar to Eastern Europe in 1990 or India in 1995. If this is true, the business opportunity in Africa is now, because planting your crop when others are harvesting theirs is too late.