Market Factors

The regions lubricant market trends are being shaped by a variety of factors, including a nascent but growing food processing industry and increased demand for low-viscosity oils – linked to reduced fuel consumption, minimal emission levels and improved engine performance. In addition, lubricant manufacturers are increasingly aware of the role research and development plays in staying profitable in a highly competitive environment. However, it is the ongoing industrialization plans by countries in the region that are likely to boost lube consumption in the short and medium term.

According to the East African Community, an intergovernmental organization, governments in the region have firmed up industrialization plans. They target the harnessing of key manufacturing industries that have the potential to expand quickly, such as food processing, oil and gas processing, power generation and transmission, chemicals (fertilizers and agrochemicals) and iron and steel processing.

According to Gabriel Negatu, regional director of the African Development Banks Eastern Africa Resource Centre, There is a general consensus that with the right business-enabling environment, including improved access to markets, better infrastructure, technology and skills development, the manufacturing sector has tremendous untapped potential to spearhead East Africas sustainable and inclusive growth. However, he said, governments in the region must address some of the identifiable inhibitors to growth – such as the tendency to produce a relatively narrow range of products, low productivity, limited deployment of labor and capital – if the sector is to expand as envisioned in the next 16 years. Negatu added that East Africas manufacturing industry suffers from a number of structural and policy constraints, including limited access to finances, unreliable electricity, poor transport infrastructure and inadequate information and communications technology networks.

Some governments in East Africa have committed to addressing the stumbling blocks to the regions slow pace of industrialization. For example, Ugandas President Yoweri Museveni recently stated, We are increasing power generation and working on the road network, the standard gauge railway and undersea cable to improve the investment climate and attract more industries in the country.

Lube Suppliers

Despite the constraints, the list of industrial lubricant suppliers in the region continues to grow, with foreign and local companies marketing hydraulic oil, gear oil, compressor oil, process oils, textile and machinery oil, turbine oil and metalworking fluids. Lubricant manufacturers, blenders and suppliers in the region continue to introduce new and better-performing industrial lubes to meet current needs, albeit on a small scale, such as products to protect equipment against corrosion and extend the lifespan of these factory installations.

U.K.-based independent consultant and market analysts, Citac Africa Ltd., estimates industrial lubricants share in East Africa at 40 percent, with the rest being taken up by the automotive sector. In Kenya, Citac reports that Total (39 percent), Vivo Energy (31 percent), Oilibya (14 percent) and KenolKobil (10 percent) are the market leaders for the period January to September of 2015. Hass Petroleum and Hashi accounted for 2 percent each of the market while Oryx Energy and National Oil Corp. of Kenya account for 1 percent each.

With market dynamics having remained almost constant, save for lower global crude prices, oil companies share of the market is likely to remain nearly the same for the coming year. Other companies supplying lubricants in East Africa, either directly or through partnerships, include BP, Shell, Petro Uganda, Gapco, Delta, Mogas, Chevron, Addax, Mobil, GapOil, Engen, PetroRwanda, ERP (Rwanda), SGP (Rwanda), Petrolgaz (Rwanda). However, Citac says the market will likely continue to be dominated by the big brands – Total and Shell – with mid-tier and low-tier players in trail.

The oil marketers cater to the consumption interests of both small- and medium-size enterprises, as well as large-scale industrial buyers such as agroprocessing plants, through various supply avenues. These include retail, resellers and commercial outlets while companies involved in formulation and blending such as KenolKobil also reach consumers outside the region through exports.

Small industrial lubricant users can access lubrication products through the oil marketers retail chains, which are mainly petrol and service station outlets at either a national or regional level. The companies also use middlemen who buy lubricants in bulk for resale to either retail dispensers or large-scale consumers.

A large percentage of industrial lubricants are also supplied directly to large processing plants in East Africa such as the Kenya Tea Development Agency, which offers various services such as extension, transportation, processing, and marketing to more than half a million small tea farmers in Kenya. Many more large industrial plants or installations such as power generation, chemical and textile processors and even railway operators, metal factories and petroleum refineries also get their supplies directly from oil marketers.

Country Plans

In Kenya, where manufacturing is a key consumer of lubricants and contributes 10 percent to the countrys GDP, the government has outlined an industrial development plan under its economic blueprint, Vision 2030. If implemented fully, the plan is likely to increase demand for a variety of industrial lubrication solutions.

The countrys cabinet has already approved the establishment of Special Economic Zones that will allow businesses to benefit from exemption from value added taxes, income taxes, custom and excise duties, stamp duty and work permit quotas, according to the countrys industrialization ministry. The zones target various industries such as business service parks, free port zones, free trade zones, industrial parks, information communication technology parks, science and technology parks, agricultural zones, livestock zones and tourist and recreation zones. The majority of these businesses are expected to provide new markets for industrial lubricants in the long run.

The ministry has also been granted permission to establish at least five industrial parks in key urban centers, with technical support from the Malaysian government. These efforts by Kenya are part of a wider strong push by governments in East Africa to expand the regions level of industrialization through the East African Community to ensure it contributes 25 percent to the regions GDP. The growth is expected to attract the attention of oil marketers in the region keen on widening their market reach and expanding their product variety.

Tanzania has launched two initiatives meant to increase the contribution of the manufacturing sector to the countrys GDP from the current 9 percent to at least 40 percent by 2025, as the country gears itself to achieve semi-industrialized status. Tanzania has launched a five-year development plan to wean itself from reliance on extractive industries such as agriculture, tourism and mining to a modern economy anchored by a broad and diverse base of manufacturing, processing and packaging industries that will lead both the productive as well as the export trade sector, according to Joseph Simbakalia of Tanzanias Engineers Registration Board.

He told a recent meeting of engineers that Tanzania will establish industry clusters in the next five years, including food agroprocessing, textiles and apparel, building materials, pharmaceuticals and durable consumer goods, processing and assembly industries. The clusters will be financed by both the public and private sectors. Oil marketers are set to benefit from this plan because it opens a wider market for lubricant products to meet the anticipated increase in demand.

Apart from individual national industrialization plans, members of the EAC are also fine-tuning measures for effective implementation of the organizations Industrial and Investment Strategy. Kenyas former Minister for the EAC, Musa Sirma, said that between 2012 and 2032, EAC Partner States will work to create an effective policy coordination framework geared toward eliminating constraints to growth and upgrading enterprises at national and regional levels.

Sirma, who was one of the architects of the Strategy before he left office nearly three years ago, said achieving more vibrant and sustainable economic development is dependent on the level of industrialization in the East African region. He said that within the 20-year implementation of the Strategy, EAC Partner States will work toward achieving industrial development through promoting the development of strategic regional industries, strengthening national and regional institutional frameworks and capabilities for industrial policy design and implementation. The regions governments, he added, are also working at strengthening the capacity of industry support institutions, strengthening the business and regulatory climate, enhancing access to finance and facilitating the development of relevant technical skills.

According to Citac, East Africas regional lubricant consumption
is expected to remain on a growth path through the medium and long term, underpinned by continued economic growth, elevated urbanization rates and infrastructure development. The anticipated industrial growth in East Africa will come with increased acquisition, installation and use of new machinery and equipment that will require high-quality lubrication products such as high-temperature grease, industrial gear oil, heat transfer oils and transmission fluids.

While the projected potential for growth in East Africas industrial lubricants segment is not exceptional, according to syndicated research report provider Future Market Insights (FMI), it fits well into the global industrial lubricants trends in the medium term.

In its report, Industrial Lubricants Market: Global Industry Analysis and Opportunity Assessment 2015-2025, FMI said that the global market for industrial lubricants is expected to witness high growth due to the growing automotive industry. The report noted that growing demand for low-viscosity fluids in the automotive sector is expected to boost the industrial lubricants market in the forecast period.