South Africa: Energy experts explore the opportunities for the industry in 2014

27 January 2014

The year 2014 is expected to be an important year in the energy industry in South Africa. The first generation activity at Medupi is expected, clearer guidance on nuclear and shale gas is expected, the renewable energy (RE) industry will continue its significant expansion and the Department of Energy will unveil its amended long-term energy roadmap - this is on the back of a challenging 2013.

The South African economy has been slowing down over the last 18 months, predominantly as a result of the spill-over effect of the global economy. Various growth adaptations have been seen over the past 12 months, based on South Africa's current tepid growth figures.

A study by the African Development Bank shows the following countries reaching excellent growth in 2013 GDP figures: Libya (11,6%), Sierra Leone (9,6%), Chad (9,5%) and Ghana (8,4%) (amongst others) - albeit from an often low base. South Africa, however, has fallen into the lowest ten countries in terms of GDP growth, at a rate of 2,8%.
The average growth (per African country), as per a recent report by a leading bank, is pegged at 4,8% for 2013.

This low figure of growth for South Africa is seen by Frost & Sullivan as a motivator to the South African government to put in place plans and policies to drive growth during 2014. The anticipated spurt in growth initiatives is something companies active in the energy space should be aware of.
However, from a negative point of view, shortages of electricity, together with a lack of competitiveness and a rapid devaluation of the South African rand, have been significant reasons why the country has experienced a decline in foreign direct investment.

And despite the ongoing efforts of the national utility to get its mega power plants online, it has become clear that these projects have been delayed and that electricity generation increases will be postponed.

The net result has been a decrease in business confidence in the country. This, coupled with disappointing productivity improvements, has further pressurised the manufacturing and industrial segments in the country.
The declining rand has brought some relief to manufacturers in South Africa. However, importers have seen a significant increase in rand costs of their imports. Since the majority of energy equipment in South Africa is imported, the relative rand value of most equipment has increased.

This at a time when South Africa is investing heavily in the energy industry across generation transmission and distributio n segments.
One positive impact of increasing energy costs and decreasing availability has been the significant roll-out of energy-saving initiatives driven by the national utility (Eskom) across the residential, commercial and industrial sectors.

Large numbers of new efficient technologies have been implemented and South Africans will continue to reap the benefits of more efficient energy use for many years. Significant opportunity remains for more efficiency in energy-intensive devices such as pumps, motors, compressors, municipal and commercial lighting, HVAC systems, and most heating and cooling processes.

OEM's manufacturing in South Africa will have to explore regional markets in order to expand their activities. Finding the right distribution model into the continent remains one of the largest success criteria. Africa's overall econom ic expansion, continuing at a rate in excess of 5%, is clearly a driving opportunity for local manufacturers.

The vital question is: Which micro markets are best suited to a company's value proposition?

Finding ways of marrying a company's product and service line with a local market is often the tipping point when it comes to whether success is achieved during geographic expansion.

The time of saying "We are expanding in Nigeria" are over, and have been replaced by: "We are expanding by setting up our head office in Port Harcourt, rather than Lagos, since our largest transformer market is found in the Port Harcourt area and the strong levels of competition in Lagos have saturated the market."

While companies ride the positive-negative see-saw of the South African and wider African economy, the overall outlook for companies in the energy space in South Africa is "realistically optimistic". Although it is not expected that the industry will expand at double digit rates, a solid outlook for industry remains encouraging.

With the large amount of activities on the cards for 2014, it holds that companies who are robust in adapting their services and value proposition to address shifting market demand, will be the best suited to address ad hoc market needs. Tracking markets has always been vital, but over the next five years it is predicted to be one of the key drivers of a company's success in Africa.

Full thanks and acknowledgement are given to Johan Muller, Consulting Manager for Energy at Frost & Sullivan for the information used to write this article.

Original article by Samantha James

Category: Energy

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