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December 28, 2016

Volume 17 Issue 52

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Rising Middle Class Boosts African Markets

Key drivers for growth of automotive lubricant consumption in Nigeria and South Africa include rising prominence of the middle class population, a subsequent increase in vehicle sales, and the growth of industrialization in the two countries, according to market research firm Frost & Sullivan.

The firm estimated the countries’ combined lubricants market at $2.1 billion, driven mainly by demand for engine oils, along with a perceptible rise in end-user demand for products such as transmission oil, gear oil and coolants. Although Nigeria and South Africa rely heavily on imported materials for automotive lubricants, local production is expected to get a boost due to volatile oil prices and devaluating currencies in both countries, according to the firm’s analysis.

Frost & Sullivan noted that in Nigeria, about 80 percent of the vehicles on the road are second hand vehicles that will require more frequent lubricant drains in the long term, contributing to the volume demand. The rising prominence of the middle class in both countries has boosted vehicle sales, the firm said.

“Improved vehicle technology in newer model vehicles will require fewer lubricant drains,” said Lynessa Moodley, visionary science industry analyst, in a news release. “The market is ultimately gravitating towards higher-quality, specialized and synthetic lubricants with an increase in end user awareness on the importance of lubricant drains. This can primarily be attributed to pending government legislation regarding emissions, improved engine technology and original equipment manufacturers’ requirements for fuel efficiency.”

The market research firm suggested lubricant manufacturers can stay afloat and even strengthen their positions by improving awareness and educating consumers on the importance of frequent lubricant drains, as well as by using the appropriate lubricants.

“This should prompt lubricant manufacturers to conduct extensive marketing and awareness campaigns,” Moodley said. “In addition, fostering interregional ties between Nigerian and South African players could go a long way in creating a collaborative environment that benefits all the stakeholders and, ultimately, drives the market forward.”

Automotive lubricant demand volume in Nigeria and South Africa is expected to see growth between 2015 and 2020, industry sources said. Taiye Williams, managing director of Lubcon International Ltd. in Nigeria, said his country’s lubricant market is split between automotive and industrial, 69 percent to 31 percent.

Williams is skeptical that Nigeria’s growing middle class will impact automotive lubricant consumption in the country, explaining that the middle class’s purchasing power will be limited by the job losses and economic recession now impacting the country.

South African Economist Mike Schussler spoke about the South African lubricant market as part of his presentation at the ICIS African Base Oils and Lubricants Conference on Nov. 3. Schussler noted that country’s market covers the full spectrum of lubricant and grease applications, with industrial demand accounting for 47 percent, marine for 6 percent, aviation for 2 percent, passenger cars for 23 percent and trucks/buses for 22 percent.

Frost & Sullivan said that apart from a slowdown in new car sales during 2015-2016, new car sales in Nigeria have experienced an 8.5 percent compound annual growth rate over the last decade. This is tied to the country’s gross domestic product, which has increased by 7 percent in the past decade. “Meanwhile, South Africa is a well-established vehicle manufacturing hub in Africa, and this sector is expected to flourish over the next three to seven years, translating to a more expansive market for automotive lubricants,” the firm stated.

While stakeholders in the Nigerian and South African lubricant markets agree that automotive lubricants demand will grow, they emphasize that such growth will be driven mainly by original equipment manufacturer specifications.

John Anderson, product manager for Fuchs Lubricants South Africa, said the light commercial vehicles segment will be a very important driver for automotive lubricant consumption in Africa. He added that passenger car motor oils and the SUV luxury sector are also on the increase in his country. “Engine oil demand will grow at a slow rate because of increasing vehicle parc and drain intervals,” Anderson said.

Lubcon’s Williams said OEMs will drive automotive lubricants demand because of the introduction of warranties that require a certain type of motor oil.

“Basically, the OEMs that are coming into the country and have their assembly plant here are also going to be big drivers. The OEMs are now creating …warranty issues, which now say that, ‘if you buy our vehicle, we should be able to require that you put this kind of oil in it,” said Williams. This suggests Nigeria does not yet have a law equivalent to the United States’ Magnuson-Moss Warranty Act, which prohibits “tying” arrangements that require vehicle owners to buy a particular brand item or service to be eligible for warranty coverage, unless the item or service is provided free of charge.

He agreed with Frost & Sullivan that the devaluating Nair currency will result in more internal industrialization. Many people in Nigeria are going into agro-allied ventures, which depend on agriculture for their raw materials to operate. “There are so many investors in the agro-allied ventures that are coming to set up shops in Nigeria, which would drive the consumption of lubricants,” said Williams.