East African economies have outperformed the global average growth rate, underpinned by continued urbanization, industrialization and infrastructure development, key drivers of lubricant consumption. The region was also the fastest-growing on the continent, with a 5.3 percent increase in real gross domestic product, ahead of North Africas 3 percent.
This has been matched by high demand growth for oil products at an estimated rate of 6.2 percent per year, according to CITAC Africa, a U.K.-based independent consultancy focused on Africas downstream energy markets. CITAC Africa estimates the size of East Africas automotive lubricants market to be about 80,000 metric tons per year, although the actual volumes could be at least 30 percent more, according to other industry sources, it said.
Among neighboring Uganda, Tanzania, Rwanda and Burundi, Kenya is a key market in the region, with more than 30 lubricant brands on sale. Energy data consultancy Kline & Co. estimates total finished lubricants demand in Kenya in 2016 at 53,500 metric tons, of which commercial and consumer automotive accounted for 87 percent combined.
Vehicle Sales
Although growth was seen across a number of Kenyas sectors, automotive is of most interest to multinationals, independents and private lubricant importers. Vehicle penetration is estimated at 28 units per 1,000 inhabitants, or 2.5 million in total on Kenyas roads, compared with seven in Tanzania, 13 in Uganda, and 176 in South Africa, according to the Kenya Institute for Public Policy Research and Analysis.
Global consultancy firm Deloitte reports that Kenyas projected economic growth should drive sales of motor vehicles. The volume of imported cars and motorcycles has been on the increase due to the availability of attractive credit from financial institutions and the rise of the middle class, it said.
The number of vehicles imported into Kenya increased by 300 percent from 2003 until 2012, with passenger and commercial vehicles topping the list, government statistics show. Deloitte projects that at this growth rate, 5 million cars will be on Kenyas roads by 2030.
Car Trouble
The liberalization of Kenyas industry, including the auto trade, in the mid-1990s came with an increase in the importation of secondhand vehicles. According to the Deloitte report, Kenya is dependent on car imports, with secondhand vehicles accounting for more than 80 percent of those imports.
Some of these used vehicles are too old to use quality lubricants, which has given rise to lubricant consumption habits driven more by price than quality, as well as a large market for recycled base oils, according to CITAC Africa. The region has […] seen an increase in lubricants produced from recycled base oils as market operators without reputable brands target and exploit retail clients price sensitivity as well as [the] old vehicle fleet, it found.
In Kenyas case, the National Environment Management Authority says the volume of used oil generated from various sources is difficult to quantify, and there are no precise statistics on how used oil is reprocessed or disposed off. With Kenyas main blending companies using virgin base oil and investment in rerefining lagging, the destination of the estimated at 27,000 t/y of used engine oil generated per year is an unusual range of applications, including dust suppression, agricultural equipment lubrication, marking sports fields, insect control and wood preservation. The rest often ends up dumped, especially in rivers.
Market Players
Independent and private lubricant suppliers currently vying for customers on pricing could face stiff competition from multinational firms and other suppliers that are catering to increasing demand for quality lubricants by consumers who want optimal vehicle performance and reduced pollution. This trend will continue on the back of stricter controls on secondhand vehicle imports and government investment initiatives to open more vehicle assembly plants. This is good news for virgin base oil suppliers and high-quality finished lubricant makers using additives from certified suppliers.
According to Kline, the top five suppliers account for a combined 87 percent market share. They are Total Kenya, a subsidiary of the French major, Shells African licensee Vivo Energy, Libyan energy company Oilibya trading as Libya Oil Kenya Ltd and pan-African downstream company KenolKobil, which also imports Castrol branded lubricants from South Africa, and Emirates National Oil Companys Africa distributor Galana Oil Kenya.
Others include Fuchs licensee Petrolube which imports products, Enis distributor Hashi, National Oil Corporation of Kenya, Swiss company Oryx Energies, Somali company Hass Petroleum and Mogas, the regional distributor of Castrol.
Kenya has several lubricant blending plants operated by Shell, Total, KenolKobil and Oilibya. Shells plant in Mombasa has capacity to blend 20,000 t/y, part of total capacity of 125,000 t/y spread around the continent in six locations.
Totals Shimanzi plant, also near Mombasa, has total output of 15,200 t/y including petrol and diesel engine oils, which combined account for 84 percent of output, and industrial and gear oils the rest. The plant blends lubricants with 85 solvent neutral, 150SN, 500SN, 600SN and bright stock base oils that it imports from France, from where it also gets additives from certified suppliers.
KenolKobils plant produces 7,200 t/y with another planned U.S. $10 million to $15 million 12,000 t/y unit to come on stream. Oilibya did not confirm the capacity of its blending plant in Mombasa.
Business Landscape
Recently, some lubricant manufacturers and suppliers have been improving market share by increasing production capacities, acquiring smaller market players or forming partnerships to leverage on their diverse synergies to survive the competition in the industry.
In early 2017, Total Kenya received government approval to acquire a 100 percent stake in all assets owned by Gulf African Petroleum Corp., transforming it into the largest oil marketing firm in Kenya. Total also acquired all of Gapcos assets in Uganda and Tanzania. These assets, which complement our activities in East Africa, will help us fully leverage synergies of size and build the most competitive integrated regional supply, logistics and marketing base, Total said in a statement.
Separately, Vivo Energy, owned by Switzerlands Vitol Group and the U.K.s Helios Investment Partners, announced in August 2017 a deal with MESA, the exclusive licensee of Midas, a vehicle maintenance services and multi-brand quick car servicing company, in 97 countries worldwide, including Kenya.
Similarly, Hass Petroleum, which holds a modest 0.4 percent share of Kenyas lubricants market, according to the Petroleum Institute of East Africa, announced in June 2017 it sold 40 percent of its shares to Oman Trading International, as the Kenyan oil marketing firm shifted focus to its strategic growth and expansion plans across the Eastern, Central and Horn of Africa.
Trade Flows
The government offers a reduction of import duty on base oils to 10 percent as an incentive to encourage local lubricant blending while imposing 25 percent import duty on finished lubricants. Figures from Kenyas National Bureau of Statistics show a decline in imports of lubricating oil and greases and as well as exports to Tanzania, Uganda, Rwanda and Burundi. Lubricating oils imports dropped to 8,200 tons in 2016 from 10,800 tons in 2015, and lubricating greases dropped to 2,600 tons from 2,800 tons imported in 2015. Lubricant exports to the rest of East Africa were estimated at 24,100 tons in 2016 compared with 29,100 tons the previous year.
While the incentive seems to be working, it may not be the whole story. The closure of the Kenya Petroleum Refineries Ltd, the only oil refinery in the country, may also be a factor.
With solid economic growth forecast in many industrial sectors, as well as consumer spending on autos, the outlook for Kenyas lube industry is positive for local and international companies – a bright spot in the landscape of stagnation in Europe.