Agricultural growth and economic diversification in Angola TEY_post_Sridhar-Krothapalli

Diversification is led by agricultural growth that is slowly replacing food imports, which is also saving foreign reserves.


Agricultural growth and economic diversification in Angola

September 8, 2022

Sridhar Krothapalli, CEO of Flo-Tek, talks to The Energy Year about the company’s products and their advantages for the oil and gas sector and the ongoing diversification of the Angolan economy. Flo-Tek produces PVC, CPVC and HDPE plastic pipes and fittings; rotomolded products; and packaging materials for Southern Africa.

What advantages do plastic pipes have over steel ones in industrial and extractive installations?
Plastic pipes are always useful for cost optimisation and for simplifying the installation process. Maintenance is also much easier, and fittings are cheaper. Regarding safety, both are equal. Nothing can be compromised with respect to safety, and all pipes meet the ISO standards. Angola will be introducing plastic piping installations for its hydrocarbons production.

What affects the utilisation of HDPE pipes in the Angolan oil and gas sector?
At present we are not selling these products to the oil industry because they are not using them in Angola. The Angola LNG project might change that. In Angola, the market still hasn’t opened up. Still, we are knocking on doors. To penetrate the oil and gas sector in Africa, we need to knock on doors in Europe. We created a team to specifically look after sectors related to oil and energy.
Generally, a change of mindset is needed. People don’t believe that products produced in Angola will satisfy their requirements, even though we have the international standard certifications. We have all the required ISO certifications, as we already supply World Bank-funded projects, AfDB [African Development Bank] projects and more.

What are Flo-Tek’s oil and gas credentials at the group level?
We have gas pipes in our portfolio, which come in different colours for different uses, are customised according to different requirements and are produced in South Africa under the ISO 4437 certification. However, we have the facilities to produce them in Angola too. We even qualify as a local content company.
Together with Angoflex, we were in the process of providing polyethylene fillers for underwater cables before development was stopped. Investments in these kinds of oil and gas projects were not happening before. Now we are looking to participate in new developments.
Penetrating the oil and gas market is a long process, but we have experience. We have solutions and successful models which have worked in Southern Africa and in [DR] Congo.
In South Africa, we produce HDPE and PVC pipes and oil and gas products. We have a five-year exclusive agreement with Sasol for the chlorinated process in the steel pipes with plastic pipes for oil application. We make the plastic pipes that go inside the steel pipes. We have supplied gas pipes for Egoli in South Africa. In Congo, the majority of the pipes used in the mining sector are from Flo-Tek.


What is Flo-Tek’s current relationship with the oil and gas sector?
We have experience in servicing the oil and gas sector. We collect plastic waste from oil operations and recycle it. We are engaged with Angola Environmental Serviços, a local waste management company that cleans waste plastic. We reprocess and reuse the plastic. We work with all the companies here, from the service providers to oil operators such as TotalEnergies, BP, Pumangol and Sonangol group companies.
We understand the local business language in Angola. We want to position ourselves as a solution provider for environmental services. We do water treatment for sewage. We manufacture garbage bins, collection bins and other sanitary products. Piping is our largest line. We are willing to invest in new products, and we want to serve the energy industry in the long term. 2023 is going to be our 20th anniversary in Angola.
We have international partners. We are financially sound. We are the largest pipe manufacturer in southern Africa, and we can proudly say that. When the door is open in oil and gas, we won’t focus on just one product. Rather we will provide much more than what they require.

What products of yours are being used by the power and energy sector?
We are involved in anything related to water networks and dams. Aside from piping for dams, we are also present in construction producing black plastic covers called geomembranes. These are key for large dams, but most importantly they will be a key product for building mini-dams across the country, which the government wants for powering small off-grid populations.
There are very few companies in Africa that provide geomembranes. Currently, these geomembranes are being supplied from our South African unit, but we also have plans to manufacture them in Angola, and the reason we do is that we found a good market.

How do you assess the country’s economic diversification process and its relation to the energy sector?
Foreign reserves have clearly improved, with oil trading above USD 100 per barrel. With the help of the IMF and programmes such as PRODESI [the Production Support, Export Diversification and Import Replacement Programme], which aims to finance production initiatives at a reasonable cost, this government has worked to diversify the economy, and it’s really happening on the ground. Diversification is led by agricultural growth that is slowly replacing food imports, which is also saving foreign reserves. Normally the oil is exported, and the foreign reserves bring basic food items to Angola. Angola aims to reduce that trade deficit. For the first time, the Angolan kwanza is the best-performing currency in the world, and while inflation spikes all over the world, Angola has had its lowest-ever inflation in the last five years. As economic diversification continues, the dependence on oil is going to decrease – not on gas, but on oil, it will certainly decrease. As per the 2030 Climate Target Plan, the reduction of the national carbon footprint will lead to the development of renewable energies on a large scale.
Recently we’ve seen a huge improvement in the ease of doing business and a reduction in red tape. Now it’s much easier to establish a company in the country, and most processes are channelled through AIPEX [Angolan Agency for Private Investment and Promotion of Exports]. Angola is also rightfully opening up for the exploitation of minerals.

What were the main business drivers leading to Flo-Tek’s growth in the aftermath of the Covid-19 pandemic?
In Angola, we employ 400 people directly and indirectly. Across the board in 2019, we were growing at almost 30% across the packaging industry. Then the pandemic set us back to 15-20% growth, even during the recession. The margins shrank, but we have expanded and diversified our portfolio. We started a food plastic packaging division too, which has helped us sustain growth levels.
Private investment coming into agriculture has significantly increased, and it has played a major role in our business. For agriculture, we manufacture HDPE, PVC and PPR pipes. We also produce flat pipes and drip irrigation pipes, and we import full-drip irrigation, sprinkler irrigation and pivot irrigation systems. We are a one-stop solution for agriculture.
The major part of our irrigation products is developed in-house, and it helped us improve our sales during the pandemic. 2022 is going to be our best year in the last 20 years. We are almost six months into 2022, and we have almost reached 2021’s revenue already.

What are the variables affecting Angola’s competitiveness as a manufacturing hub?
If there is foreign exchange stability here, we can do much more. The cost of manufacturing in Angola used to be the highest in Africa, but now this has decreased.
If I want any loan or overdraft facility, I need to pledge my property. And why should I do that for an interest rate of 26%? In Botswana, we pay from prime minus 2%. The interest rate is between 3.5% and 3.7% for us. In South Africa, we pay 7% .
The availability of foreign currency is also a variable that defines our export and import capacity and it is becoming more stable. Our raw material is a commodity that is strongly affected by exchange rate fluctuations, constantly affecting our base cost. Nevertheless, we make extra efforts not to change the value in our existing quotations when this happens.

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