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01/03/2024by EOS Intelligence EOS Intelligence No Comments

Lithium Discovery in Iran: A Geopolitical Tool to Enhance Economic Prospects?

Iran possesses significant mineral reserves, but its mining industry grapples with issues, including machinery shortages and international sanctions. The recent lithium discovery in Iran holds the potential to boost its mining sector and economy, depending on the viability of lithium extraction and processing, as well as geopolitical factors. It can serve as a bargaining chip to lift sanctions imposed by the Western world. China is poised to benefit the most from Iran’s lithium discovery due to its strategic partnership and expertise in lithium refining and extraction technologies. However, despite Iran’s strong mining potential, high infrastructure costs, technological limitations, and sanctions hinder its mining industry development.

Lithium discovery to help drive mining industry and economic upliftment in Iran

Iran is home to more than 7% of the world’s total mineral reserves and is rich in minerals, including zinc, copper, iron ore, coal, and gypsum. However, Iran’s mining industry is still nascent and barely contributes to economic growth due to a lack of necessary machinery and equipment as well as international sanctions.

In the past, Iran exported various minerals, such as iron ore, zinc, and copper, to Western countries. However, prolonged international sanctions, initially imposed in 2006 to restrain Iran’s nuclear development program, resulted in insufficient investment in the mining sector.

Lithium Discovery in Iran, a Geopolitical Tool to Enhance Economic Prospects by EOS Intelligence

Announced in March 2023, the discovery of lithium deposits holding up to 8.5 million tons of lithium in Iran, if proven accurate, is expected to strengthen the country’s mining sector and overall economic growth. Iran is the first country in the Middle East to discover lithium deposits.

Lithium is a crucial component of lithium-ion batteries used in smartphones and electric vehicles. The increasing adoption of electric vehicles is fueling the demand for lithium at a significant rate globally. There is a great need to scale up lithium mining and processing to meet the demand, particularly for the manufacturing of electric vehicles.

International Energy Agency (IEA), in its global EV outlook for 2022, indicated that about 50 new average-sized mines need to be built to fulfill the rising lithium demand for electric vehicles and meet international carbon emission goals. There are already signs of lithium shortage as demand for lithium increases globally. The lithium reserve found in Iran holds the potential to reverse the lithium supply shortage into surplus in the coming years.

Read our related Perspective:
Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage

Hope for the lifting of sanctions and reestablishment of diplomatic relations

The lithium discovery in Iran is expected to redirect focus toward mining activities in the Middle East. Iran can leverage this discovery to persuade Western nations, such as the USA and the EU countries, to lift sanctions imposed for its nuclear program, support for terrorism, and human rights violations. These sanctions include restrictions on Iran’s access to the global financial system, travel bans on targeted individuals and entities involved in concerning activities, and limitations on trade in certain goods and technologies.

In August 2023, Iran and the USA reached an agreement wherein Iran intended to release detained Americans in exchange for the release of several imprisoned Iranians and access to frozen financial assets. Fulfillment of commitments demonstrates mutual trust among the countries, which could pave the way for improved relations, reduced tensions, and future diplomatic initiatives. The US government also permitted Iran to enrich uranium up to 60%. This can be interpreted as allowing Iran to meet their nuclear aspirations, which could encourage Iran to comply with the agreement signed with the USA. As cooperation and trust between the nations strengthen, this agreement could ease sanctions. Moreover, if relations continue to improve, Iran could potentially seek assistance from the USA for its lithium venture.

Also, in March 2023, Saudi Arabia and Iran, with the help of China, reached an agreement to resume their diplomatic relations, re-open embassies, and implement agreements covering economy, investment, trade, and security. With the reestablishment of cordial relations, Saudi Arabia is likely to engage in joint ventures within Iran’s mining sector, providing mutual benefits for both nations.

It can also be expected that India will seek to strengthen its ties with Iran by building strong collaborations to ensure a regular lithium supply, considering that India is one of the largest importers of lithium-ion batteries. Iran and India share strong and multifaceted relations across various areas, such as trade, energy, connectivity, culture, and strategic cooperation. As India strives to transition to renewable energy sources and reduce its carbon footprint, access to lithium reserves from Iran could facilitate the development and deployment of energy storage solutions, such as grid-scale batteries and off-grid systems.

Potential to disrupt the global lithium race and geopolitical relations

The announcement of lithium deposits in Iran is likely to impact the global competition for lithium resources significantly. It holds the power to disrupt the existing power dynamics in the global lithium race, as it is estimated to be the second-largest lithium reserve in the world after Chile.

Many countries compete to control lithium supply chains due to its strategic importance, particularly in the EV industry. A few countries dominate the global lithium production, including Australia, Chile, and China. The emergence of Iran as a significant lithium producer could diversify the global supply chain. China, the largest importer and processor of lithium and manufacturer of lithium batteries, holds a substantial share of the lithium market. China is particularly reliant on foreign lithium suppliers, including Australia, Brazil, Canada, and Zimbabwe, accounting for around 70% of its total lithium imports.

With China’s well-established economic and political relations with Iran, there is potential for collaborative ventures in the clean energy transition supply chain. In addition, China’s expertise in technological advancements in lithium-related technologies, particularly lithium-ion battery manufacturing, purification and refinement of lithium, battery management systems, and development of battery materials, will likely play a crucial role in gaining access to Iranian lithium. Increased access to lithium will reduce its dependence on the current lithium suppliers and gain dominance in the lithium supply, impacting the trade balance and economic growth of countries supplying lithium to China.

At the same time, Australia, which stands out as China’s current primary source of lithium, exporting around 90% of its lithium to China, might encounter political and economic challenges. Australia, being a close ally of the USA, is likely to face pressure to curb its lithium exports to China, aiming to limit China’s access to sources of lithium. Chile, also being the key supplier of lithium to China, may face similar pressure from the USA. The USA is likely to exert such pressures, as China’s strong position could undermine the USA’s technological competitiveness and leadership in the EV market, accelerating the existing tensions and disrupting power dynamics in the global lithium race.

Major influencing countries such as the USA, Canada, France, Japan, Australia, the UK, and Germany also formed the Sustainable Critical Minerals Alliance in 2022. The alliance aims to secure supply chains of critical minerals, including lithium, nickel, and cobalt, from countries with more robust environmental and labor standards to reduce dependency on China. Such initiatives are expected to impact China’s dominant global lithium supply chain position.

Inevitably, Iran’s lithium discovery and China’s potential involvement in securing access to the resource can influence international relations, particularly between China and the USA, and China and Australia.

China to deepen ties with Iran

China and Iran have established an extensive partnership focused on China’s energy needs and Iran’s abundant resources. China has remained Iran’s primary trading partner for more than a decade. Their relationship grew stronger, specifically after the USA pulled out of the nuclear agreement and reintroduced sanctions on Tehran in 2018. Both China and Iran are confronted with sanctions from the USA, which is expected to strengthen collaboration between the two to mitigate the impact of sanctions and to counterbalance US influence in the Middle East and Asia.

In March 2021, China and Iran signed a 25-year strategic collaborative agreement to reinforce the countries’ economic and political alliance, particularly focusing on investment in Iran’s energy and infrastructure industry and assuring regular oil and gas supply to China. This is expected to further strengthen the relations between Iran and China.

China, the most trusted strategic ally of Iran and a significant lithium producer will likely act as a critical partner in building up Iran’s lithium industry. As the global leader in electric vehicle adoption (in absolute terms), the demand for lithium in China has increased dramatically in recent years. Also, China stands out as the only trade partner capable of accessing and refining lithium on a large scale. This will strengthen the Iran-China relations further.

High infrastructure costs and lack of FDI to challenge the Iranian mining sector

Despite the presence of a vast mining potential in the country, certain factors such as inadequate access to essential machinery and equipment, lack of exploration facilities, lack of sufficient infrastructure and investment, absence of advanced technologies, and shortage of financial resources limit the growth of the mining sector in Iran.

Lack of access to new cutting-edge production technologies, exacerbated by international sanctions, results in inefficient utilization of resources, particularly water, fuel, and electricity in mining operations. In addition, high production costs, mandatory pricing, and lack of skilled labor further pose obstacles in mining operations. This, together with the fact that the lithium extraction process is generally expensive and time-consuming, has led to various small and medium-sized mines opting to cease their operations.

The absence of foreign investment due to international sanctions poses challenges in conducting mining operations in the country. The government seeks to attract foreign investment in the mining sector, a difficult task amid structural challenges, human rights abuse accusations, and international sanctions.

Exploitation of lithium reserves discovered in the country will be difficult due to the lack of advanced technologies required for extraction, processing, and refining. The assessment of lithium grade and its economic feasibility will play a crucial role in determining whether to exploit the reserve.

EOS Perspective

The scale of lithium reserves discovered in Iran is significant, but the exploitation of the mineral is not likely to happen in the near future. Its viability, economic feasibility, actual quantity, and grade are yet to be ascertained. Also, the country does not have access to the necessary technologies required to process and refine lithium, so it has to rely on foreign investors.

Foreign investment in Iran is hindered by the sanctions imposed by the USA and the EU against Iran’s nuclear development program. Back in 2015, Iran agreed to scale down its nuclear program and allow broader access to international inspections to its facilities in return for billions of dollars in sanctions relief. But that ended in 2018 when the USA withdrew from the deal. With the recent agreement signed in 2023, there is hope that it could pave the way for the relaxation of sanctions on Iran.

Additionally, considering lithium’s pivotal role in multiple industries and concerns about China’s dominant power in the lithium supply chain, the US government might consider easing sanctions. EU is not likely to ease or lift sanctions and invest in Iran immediately due to uncertainties about the viability of the reserve, its impact on the environment during extraction, and lack of energy investments in the country. However, the EU may consider easing sanctions in the future if the USA moves in that direction.

Russia and China, having economic and diplomatic ties with Iran, are more likely to show interest in Iran’s lithium discovery. Russia is focusing on expanding its presence in the lithium market to meet the increasing demand for lithium in vehicles and energy storage systems. As a step in this direction, in December 2023, Rosatom, a Russian state corporation, signed a deal to invest US$450 million in Bolivia to construct a pilot lithium plant. Russia is also likely to explore investment opportunities in Iran’s lithium sector.

China is expected to benefit the most from the lithium discovery in Iran, considering its longstanding relations with Iran. At the same time, Iran is also more likely to be eager to collaborate with China, considering China’s strength in the lithium industry and international sanctions.

However, Iran should not solely rely on China, considering China’s track record of engaging in debt-trap diplomacy to exert influence and dependence, particularly over low-income countries. For instance, in 2013, China launched its infamous Belt and Road Initiative (BRI), under which it started funding and executing several infrastructure projects in developing and underdeveloped countries across the globe. However, over the years, the BRI initiative has been criticized for resulting in an increased dependence and trapping of the partner countries in heavy debt through expansive projects, non-payment of which may lead to a significant economic and political burden on them. A collaborative agreement spanning 25 years was also signed by China with Iran, primarily focusing on investing in Iran’s energy and infrastructure sectors, facilitating Iran’s involvement in the BRI. Iran could also fall into a similar debt trap, having no viable alternative partner, a fact that China can take advantage of.

Read our related Perspective:
China’s BRI Hits a Road Bump as Global Economies Partner to Challenge It

Many countries are likely to be interested in investing and building strong collaboration with Iran if the reserves’ viability is confirmed and the grade and quality of lithium are suitable for use. This could change the entire dynamics of the lithium supply chain and also lead to a decrease in lithium prices, which have been skyrocketing due to a significant surge in global lithium demand.

21/02/2024by EOS Intelligence EOS Intelligence No Comments

Vaccines in Africa: Pursuit of Reducing Over-Dependence on Imports

Pandemics such as COVID-19, Ebola, and the 2009 influenza instilled the need for a well-equipped domestic vaccine manufacturing industry in the minds of African leaders. Currently, due to insufficient local production, the continent depends heavily on imports from other countries, with the imports satisfying about 99% of vaccine demand in the continent. However, thanks to recent significant FDI, the vaccine industry in Africa had a market potential of around US$1.3 billion as of 2021 and is expected to range between US$2.3 billion and US$5.4 billion by 2030, as per McKinsey estimates.

Vaccine sovereignty is the need of the hour for the African continent

One of the most important lessons the COVID-19 pandemic has given to Africa is the pressing need to ramp up vaccine production locally. Biotech firms, such as Moderna and Pfizer, developed COVID-19 vaccines faster than any other producers. However, these vaccines were not easily accessible to most African countries.

Africans, in general, lack access to affordable and quality healthcare. Preventable diseases, such as pneumonia, malaria, and typhoid fever, have high fatality rates across the continent. This calls for localized production of pharmaceuticals and vaccines to lower the economic burden of these diseases and facilitate better access to affordable healthcare.

Currently, Africa relies heavily on other countries, such as China and India, for its pharmaceutical needs. The paucity of localized pharma production aggravates healthcare and vaccine inequity across the continent. To substantiate this, the COVID-19 vaccination rate at the beginning of 2022 in 16 African countries was less than 5% on average.

Currently, Africa consumes around 25% of the global vaccine production, whereas it produces less than 1% of its vaccine needs locally, as per the African Union (AU). Therefore, a lot remains to be done to materialize the goal of achieving 60% of vaccine needs to be satisfied locally by 2040, the vision of the Partnerships for African Vaccine Manufacturing (PAVM) under Africa CDC.

Increasing the vaccine production capacity from 1% to 60% in 15-16 years is not an easy task. Considering this, PAVM designed a continental plan for creating a vaccine production ecosystem capable of achieving the 60% target. This plan, called the PAVM Framework for Action (PAVM FFA), assessed that the African vaccine manufacturing industry would be expected to have increased the number of their vaccine production factories from 13 in 2023 to 23 (11 form, fill, finish, or F&F factories and 12 end-to-end factories) by 2040 providing a total of 22 priority products by 2040. It will require dedicated efforts from all involved stakeholders, such as producers, biopharma companies, industry associations, regulatory bodies, and academia.

Vaccines in Africa Pursuit of Reducing Over-Dependence on Imports by EOS Intelligence

Significant FDI will aid in driving localized vaccine production in Africa

The continent is attracting considerable FDI from the USA and Europe for vaccine development. Several foreign biotechnology firms are partnering with African governments to venture into localized vaccine production.

In March 2023, US-based biotechnology company Moderna partnered with the Kenyan government to set up a production facility for making messenger RNA (mRNA). The proposed annual capacity of Moderna’s first-ever facility in Africa is around 500 million doses of vaccines. The facility is expected to produce drug substances or active pharmaceutical ingredients and the final product for the entire continent.

In another example, a Germany-based biotechnology company, BioNTech, is contemplating commencing production of mRNA-based vaccines in its Rwanda facility in 2025. The construction of the facility began in 2022. With an investment of around US$150 million, this is Africa’s first mRNA manufacturing facility built by a foreign company. The proposed annual capacity of BioNTech’s mRNA facility is about 50 million vaccine doses. BioNTech also plans to set up mRNA factories in other African countries, such as South Africa and Senegal, and plans to produce vaccines for malaria, tuberculosis, HSV-2, and HIV in the future.

In September 2023, the South African government partnered with the KfW Development Bank of Germany. As per the agreement, South Africa will receive €20 million from Germany’s KfW Development Bank over five years for developing and manufacturing mRNA vaccines. The fund will be utilized for equipment procurement and API certification for vaccine production in South Africa.

A consortium of the Global Alliance for Vaccines and Immunizations (GAVI), AU, and Africa CDC established the African Vaccine Manufacturing Accelerator (AVMA) with the intent of fostering a sustainable vaccine industry. The formation of AVMA involved donors, partners, industry stakeholders, and non-governmental and not-for-profit organizations. GAVI planned to expand its supplier base, mainly in Africa, in 2021. Furthermore, the global alliance announced the commencement of around 30 vaccine manufacturing projects across 14 African countries.

Moreover, as of December 2023, over US$1.8 billion is planned for investment by a collaboration between the French government, Africa CDC, and other European and international investors to streamline the development and production of vaccines across the continent.

Desire to ensure vaccine effectiveness is seen as a biased vaccine preference

African governments are not only proactively putting in dedicated efforts to attract considerable FDI to build and strengthen the continent’s vaccine manufacturing industry, but they also focus on good quality, effective vaccine types. However, some perceive this as a lack of interest from the African governments to buy non-mRNA vaccines made by local companies.

For example, Aspen Pharmacare, a South Africa-based biotechnology company, put significant investments in ramping up the capacity of its manufacturing facility to produce viral vector vaccines against COVID-19. The company announced in November 2020 that it would be formulating, filling, and packaging the COVID-19 vector vaccine made by J&J. It also received €1.56 million investment from Belgian investors, BIO, the Belgian Investment Company for Developing Countries, which is a JV between the European Investment Bank (EIB) and several European DFIs.

However, millions of J&J COVID-19 vaccine doses made in South Africa were exported to Europe by J&J without the knowledge of the South African government, to support Europe’s domestic vaccine demand in August 2021, not complying with the initial agreement of vaccine distribution within the African continent. This created a political impasse between European and African governments over the distribution of the vaccines, which, in turn, delayed their production as the standoff resulted in a long waiting time for Aspen Pharmacare to produce the COVID-19 vaccine.

Ultimately, by September 2021, the European countries agreed to return 90% of the J&J vaccines to Africa. In March 2022, J&J gave Aspen Pharmacare the license to manufacture and distribute the vaccine under its brand name, Aspenovax. The expected production capacity of Aspenovax was around 400 million doses. However, not a single order came from African governments.

According to Health Policy Watch News, the reason for this was the rising production of Pfizer and Moderna’s mRNA COVID-19 vaccine distributed by COVAX that was being opted for by most African governments. Thus, in August 2022, Aspen Pharmacare had to close its production line, stating non-existent demand in Africa, partly due to the subsidence of the pandemic and partly due to African governments’ lack of interest in non-mRNA vaccines. The company could not sell a single dose of the vaccine, owing to multiple factors, starting from what was perceived as the lack of government’s intent to purchase home-grown vaccines to delayed production due to the Europe-Africa political clash and the rising inclination of the world towards mRNA vaccines.

It is interesting to note that of the total Covid-19 vaccines Africa administered to its residents, 36% were J&J vector vaccines, shipped directly from the USA.

Technology transfer hub and know-how development initiatives are set

To strengthen vaccine production capacity in low- and middle-income countries (LMICs), the WHO declared the establishment of a technology transfer hub in Cape Town, South Africa, in June 2021. In February 2022, WHO said that Nigeria, Kenya, Senegal, Tunisia, and South Africa will be among the first African countries to get the necessary technical expertise and training from the technology transfer hub to make mRNA vaccines in Africa.

Afrigen Biologics, a South Africa-based biotech firm, is leading this initiative. As Moderna did not enforce patents on its mRNA COVID-19 vaccine, Afrigen Biologics could successfully reproduce the former company’s vaccine, capitalizing on the data available in the public domain. As per an article published in October 2023, Afrigen Biologics reached a stage where its vaccine production capabilities are appropriate for “phase 1/2 clinical trial material production”. Additionally, in collaboration with a Denmark-based biotech firm, Evaxion, Afrigen is developing a new mRNA gonorrhea vaccine.

Besides setting up a technology transfer hub in South Africa, academic institutions are partnering with non-profits as well as companies to reinforce the development of necessary technical know-how and training required for vaccine manufacturing. One such example is the development of vaccines in Africa under the partnership of Dakar, Senegal-based Pasteur Institute (IPD), and Mastercard Foundation. Approved in June 2023, the goal of MADIBA (Manufacturing in Africa for Disease Immunization and Building Autonomy) includes improving biomanufacturing in the continent by training a dedicated staff for MADIBA and other vaccine producers from Africa, partnering with African universities, and fostering science education amongst African students.

Read our related Perspective:
Inflated COVID-19 Tests Prices in Africa

Although significant initiatives are underway, challenges exist

With 13 vaccine manufacturing companies and academic organizations across eight African countries, the continent’s vaccine industry is in its infancy. However, the current vaccine manufacturing landscape includes a mix of facilities with capabilities in F&F (10 facilities), R&D (3 facilities), and drug substance (DS) or active pharmaceutical ingredients (API) development (5 facilities).

One of the challenges African vaccine producers face is not being able to become profitable in the long run. In 2023, a global consulting firm, BCG, in collaboration with BioVac, a South Africa-based biopharmaceutical company, and Wellcome, a UK-based charitable trust that focuses on research in the healthcare sector, conducted a detailed survey exploring stakeholder perspectives on challenges and feasible solutions. The respondent pool consisted of a diverse set of stakeholders spanning across Africa (43%), LMICs (11%), and global (46%). A total of 63 respondents from various backgrounds, such as manufacturers, industry associations, health organizations, regulators, and academic organizations, were interviewed across the regions above. According to this research, most vaccine producers in Africa who were interviewed said that profitability is one of their key concerns. This leads to a lack of foreign investments required for scaling up, which in turn creates insufficient production capacity, thereby increasing the prices of vaccines. Therefore, these producers are unable to meet considerable demand for their products, and their business model becomes unsustainable.

Continued commitment and support from all stakeholders are necessary for achieving a sustainable business model for vaccine producers in Africa and, consequently, for the industry at large. However, it has been observed that the support from global, continental, and national levels of governments and other non-government stakeholders, such as investors, donors, partners, etc., tend to diminish with the declining rampage caused by epidemics in Africa. Therefore, this poses a severe challenge to strengthening the vaccine production industry in Africa.

In another 2023 study, by a collaboration between the African CDC, the Clinton Health Access Initiative (CHAI), a global non-profit health organization, and PATH, formerly known as the Program for Appropriate Technology in Health, involving 19 vaccine manufacturers in Africa, it was suggested that the current vaccine production capacity including current orders to form/fill/ finish using imported antigens is nearly 2 billion doses. In contrast, the current average vaccine demand is 1.3 billion doses annually. In addition, there is a proposed F&F capacity of over 2 billion doses. Thus, if Africa can materialize both current and proposed plans of producing F&F capacity vaccines from imported antigens, the study concludes that the continent will reach a capacity of more than double the forecasted vaccine demand in 2030. Overcapacity will lead to losses due to wastage. Thus, not all vaccine producers will be profitable in the long term. This may challenge the African vaccine manufacturing industry to be profitable.

Moreover, Africa’s current domestic antigen production capacity is lower than what is required to meet PAVM’s vaccine production target of 60% by 2040. In addition, a large part of the existing antigen capacity is being utilized to make non-vaccine products. Although antigen production plans are underway, these will not suffice to narrow the gap between demand and production of antigens domestically in Africa.

EOS Perspective

To create a local, financially sustainable vaccine manufacturing industry with output adequate to support the continent’s needs, it is necessary to create an environment in which producers can achieve profitability.

Initiatives such as technology transfers and funding will only be fruitful when their on-the-ground implementation is successful. This will require the involvement of all stakeholders, from the state governments to bodies that approve the market entry of vaccines. All stakeholders need to be steadfast in their actions to achieve the ambitious target of 60% of vaccine needs to be met from local production by 2040 without compromising on the accuracy and quality of the vaccines.

One of the most vital aspects of the necessary planning is for stakeholders to ensure that even after the pandemic and its aftermath are entirely gone, the effort towards establishing facilities, creating know-how, and training a workforce skilled in vaccine development and production does not stop.

The focus should extend beyond COVID-19, as there are many other preventable diseases in Africa, such as malaria, pneumonia, tuberculosis, and STDs, against which vaccines are not yet produced locally. These areas provide a great opportunity for vaccine producers and associated stakeholders to continue being interested and involved in vaccine production and development in Africa.

Inflated COVID-19 Tests Prices in Africa Why and What Now by EOS Intelligence

13/10/2023by EOS Intelligence EOS Intelligence 1 Comment

Inflated COVID-19 Test Prices in Africa: Why and What Now?

With the subsidence of COVID-19 and the announcement of the ending of the Global Health Emergency by WHO in May 2023, the world has started to move on and embark on its path back to pre-COVID normalcy. However, some of the lessons the pandemic has brought are hard to forget. One such lesson, and more importantly, an issue that demands attention and action, is the prevalent price disparity of COVID-19 tests in low-income regions of the world, such as Africa, compared to some more affluent countries, such as the USA.

High test prices across Africa, in comparison with prices in more developed parts of the world, such as the USA, have become evident after the onslaught of COVID-19 on the African continent. To illustrate this with an example, the average selling price of SD Biosensor’s STANDARD M nCoV Real-Time Detection kit comprising 96 tests per kit in the USA is US$576 compared to US$950 in African countries. This translates to a unit price of US$6 in the USA compared to US$9.9 in African countries, amounting to a 65% difference between the price points in the two regions. The price disparity in Africa vis-à-vis the USA ranges from +30% to over +60% in the case of PCR-based COVID-19 tests in our sample when compared to the prices of the same products that are being sold in the USA. This leads to the crucial question of why these tests are so costly in a place where they should be sold at a lower price, if not donated, owing to the continent’s less fortunate economic standing.

The Why: Reasons for inflated price in Africa

Several factors, such as Africa’s heavy dependence on medical goods imports, a limited number of source countries exporting medical goods to the continent, paucity of local pharma producers, higher bargaining power of foreign producers enabling them to set extortionate prices, shipping and storage costs, and bureaucratic factors drive the inflated prices of COVID-19 test kits in African countries.

Africa is heavily dependent on imports for its diagnostic, medicinal, and pharma products. To elucidate this, all African countries are net importers of pharma products. Additionally, the imports of medicines and medical goods, such as medical equipment, increased by around 19% average annual growth rate during the span of 20 years, from US$4.2 billion in 1998 to US$20 billion in 2018.

In 2019, medical goods accounted for 6.8% of total imports in Sub-Saharan Africa (SSA), whereas they accounted for only 1.1% of exports. The SSA region experiences a varied dependence on the imports of medical goods. This is evident from the fact that Togo and Liberia’s share of imports of medical goods was around 2%, while that of Burundi was about 18% in 2019.

The 2020 UNECA (United Nations Economic Commission of Africa) estimates suggest that around 94% of the continent’s pharma supplies are imported from outside of Africa, and the annual cost is around US$16 billion, with EU-27 accounting for around 51% of the imports, followed by India (19%), and Switzerland (8%). This means that only 6% of the medicinal and pharma products are produced locally in the African continent, creating a situation where foreign producers and suppliers have drastically higher bargaining power.

This became particularly evident during the 2020-2022 COVID-19 pandemic, when the demand for COVID-19 tests was extremely high compared to the supply of these tests, making it easier for foreign suppliers to set an exploitative price for their products in the African continent.

The lack of competition and differentiation in the region aggravated the situation further. There are only a handful of suppliers and producers in the continent that provide COVID-19 tests. To elucidate this further, there were only 375 pharmaceutical producers in the continent as of 2019 for a population of over 1.4 billion people. When compared with countries with similar populations, such as India and China, which have around 10,500 and 5,000 pharmaceutical companies, respectively, the scarcity in the African continent starts to manifest itself more conspicuously. To illustrate this further, only 37 countries in Africa were capable of producing medicines as of 2017, with only South Africa among these 37 nations able to produce active pharmaceutical ingredients (APIs) to some extent, whereas the rest of the countries had to depend on API imports.

Furthermore, the SSA region gets medical goods supplies from a small number of regions, such as the EU, China, India, the USA, and the UK. As of 2019, over 85% of the medical goods that were exported to SSA were sourced from these five regions. It is interesting to note that the source countries slightly differ for the SSA region and the African continent as a whole, with the EU and India being the common source regions for both. With a 36% share in all medical goods imports to the African continent in 2019, the EU is the top exporting region of medical goods to SSA, albeit with a declining share over the last few years. India and China share the second spot with a 17-18% share each in all medical goods imports supplied to SSA in 2019. Considerable concentration is observed in the import of COVID-19 test kits to SSA, with a 55% share in all medical goods imports supplied by the EU and a 10% share by the USA in 2019.

To provide a gist of how the above-mentioned factors attributed to the inflated prices of COVID-19 tests in the region, Africa’s medical goods industry, being import-driven, is heavily dependent on five regions that supply the majority of the medical goods needs of SSA. In addition to this, the scarcity of local pharma producers across the continent aggravated the situation further. This, in turn, gave an opportunity for foreign producers to charge a higher price for these COVID-19 tests in Africa.

Additionally, storage and shipping costs of COVID-19 tests also play a significant role in the pricing of these tests. The actual share of shipping and storage costs is difficult to gauge owing to the fact that there is not enough transparency in disclosing such pieces of information by test producers and suppliers.

Another aspect contributing to the inflated prices of these tests in African countries is bureaucratic factors. According to Folakunmi Pinheiro, a competition law writer based in Cambridge, UK, some African state governments (such as in Lagos) take exorbitantly high cuts on the sale of COVID-19 tests, allowing labs to keep no more than 19-20% of the profits per test after covering their overhead costs such as electricity, IT, logistics, internet, salary, and consumables costs including PPE, gloves, face masks, etc.

Since labs in Africa must purchase these tests from foreign producers, they have limited room for maneuvering with their profit margin, given the high test price and the cuts imposed by the local governments. Pinheiro further simplifies the profits in absolute terms. The cost of a PCR-based COVID-19 test, analyzed in laboratories (not at-home tests), in Lagos in February 2022 was around NGN45,250 (~US$57.38), and the labs selling and performing these tests on patients would make a profit of around NGN9000 (~US$11.41) per test which translates to 19.89% of the total cost of the single test. It is believed that this profit is after the overhead costs are covered, implying that the majority of the profits go to the state government of Lagos.

Inflated COVID-19 Tests Prices in Africa Why and What Now by EOS Intelligence

The What Now: Reactions

To combat the inflated prices of COVID-19 tests developed by foreign producers, many African price and competition regulatory organizations undertook efforts to reduce the prices of these tests to a significantly lower level in their respective countries. While R&D was ongoing for the making of groundbreaking low-priced alternative testing technologies that were ideal for African climate and economic conditions, many academic institutes tied up with foreign companies to launch these tests in the African markets. Additionally, the African Union (AU) and Africa CDC had set new goals to meet 60% of the vaccine needs of the continent domestically by fostering local production by 2040. Lastly, many African countries were able to eliminate or reduce import tariffs on medical goods during the pandemic for a considerable amount of time.

From price or competition regulatory bodies

As a response to the high PCR-based COVID-19 test prices in South Africa, the country’s Competition Commission (CCSA) was successful in reducing the prices for COVID-19 testing in three private laboratories, namely Pathcare, Ampath, and Lancet by around 41%, from R850 (~US$54.43) to R500 (~US$31.97) in January 2022. The CCSA asked these private clinical laboratory companies for financial statements and costs of COVID-19 testing as part of the investigation that started in October 2021. CCSA further insisted on removing the potential cost padding (an additional cost included in an estimated cost due to lack of sufficient information) and unrelated costs and thus arrived at the R500 (~US$31.97) price. Furthermore, the CCSA could significantly reduce the price of rapid antigen tests by around 57% from R350 (~US$18.96) to R150 (~US$8.12). However, it is believed that there was still room for further reduction in rapid antigen test price because the cost of rapid antigen tests in South Africa was around R50 (US$2.71). Although the magnitude to which this price reduction was possible is hard to analyze owing to the fact that there was not enough transparency in revealing the cost elements by these test producers.

From local producers, labs, and academia-corporate consortia

The fact that Africa is a low-income region with lower disposable income compared with affluent countries, in addition to its unfavorable climate, has driven local scientists to develop alternative, low-cost testing solutions with faster TAT and minimal storage needs.

African scientists were believed to have the potential to develop such cheaper COVID-19 tests, having had the necessary know-how gained through the development of tests for diseases such as Ebola and Marburg before. The high prices of COVID-19 tests in the African markets have compelled local universities to tie up with some foreign in-vitro diagnostic (IVD) producers to develop new, innovative, low-cost, alternative technologies.

To cite an example, the Senegal-based Pasteur Institute developed a US$1 finger-prick at-home antigen test for COVID-19 in partnership with Mologic, a UK-based biotech company. This test does not require laboratory analysis or electricity and produces results in around 10 minutes. This test was launched in Senegal as per a December 2022 publication in the Journal of Global Health. Although this test’s accuracy cannot match the high-throughput tests developed by foreign producers, the low-cost COVID-19 tests proved to be useful in African conditions where large-scale testing was the need of the hour and high-temperature climate was not conducive to cold storage of other types of tests.

Countries such as Nigeria, Senegal, and Uganda tried to increase their testing capacity with their homegrown low-cost alternatives as the prices of the tests developed by foreign manufacturers were exorbitantly high. Senegal and Uganda stepped up to produce their own rapid tests, while in remote areas of Nigeria, field labs with home-grown tests were set up to address the need for COVID testing that remained unaddressed because of the high prices of the foreign tests.

Dr. Misaki Wayengera, the pioneer behind the revolutionary, low-cost paper strip test for rapid detection of filoviruses including Ebola and Marburg with a TAT of five minutes, believes that a low-cost, easy-to-use, point-of-care (POC) diagnostic test for detecting COVID-19 is ideal for equatorial settings in Africa providing test results within a shorter time span while the patient waits. He spearheaded the development of a low-cost COVID-19 testing kit with a TAT of one to two minutes, along with other Ugandan researchers and scientists.

From the African Union and CDC Africa

As an aftermath of the adversities caused by the COVID-19 pandemic, the African Union (AU) and African Centers for Disease Control and Prevention (CDC Africa) put forth a goal of producing 60% of Africa’s vaccine needs locally by 2040. A US$ 45 million worth of investment was approved in June 2023 for the development of vaccines in Africa under the partnership of Dakar, Senegal-based Pasteur Institute (IPD), and Mastercard Foundation. The goal of MADIBA (Manufacturing in Africa for Disease Immunization and Building Autonomy) includes improving biomanufacturing in the continent by training a dedicated staff for MADIBA and other vaccine producers from Africa, partnering with African universities, and fostering science education amongst students in Africa.

Additionally, the US International Development Finance Corporation (DFC), in partnership with the World Bank Group, Germany, and France, announced in June 2021 a joint investment to scale up vaccine production capacity in Africa. The investment was expected to empower an undisclosed South African vaccine producer to ramp up production of the Johnson & Johnson vaccine to over 500 million doses (planned by the end of 2022).

From FTAs such as the Africa Continental Free Trade Agreement

Intra-regional trade within Africa (as opposed to overseas trade) from 2015 to 2017 was only 15.2% of total trade, compared to 67% within Europe, 61% within Asia, and 47% within the Americas. While supply chain disruptions hampered the availability of COVID-19 testing kits, many African nations could develop home-grown solutions locally to address the issue. Africa Continental Free Trade Agreement (AfCFTA) was set up on January 1, 2021, with the intention of improving intra-regional trade of goods, including medical supplies. AfCFTA, the largest FTA after WTO, impacts 55 countries constituting a 1.3 billion population in an economy of US$3.4 trillion. Inadequate intercontinental collaboration is one of the primary restraints for medical supply chains. In order for health systems to fully capitalize on AfCFTA, partnerships with the African Union’s (AU) five Regional Collaborating Centers and current global healthcare organizations need to be increased.

From state governments

Sub-Saharan African countries have the highest MFN (most favored nation) tariff rate (9.2%) on medical goods, compared to developed nations’ tariffs (1.9%) as well as emerging economies’ tariffs (6.6%). However, out of 45 countries in Sub-Saharan Africa, only eight countries could remove or decrease import tariffs and value-added taxes on medical goods on a temporary basis to aid the public health situation during the pandemic in 2020, as per Global Trade Alert. These eight countries include Angola, Chad, Malawi, Mauritius, Niger, Nigeria, South Africa, and Zambia. In three of these eight countries, these measures had already expired as of April 2021. Furthermore, to promote intra-regional trade, 33 Sub-Saharan African countries provide preferential tariff rates of around 0.2% on average on some medical products. At the same time, the average MFN tariff rate for the same medical goods is around 15% for these Sub-Saharan African countries.

EOS Perspective

Since the demand for COVID-19 test kits was significantly higher compared to their supply, producers and suppliers had a higher bargaining power, because of which they set an extortionate price. However, that being said, African competition authorities did their best to curb the prices, although there was still room for more.

Secondly, policy changes need to be brought about at the state level to allow increased competition in the African markets, which in turn would lower the price of the tests. African governments need to consider a more patient-centric and consumer-protective approach wherein competition is likely to facilitate the launch and consequent market uptake of better-quality products available at lower prices.

Additionally, prices and costs of COVID-19 tests should be monitored on a regular basis. The underlying problem of inflated COVID-19 test prices is likely to cease only when competition in the PCR testing sector is encouraged, and government policies of pricing the tests are more patient-oriented.

Moreover, robust intra-regional trade coupled with strong local manufacturing and lower trade barriers is expected to help build Africa’s more sustainable health system.

27/09/2023by EOS Intelligence EOS Intelligence No Comments

IMO 2023 – Shipping Industry Sailing towards a Greener Future but Unsure of the Route

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The shipping industry plays a vital role in global trade. The majority of goods are transported by sea, and most shipping vessels currently rely on marine fuels such as Marine Diesel Oil (MDO), Marine Gas Oil (MGO), and Heavy Fuel Oil (HFO). One of the main reasons is that these fuels are cheaper and readily available, however, they are not environmentally friendly. The shipping industry discharges a significant amount of carbon emissions, therefore, decarbonization and eventually reaching zero carbon emissions in this sector has become imperative. The United Nations agency responsible for regulating shipping, the International Maritime Organization (IMO), aims to reduce ocean-vessel emissions to half by 2050. To meet the target, the shipping sector is looking to switch to alternative fuels, however, the feasibility of this change still remains to be assessed.

The shipping industry accounts for a vast proportion of global trade as a result of rapid growth in cargo transportation due to increased globalization and e-commerce. According to the International Chamber of Shipping, 90% of global trade is transported by sea, hence perpetuating carbon emissions in the shipping industry. According to a study published by the European Parliament, the shipping industry could be responsible for up to 17% of global carbon emissions by 2050. In comparison, in 2021, the sector contributed to about 3% of worldwide greenhouse gases. This significant increase in carbon emissions by the sector is resulting in increased pressure on the shipping industry to reduce its carbon footprint.

In an attempt to reduce emissions, IMO has adopted the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) rating regulations. While the EEXI is a rating system that assesses the energy performance of existing ships based on speed, power, and engine size, the CII rating uses a ranking system to monitor the efficiency of individual ships. Under the CII rating system, each vessel will receive a ranking from A (good) to E (poor) starting in 2023. Ships receiving grade D for three years or Grade E for one year will have to put a corrective action plan in place. These new sets of regulations have been in effect since January 2023 and are a part of IMO’s Greenhouse Gas Strategy (GHG) that aims to reduce the carbon emissions from international shipping by 40% by 2030 and 70% by 2050 compared with 2008 levels.

Shipping is a highly capital-intensive industry with a great dependence on fossil fuels. Most vessels are still dependent on traditional marine fuels and would require significant investment in infrastructure to transition to zero-carbon emission fuels. A 2020 study by the University of Massachusetts estimated the total cost of decarbonization efforts would be about US$1.65 trillion by 2050 to create apt infrastructure to support zero carbon emission fuels. With shipping being the backbone of international trade, trade volumes are expected to grow continuously, resulting in an increase in carbon emission, which will further push industry players to invest in alternative carbon-efficient fuel.

IMO 2023 – Shipping Industry Sailing towards a Greener Future but Unsure of the Route by EOS Intelligence

Alternative fuels have limited availability and cost restrictions

Currently, there are three primary fuels that are used in ships – MDO, MGO, and HFO. All three fuels are made from crude oil and emit carbon when burnt. Hence, the sector is actively looking for alternative fuels to replace these fuels with the introduction of IMO 2023 regulations.

Methanol could be a suitable alternative, but availability could be a challenge

In pursuit of sustainable and greener fuel, the shipping industry is moving towards using other fuels – one of which is methanol. As per a Finland-based technology company Wärtsilä, methanol usage in ships, when compared to HFO, dramatically reduces carbon emissions and is easy to store. Considering this, the shipping giant AP Moller-Maersk, headquartered in Denmark, has ordered 19 methanol-powered vessels. The company estimated that they would require about one million tons of green methanol per year to run these vessels, which will generate annual carbon emission savings of about 2.3 million tons. Another shipping company based in Beijing, China Ocean Shipping Company (COSCO), has ordered 12 container ships worth US$2.87 billion, which use methanol as a fuel.

However, the availability of methanol is also to be considered while assessing it as an alternative fuel. As per the world’s largest methanol producer, Methanex, the shipping industry would require about three million tons of methanol annually to fuel vessels. Therefore, it is not enough to build vessels that run on methanol but also ensure its availability to fuel the vessels.

Keeping such requirements in mind, Maersk has partnered with six companies across the globe to source at least 730,000 tons of methanol annually by the end of 2025. The six companies are CIMC ENRIC (China), European Energy (Denmark), Green Technology Bank (China), Orsted (Denmark), Proman (Switzerland), and WasteFuel (USA). Additionally, in 2018, COSCO partnered with the US-based IGP Methanol and China-based and Jinguotou (Dalian) Development to construct two methanol plants in IGP Methanol’s Gulf Coast Methanol Park. The plants are planned to have a capacity of 1.8 million tons of methanol per year each. COSCO is ensured to fuel its 12 newly ordered vessels through these two partners

Most methanol produced today is derived from fossil fuels. There are primarily three kinds of methanol – grey or brown methanol derived from natural gas, green methanol made from biomass gasification, and blue methanol derived from natural gas combined with carbon capture and storage technology (CCS). With the help of CCS technology, the carbon emitted is captured and later transported and stored deep underground permanently, hence reducing carbon emissions.

Both green and blue methanol are considered to be the most environmentally friendly. However, most methanol available and used currently is either grey or brown. The availability of blue and green methanol is estimated to be less than 0.5 million tons annually in 2022, which is considered to be severely inadequate to power the current fleet of vessels. While Washington-based Methanol Institute estimated that renewable methanol production might increase to over 8 million tons annually by 2027, it is still unlikely to be sufficient to replace diesel as the go-to fuel.

Methanol as a fuel also has its challenges in terms of cost. Depending on the type of methanol consumed, traditional bunker fuels can be up to 15 times more expensive. Assuming the limited availability of methanol, the cost is likely to increase. Further, industry players need to ensure methanol availability and feasibility before switching away from traditional marine fuel.

LNG – most likely a transitional fuel

While some players are looking at methanol as an alternative fuel, other players are considering LNG. LNG is 20-25% less carbon intensive than HFO and emits fewer nitrogen oxides and sulfur oxides.

Rio Tinto, a mining company based in London, announced plans to add nine LNG dual-fueled Newcastlemax vessels in their fleet that transport bulk cargo, such as coal, iron ore, and grain, in 2023. The company started a one-year trial and is already seeing a reduction of about 25% in carbon emissions.

The main driver to convert to LNG fuel is the reduction in fuel costs. According to S&P Global, an energy company based in the UK, LNG prices vary from US$213-$353 as compared with MGO prices, which vary from US$550-$640. While LNG is cheaper, bunkering LNG to the vessel could be a challenging operation as there is a lack of LNG bunkering infrastructure. Another significant drawback in the usage of LNG is methane slip, which is the discharge of unburned methane from an engine that could poison aquatic life.

As per the World Bank, LNG as a marine fuel is most likely to play a limited role, given its drawbacks. However, a combination of lower prices and the increasing number of LNG dual-fueled vessels might support bunkering demand in the future.

Ammonia at the nascent stage of adoption

Unlike LNG, ammonia is turning out to be a viable option as infrastructure is already taking shape. As per a 2020 report by Siemens, a German industrial manufacturing company, 120 ports are already dealing with the import and export of ammonia worldwide. However, even with the infrastructure, only green ammonia is a zero-carbon fuel and it is not produced anywhere at the moment.

Looking at the fuel as an alternative option, Grieg Maritime and Wärtsilä (Norwegian and Finnish shipping companies, respectively) are jointly running a project to launch an ammonia-fueled tanker producing no greenhouse gas emissions by 2024. The project is also being supported by the Norwegian government with a funding of US$46.3 million. The partnership aims to build the world’s first green ammonia-fueled tanker. The partners plan to distribute green ammonia from a factory based in Norway to various locations and end-users along the coast.

There is a wide range of alternative fuels that are yet to be examined from the point of sustainability. Hydrogen is also one of the fuels that is considered an option for shipping vessels.

Read our related Perspective:
 Hydrogen: Future of Shipping Industry?

Other synthetic fuels combining hydrogen and carbon monoxide are also present and are already used extensively in other industries such as agriculture. However, their viability is yet to be tested in the shipping industry. Moreover, transitioning to alternative fuels is not easy. Several factors need to be considered before switching. To be a practical replacement for diesel, it needs to be readily available and price-competitive with traditional fuels.

EOS Perspective

The global shipping sector was already on its toes since the IMO’s 2020 sulfur regulation that limited sulfur content in a ship’s fuel oil to a maximum of 0.5% (from the previous 3.5%). After the IMO’s sulfur regulation, players started to gradually switch to other fuels and phased out high-sulfur fuel oil from their operations. The new 2023 regulation again brings the shipping industry to heel. The key challenge the marine industry faces in decarbonization is the limited availability and high cost of alternative fuels. Additionally, infrastructural changes are also required while adapting to these new fuels. Ship modifications require major capital investments, while construction of new vessels takes several years.

MGO is shipping’s primary fuel today and is hard to match in terms of existing scale and commercial attractiveness as it already is a well-established fuel and has been in use for decades. Other viable fuels, such as methanol, LNG, hydrogen, and ammonia, although present themselves to be better options for achieving IMO’s 2050 target, are likely to be costly and would require a much higher supply to meet the demand to power the vessels. Future fuel scenarios are likely to be determined by both supply and demand side dynamics.

For now, the key question for the players remains the availability of cleaner fuels at a cost that is acceptable and has the potential to replace traditional fuels. This further opens up the scope for partnerships between the players and fuel producers to jointly build a roadmap to ascertain fuel availability and bunkering infrastructure. With the players already moving towards adopting cleaner fuels, it is safe to infer that more partnerships between the fuel producers and the players are likely to be seen in the sector in the years leading towards meeting IMO’s 2050 target.

06/12/2022by EOS Intelligence EOS Intelligence No Comments

Clean Energy: How Is India Faring?

The rising annual average global temperature due to global warming is alarming. These changes affect virtually every country in the world, and India is no exception in witnessing extreme weather conditions. To illustrate this, the country faced floods in 2019 that took 1,800 lives across 14 Indian states and displaced 1.8 million people. Overall, the unusually intense monsoon season impacted 11.8 million people, with economic damage likely to be around US$10 billion.

Concerns over rising global temperature causing climate change

According to the latest climate update by the World Meteorological Organization (WMO), there is a 50% probability of the annual average global temperature temporarily exceeding the pre-industrial level by 1.5 °C in at least one of the next five years. As a result, there is a high chance of at least one year between 2022 and 2026 becoming the warmest on record, removing 2016 from the top ranking.

India has also been bearing the brunt of climate change with the average temperature rising by around 0.7°C between 1901 and 2018. The temperature in India is likely to further rise by 4.4°C and the intensity of heat waves might increase by 3-4 times by the end of the century. In the future, India is likely to face weather catastrophes such as more recurrent and extreme heat waves, intense rainfall, unpredictable monsoons, and cyclones, if clean energy transition measures are not taken.

Clean Energy – How is India Faring by EOS Intelligence

India to witness economic losses if initiatives are not taken

The rising population, industrialization, and pollution levels in India are causing emissions (greenhouse gases, carbon dioxide), depleting air quality, and impacting the environment adversely. Also, with coal being a major source of energy in India’s electricity generation, pollution levels are further rising. These factors intensify the need to take clean energy initiatives seriously. If India does not take timely actions to reduce reliance on fossil fuels, it may suffer a heavy loss of nearly US$35 trillion across various sectors by 2070. Industries such as services, manufacturing, retail, and tourism are likely to lose around US$24 trillion over the next 50 years if India neglects climate warnings.

Renewable energy generation in India seeing a boost

The Indian clean energy sector is the fourth most lucrative renewable energy market in the world. As of 2020, India ranked fifth in solar power, and fourth in the wind and renewable power installed capacity globally.

The installed renewable energy capacity in India was 152.36 GW as of January 2022, accounting for 38.56% of the overall installed power capacity. Energy generation from renewable sources increased by 14.3% y-o-y to 13.15 Billion Unit (BU) in January 2022. The Indian government set an ambitious target of achieving 500GW installed renewable energy capacity by 2030, with wind and solar as key energy sources to achieve the target.

The government has been taking several measures to boost the clean energy sector. In the Union Budget 2022-2023, the government allocated US$2.57 billion for Production Linked Incentive (PLI) scheme to boost manufacturing of high-efficiency solar modules. The scheme provides incentives to companies to increase domestic production of solar modules in order to reduce dependence on imports.

Furthermore, the Indian government has undertaken several initiatives to foster the adoption of clean energy practices, one of them being the Green Energy Corridor Project, which aims at channelizing electricity produced from clean energy sources, such as solar and wind, with conventional power stations in the grid. Another project, the National Wind-Solar Hybrid Policy, was rolled out in 2018 by the Ministry of New and Renewable Energy (MNRE) as an initiative to promote a large grid-connected wind-solar PV hybrid system for efficient utilization of the transmission infrastructure and land.

Big-scale projects in development

To meet the growing energy needs of the country, the Indian government is taking measures to look at alternative sources of energy. At the 2021 United Nations Climate Change Conference, India announced its ambitious target of meeting 50% of its energy needs from renewable energy by 2030. In the near term, India aims to achieve 175GW renewable energy installation by the end of 2022.

Besides rolling out various policies and reforms, India has been taking several other measures as well to facilitate the growth of the renewable sector and to meet the energy targets. One such measure is the series of agreements signed by India and Germany in May 2022, which would see India receiving up to US$10.5 billion in assistance through 2030 to boost the use of clean energy. Furthermore, 61 solar parks have been approved by MNRE, with a total capacity of 40GW. Most of these solar parks are under construction.

Apart from the government, also the key industry players see potential in the clean energy market and have ambitious plans to ramp up renewable energy capacity as well as their investments in the sector.

Indian public sector companies including IOC, BPCL, and private sector conglomerates such as Reliance Industries, Tata Power, and the Adani Group have already announced billions of dollars’ worth of investments in renewable energy projects. BPCL is planning to invest up to US$3.36 billion in building a diversified renewables portfolio including solar, wind, small hydro, and biomass. Adani Green Energy is planning to invest US$20 billion to achieve 45GW of renewable energy capacity by 2030. RWE (German multinational energy company) and Tata Power are likely to collaborate to develop offshore wind projects in India. They are planning to install 30GW of wind energy projects by 2030.

Current and future challenges

Despite the measures taken by various renewable industry stakeholders, India still faces several pressing challenges that it needs to overcome.

The solar energy segment accounts for a majority share (60%) of India’s commitment of 500GW by 2030. With the ongoing momentum, India needs to install 25GW of solar capacity each year. In the first half of 2021, India could only add 6GW of renewable energy capacity, indicating a slowdown in the rate of energy addition. Besides the supply chain disruptions caused by the pandemic, another reason for the slowdown could be the high component prices.

India’s solar industry relies excessively on imports of solar panels, modules, and other parts. Before the pandemic, in 2019-2020, India imported US$2.5 billion worth of solar wafers, cells, modules, and inverters. These components have become 20-25% more expensive since the pandemic. To keep the clean energy market economically viable, the Indian government needs to increase the domestic production of solar equipment.

Another issue is the fact that power distribution companies in some states of India do not encourage solar net-metering because of the fear of losing business and becoming financially unstable. Thus, it is imperative for the government to introduce a uniform, consumer and investor-friendly policy regarding buying solar electricity equipment and accessories across all states in India.

Moreover, some solar ground-mounted projects have encountered difficulty because of the opposition from local communities and environmentalists for their negative impact on the local environment. According to energy pundits, rooftop solar installments are more eco-friendly and are able to create substantial employment opportunities. Consequently, increasing the current target for rooftop installations from 40% to 60% is considered to be a viable proposition for the near future.

Wind energy market also faces challenges due to lack of developed port infrastructure, higher costs of installing turbines in the sea, and delays in starting projects due to the pandemic. As a result, India’s first offshore wind energy project in Gujarat is yet to take off after four years of tender announcements by the government to invite companies to set up the project.

Some of the other challenges of wind power generation in India are additional costs including investments needed in transmission assets to evacuate additional power, issues related to ownership of wind plants by multiple owners, low Power Purchase Agreement (PPA) bound tariffs on existing assets, as well as lack of incentives to start new wind power projects.

EOS Perspective

As a large developing economy, India’s clean energy targets and ambitions are not just transformational for the country but the entire planet. The energy targets set by India are formidable, but the transition to clean energy is already happening; however, not without challenges.

With government support and aid, the Indian clean energy sector is likely to overcome some of those challenges. For instance, to reduce dependence on expensive imports, the government started taking measures to boost domestic production of solar modules through its Production Linked Incentive (PLI) scheme. Moreover, in 2017, the government increased taxes on solar panels and modules and hiked the basic customs duty on imports of solar and wind energy equipment to encourage domestic production of this equipment. In the budget for FY 2022, the government injected US$133 million into the Solar Energy Corporation of India and US$200 million into Indian Renewable Energy Development Agency. The capital will be used by these entities for running various central government-sponsored incentive programs to attract foreign and domestic companies to invest in this sector. In fact, foreign investors/companies already see potential in India’s clean energy sector, which led to FDI worth US$11.21 billion between April 2000 and December 2021.

India has immense clean energy potential, which has not been fully exploited yet. The shift to renewable energy presents a huge economic opportunity for India. The clean energy sector in the country has the potential to act as a catalyst for economic growth by creating significant job opportunities. According to a January 2022 report by the Natural Resource Defense Council (NRDC), India can generate roughly 3.4 million short and long-term jobs by installing 238GW of solar and 101GW of wind capacity to accomplish the 2030 goal.

In order for the clean energy sector to meet the energy targets and flourish in the future, it will continue to require government support and brisk actions to overcome the challenges.

29/06/2022by EOS Intelligence EOS Intelligence No Comments

Can 3D Printing Move Beyond Design Customization in the F&B Industry?

First conceptualized over 40 years ago, 3D printing is still rapidly developing. The technology has been used in various industries ranging from 3D-printed human organs for implants to printing numerous customized products as per the customers’ requirement. There are several interesting applications of this technology in the Food & Beverage (F&B) industry as well. While currently they mostly pertain to creating visually complex geometrical food structures, there are also ongoing innovations with regard to using 3D printing for nutritional controllability and sustainability. However, most of these projects are one-off and 3D printing still remains a niche application in the F&B space.

3D printing is an evolving technology, offering F&B industry players benefits such as efficiency and customization. 3D printers are mostly used by F&B producers to make foods using the extrusion technique. In this method, the edible is in the form of a paste and is extruded from syringe-like containers onto a plate based on a 3D computer model. The process is similar to icing a cake using a piping bag, except with robotic precision, as the printer layers edible filament in desired shapes.

Traditionally, 3D food printing has been used to architect intricate shapes and designs that are difficult to achieve manually. It has been mostly confined to desserts such as chocolates and sweets as 3D printing offers huge potential for customization.

That being said, there is a gradual shift to adopt this technology in preparing more complex foods such as 3D-printed pizzas, spaghetti, burgers, and meat alternatives. For instance, since January 2022, BBB, an Israeli food chain has been serving 3D-printed burgers prepared from a mix of potato, chickpea, and pea protein. Similarly, since 2021, companies such as Spain-based Novameat and Israel-based Redefine Meat have been preparing 3D-printed beef steaks and other products using unique plant-based compounds that taste like blood, fat, and muscle that make up traditional meat flavors.

Printing beyond customization

While currently the main advantage of 3D printing in food is its ability to customize complex shapes and designs (thereby making it popular for creating chocolates, cakes, and cookies), it is also extending to customizing the level of nutrients in a meal. 3D printing offers the possibility to produce high-quality food concepts such as developing personalized meals by adding specific nutrients or flavors, ultimately giving more control over the food’s nutritional and flavor value.

With this idea in mind, a Netherland-based Digital Food Processing Initiative (DFPI) is testing this concept and trying to come up with a flexible food production system using 3D printing technology that will allow personalizing food at any time based on individual dietary choices. The collaboration is an ongoing project between the Dutch institution, Wageningen University & Research (WUR), global food and beverage companies GEA Group, General Mills, Tate & Lyle, and pharmaceutical company Solipharma B.V., together with Ministerie van Defensie, and a Netherland-based research organization, TNO, whose aim is to bring commercially viable personalized food products to the market, especially for military personnel and COPD (Chronic Obstructive Pulmonary Disease) patients.

Another potential use of 3D printers is to reduce food wastage. The Netherland-based food-tech startup, Upprinting Food, which specializes in recycling organic food waste through 3D printing, has offered design services to various chefs and is also training restaurants to utilize their 3D printers to reduce food wastage. The company specializes in creating dishes out of any food left at restaurants and currently focuses only on high-end restaurants. They plan to expand their work towards retail and wholesalers in the future to reduce food wastage on a larger scale.

While 3D food printing seems to have a lot of unique uses, commercializing 3D-printed foods on a large scale has always been a challenge. For instance, printing a small piece (5x5x5 centimeter) of a food item takes around four to five minutes. Thinking about producing large-scale printed food would be difficult at this rate. In 2015, a project called the PERFORMANCE project (PERsonalized FOod using Rapid MAnufacturing for the Nutrition of elderly ConsumErs ) was shut down because it could not produce at a scale large enough to provide meals at nursing homes. The project focused on creating customizable meals for the elderly who had difficulties in chewing and swallowing. Thus, while customization of food products has immense use and strong growth potential in theory, it still needs a lot of work on improving speed and costs to facilitate its commercialization and feasibility.

Despite several advantages and functionalities, the market does not seem to use 3D printers for printing food as much as it could. It is mostly limited to confectionaries and very high-profile restaurants where quantities are small and prices are high. For instance, Natural Machines 3D printer, Foodini, is being used at Spain-based Michelin-star restaurant, La Enoteca, to prepare seafood, where food puree is printed into a flower-like shape, topped with caviar, sea urchins, hollandaise sauce, and carrot foam.

As per industry experts, 3D printing in F&B is still at an initial stage of development and will be more accepted once people see it being extensively adopted at restaurants. For now, 3D printing can be used to produce food with unique functionalities related to shape, taste, and texture such as printed pasta shapes of unique designs as offered by Italian food giant Barilla, through its spinoff business BluRhapsody as well as 3D-printed candy selfies by Magic Candy Factory, a spinoff of German candy manufacturer Katjes.

EOS Perspective

At present, 3D printing in food is largely limited to confectionaries. It is an evolving technology that offers considerable benefits of saving time and improving efficiency. It can potentially bring other advantages to the table, including reduction of food wastage, but such applications still require more research, investment, and trials, as well as attempts of expansion across food service formats, including small eateries and larger restaurants.

A 3D printing machine requires skill and appropriate training to print a meal. 3D food printing machines may not seem attractive for personal usage at this point but several food and beverage industry players have already moved in to adopt and exploit this innovative technology for various customized and attractive food options, although still largely at a pilot or experimental scale.

Most 3D food printers currently only cater to single restaurants or personal kitchens and are not very popular. For the technology to enter mainstream use and become attractive to broader audience, the printers need to be able print at large volumes. At the moment, there is a huge gap between what could be achieved with 3D printers in the F&B space and what has been actually tested and implemented. While several companies are working towards using this technology in innovative ways, there is a large space open for market disruption.

27/05/2022by EOS Intelligence EOS Intelligence No Comments

Commentary: India-Afghanistan Trade Hangs in the Air after Taliban Takeover

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Over the past two decades, India has invested substantial political, diplomatic, and economic capital to foster good relations with Afghanistan, especially since the fall of the Taliban in 2001. Trade has been one of the key components of these relations, with India being the largest market for Afghanistan’s exports in South Asia, accounting for 41.2% of its global exports in 2020. In 2021, Afghanistan’s exports to India were US$509 million, while imports from India constituted US$825 million.

However, the Taliban takeover of Afghanistan in August 2021 has impacted the India-Afghanistan relations on multiple fronts, especially damaging trade relations between the two countries. According to the Federation of Indian Export Organization (FIEO), the Taliban stopped all imports and exports from India through transit routes in Pakistan, also called the International North-South Transport Corridor (INSTC), the main trade pathway.

Textile industry

The route blocking has impacted many businesses across India. One of the sectors witnessing direct repercussions has been the textile industry. The halted trade resulted in stock worth US$540,000 being stuck as corporate bank holders in Afghanistan were not able to withdraw money and do any electronic transactions, as per the Afghanistan Central Bank’s order. Due to this, over 100 traders in Surat, Indian textile hub, were hit hard with delayed payments.

Sugar and dry fruit

India’s sugar exports to Afghanistan have been hit as well with Indian merchants reporting cancellations of orders as a result of the changed rule in Afghanistan. Indian traders were already treading cautiously about exporting to Afghanistan, insisting on advance payments due to the looming uncertainty and restricted trade routes. Following the political upheaval in Afghanistan, Indian sugar exports came almost to a halt in September 2021. Indian food ministry seemed optimistic and expected the trade to resume under the new Taliban regime. However, it is still uncertain how this will unfold, especially in the face of sugar export restrictions introduced by India in May 2022 to ensure domestic availability and to keep the local prices in check.

The new rule in Afghanistan has not only affected Indian exports, but also imports, with imports of dry fruit seeing a particularly major blow as India receives 85% of its dry fruit from Afghanistan. With the disruption of shipments, dry fruit prices in India saw a considerable increase (around 30%), especially as the timing coincided with the festive season (from October to December) in India, a period with the highest demand for dry fruit.

The carefully-nurtured trade relations between India and Afghanistan have been gravely affected post the Taliban takeover and routes closure. As both countries are each other’s important trade partners, there is some hope that trade relations could resume over time, although it would be naïve to expect the matters to fall back to the state from before the Taliban takeover any time soon.

Pakistan routes issue

India had already faced problems routing its exports and imports to and from Afghanistan, as Pakistan repeatedly denied India’s access to overland trade routes with Afghanistan in the past. As a result, India sought alternative routes: one route through Chabahar Port in Iran and an air freight corridor. Although these are not major trade routes, the opening up of such alternatives allowed India’s exports to Afghanistan to be less dependent on Pakistan. Pakistan’s trade routes denials in the past could be somewhat seen as a blessing in disguise, especially in the face of the current INSTC block.

However, the INSTC continued to be the key route for India’s exports to Afghanistan, and its shutting also caused some drastic consequences impacting India’s trade with other countries. Not only was this route used to export products to Afghanistan but it was also a very important trade route for India to reach European and Central Asian markets and vice versa. Although some goods are still being exported through the international North-South Corridor and the Dubai route, the INSTC is the fastest connection to a range of international markets. The closure will continue to have impact on trade timelines and pricing as traders will have to resort to longer trade routes or trim the volumes of goods traded.

EOS Perspective

When and how India-Afghanistan relations could recoup is yet to be seen, and will depend significantly on the Taliban’s recognition as a legitimate government. While the Taliban may have gained military control over Afghanistan and stated that they want better diplomatic and trade relations with all countries, they are still struggling for global recognition and economic support.

While there is not much that India can currently do regarding its trade situation with Afghanistan, it can look at nurturing and developing relationships with alternative trading partners, especially that trade with Afghanistan is unlikely to return to the previous normal. The Indian government needs to work on policies to aid traders and improve relations with other countries, such as Bangladesh and Turkey, to attempt to fill up the void left by the Taliban upheaval.

20/01/2022by EOS Intelligence EOS Intelligence No Comments

Clean Beauty: Next Stop – China

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China is one of the most promising markets for cosmetics and skin care companies globally, only being second to the USA in size. Despite its size and potential, the Chinese beauty market has remained relatively closed to several international players that make cruelty-free and vegan products. This is because of Chinese regulations that required compulsory animal testing pre- and post-market entry for international brands. However, in 2021, the Chinese government squashed the mandated animal testing requirement and introduced other certification methods. While this opens the market for a plethora of players who have till now shied away from entering the Chinese market, steering through the Chinese turf may still not be very simple.

China’s new cosmetic regulations easing entry for imported products

China is currently the second-largest cosmetics market globally, and has an immense potential to grow further. As per China’s Ministry of Commerce, the value of imported cosmetics grew by 30% in 2020, underlining the strong potential for international brands in the Chinese market. At the same time, several international companies have kept their distance from this US$57 billion beauty and personal care market, owing to stringent regulations.

However, in 2021, the government introduced new rulings for cosmetics and beauty products, which have altered the regulatory landscape in China. As per Chinese regulations, cosmetics are divided into two categories, special and general cosmetics, and the two are subject to different pre-market registration requirements.

As per the new regulations, while the former will continue to be subject to pre-registration with National Medical Products Administration (NMPA) before being allowed to be manufactured or imported, general cosmetics now only require filing documentation of the product with the authority. Earlier, the general category also required prior approval before import.

In addition to streamlining the process for the general category, the government has reduced the number of special product categories from nine to six. As of 2021, the only product categories under the special category encompass hair dye products, hair perm products, spots removal and skin whitening products, sunscreen products, and hair loss prevention products. The streamlining of the registration process for general category is expected to have a direct impact on the cost of warehousing and logistics for global brands as it is likely to quicken the import cycle.

Another regulation that was a deterrent to entering the Chinese market was that international beauty companies were expected to perform animal testing for their products both pre-and post-market entry. This created an issue for the growing number of global clean beauty brands who position themselves as vegan or cruelty-free. These brands could either choose to dilute their brand positioning by undertaking animal testing for the Chinese region or had to keep away from this goldmine market.

However, these companies did have one channel to enter this market, and that was through cross-border e-commerce sites, such as Alibaba’s Tmall. Although this resulted in a limited presence as the cross-border market size has government restrictions and is about one-tenth the size of the domestic market. Moreover, physical retail still continues to dominate the Chinese market with regards to cosmetics sale, with growing popularity of multi-brand stores.

As per the new regulations, global companies do not require animal testing anymore before entering the Chinese market. This will level the playing field between international imports and domestic brands, as domestic brands have been exempt from animal testing since 2014.

However, there are a few conditions to be met by companies looking to bypass animal testing. The brand must provide relevant quality certifications from their country of origin, the product should not be aimed at children or babies, the product should not contain any raw material that is not included in China’s approved list of raw materials, and the applicant brand and its Chinese representative should not have been flagged as requiring further supervision by the authorities.

Companies responding to the new regulations

This opens the door for several international players who position themselves as cruelty-free. In May 2021, Australian clean beauty brand, Frank Body, welcomed a closed investment from Chinese private equity firm, EverYi Capital, which put the value of the brand at about US$74 million (AUD 100 million). The investment, which includes the creation of a Shanghai team for the brand, will help the company find a strong footing in the Chinese market in the light of the latest animal testing relaxation. The brand is expected to enter the market over the next 12 to 18 months, with prospects of opening a physical store.

In a similar move, Brazilian beauty conglomerate, Natura & Co., mentioned during its 2020 fiscal year results that it is looking to expand into China with its brands, Aesop and The Body Shop. The two brands were expected to complete their registration in China by first half of 2021, with Aesop expected to open its first store in Shanghai by the end of 2021, while The Body Shop is scheduled to open its first store in 2022 (however, there is no information regarding the completion of the registration process yet). While these brands have been available in China through cross-border e-commerce, they expect that physical retail presence will help establish a strong foothold in this growing market.

Nerissa Low, founder of Singapore-based organic and cruelty-free cosmetic company, Liht Organics, has also welcomed the decision and expressed interest in entering the offline Chinese market. Liht Organics, which entered China in 2020 through cross-border e-commerce, gained significant traction in the Chinese market. However, the brand refused to enter the offline market when approached by several Chinese distributors, as the company did not want to compromise on its cruelty-free ethos. Given the change in regulations, the founder has expressed interest in expanding beyond cross-border e-commerce considering the potential in the offline market and is looking for the right partner and opportunity.

Moreover, popular international brands such as Drunk Elephant, Fenty Beauty, and The Ordinary, which are currently limited to be selling through Alibaba Tmall, are expected to enter the Chinese market and establish a physical presence there. While a lot of these brands might wait to establish physical stores and may penetrate the market through mainland e-commerce websites such as Tmall (instead of Tmall Global) to reach a larger audience, presence in multi-brand retail stores or opening pop-up stores will be the natural next step.

Despite new regulations, challenges remain

However, entering the Chinese market (despite the abolishment of the animal testing rules) will be no easy feat. Owing to the recent changes in regulations, the companies need to keep up higher standards in terms of product quality, marketing, and operations. Moreover, some of these regulations have made it harder for foreign players to comply as they require a complete overhaul of their local marketing strategies and operational functions.

Firstly, as per the new regulations, the NMPA of China has made it mandatory for international companies to have a domestic agent who must be based in China. This agent will be responsible for the registration process, which includes massive paperwork and approval procedures. Moreover, these agents will be held completely accountable for the company’s products and operations in China and will be answerable and responsible for any safety concerns arising in the product. In addition, they will be responsible for ensuring that the product, its ingredients, and its marketing are compliant with the Chinese regulations. Thus it will be a challenge for foreign players to find a Chinese agent to fill this capacity as in reality, such a person/company may have no impact on how the ingredients or final product are made. This is also definitely expected to increase costs for the company.

The government has also imposed harsher penalties for non-compliance and various violations such as misleading advertising, non-compliance of new cosmetic naming guidelines, non-submission of approved hygiene license and certificates, etc. This makes it critical for companies that the Chinese agent is well aware of all regulations and is thorough with all registration requirements as violations can also result in cancellation of license.

Secondly, while the removal of animal testing for imported cosmetics is a welcome news for a great number of global cosmetic brands, the policies put in place of this pose to be equally challenging and complex to steer through. Under the new regulations, cosmetics falling under the general category require a Good Manufacturing Practice (GMP) certificate to avoid animal testing. These GMP certificates need to be issued from the brand’s local government regulatory department. Considering that different countries will have different authorities and templates for issuing these certificates, there is a lot of ambiguity regarding what is acceptable and what is not.

Moreover, cosmetic companies need to provide a manufacturing quality management system (QMS) for each individual ingredient used in the cosmetic formulations. This requires companies to collect information on each and every ingredient manufacturer and supplier, including their quality specification documents and certificates. This is a tedious process since a company may use ingredients from several manufacturers for a single product. In addition, in case a company plans to change a supplier, it will have to undergo this process and update the information with the Chinese authorities for the new supplier, which is both money and time consuming.

On the one hand, it is true that the exemption from animal testing has given an opportunity of many cruelty-free brands to enter the Chinese market. However, on the other hand, the lengthy procedure and strict scrutiny over the process is undermining the overall market entry process for mid to small size companies. Non-compliance with these certifications will reverse the relaxation on animal testing for the companies that don’t meet the new procedural requirements and then their products will need to undergo animal testing for selling in China.

Furthermore, despite getting the green light to enter the Chinese market, the cruelty-free cosmetic companies would still need to deal with another challenge arising from the consumer side. While the clean beauty segment is definitely growing, it is currently not a major factor in purchasing decisions by consumers, unlike in the USA. Chinese consumers seek products that are functional and have healthier, milder, and more reliable formulas. Hence, to ensure a right placement of their cruelty-free products, companies would need to undergo distinctive marketing strategies to grab a good consumer base. Education and awareness regarding cruelty-free products and creating a substantial market for such products may require significant marketing funds.

In addition to the changes in regulations with regards to animal testing, the Chinese government added new regulations regarding product labelling. As per the new regulations, the labels must have corresponding Chinese explanation to everything mentioned and they must a have larger font size than the explanation in foreign language. Also, the label should contain the Chinese name and special cosmetics registration certificate numbers, product implementation number, name and address of the person responsible in China and of the manufacturer along with the production license number.

Adding to these is a ban on use of any kind of medical term, names/pictures/endorsement of celebrities in the medical field, and implication of medical effects to avoid any misleading of information. Although all these changes are implemented in order to curb the market of counterfeit products, they are expected to make the product approval process lengthier, as now companies would be required to undergo a comprehensive regulatory review of the guidelines to ensure hassle-free entry into the Chinese market.

EOS Perspective

While the new regulations provided a pathway for several foreign clean beauty players to enter the Chinese market, the process still requires a lot of navigation, especially since a lot of rulings regarding safety requirements, GMP authorities, and template remain ambiguous.

Moreover, since these certificates need to be derived from the country of origin, the country’s overall political and business equation with China might also play a subtle role in their acceptance by the Chinese authorities. For instance, China has not yet declared the jurisdictions that will be recognized for the QMS certificate. Given the current political friction with Australia and the USA, the Chinese authorities may not accept QMS certificates from these countries at the moment. Thus brands from these countries may have to look to find suppliers or shift part production to other countries to be able to enter the Chinese market.

While currently there is no clarity regarding what terms and jurisdictions will initially be accepted for the GMP and QMS certificates, it is expected that clarity on the matter will be provided by the government shortly. In the long run, these regulations are a move in the right direction. As the government has overall simplified the filing process and focused on quality and safety measures, the new regulations are a positive development for international cosmetic companies, especially clean beauty brands that have been unable to enter the second largest beauty market in the world.

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