Global logistics and transportation firms have expanded operations in Africa despite infrastructure challenges — or because of them — in a sector that holds huge potential and opportunities for investors, according to a guest column in AfricaTimes by entrepreneur and legal consultant Erukilede Julius.
The shipping numbers speak to the positive outlook for Africa’s logistics business, said Charles Brewer, managing director of DHL Express Sub-Saharan Africa, a leading logistics company. In light of the economic pressure Europe is experiencing, DHL’s dependency on Europe has been reduced, while Intra-Africa trade has picked up significantly, Brewer said.
E-commerce has helped to grow African logistics business. More Africans are buying online rather than at physical shops. The size of the outsourced logistics market in Africa has grown by 38.4 percent in the last four years.
But sub-Saharan Africa remains a challenging frontier for many companies, despite recent growth and investment in the sector, according to the 2016 Agility Emerging Market Logistics Index report. More than 43 percent of the 1,100 global logistics industry executives surveyed said they have no plans to set up in Africa; 21.2 percent said their companies have operations in the region. Another 12.7 percent said they plan to enter African markets.
Africa probably isn’t the best destination for companies looking for fast returns, Julius said. For businesses with a long view, it holds huge potential. “The continent needs better transport infrastructure, more connectivity across borders, and an improved business environment.”
Other than South Africa’s relatively developed transport and logistics infrastructure, African countries are struggling. Roads are the most common mode of transport, but are poorly developed. Regional road and rail networks are few and far between. Just 27.6 percent of Africa’s 2 million kilometres of roads are paved, according to a 2008 report by the OECD (Organisation for Economic Co-operation and Development).
Of those paved roads, 19 percent are in sub-Saharan Africa, versus 27 percent in Latin America and 43 percent in South Asia. Just fixing the existing thousands of kilometers of roads that need attention will require huge investment.
Absence of good roads makes transportation and logistics expensive in Africa. Transport costs throughout Africa average 14 percent of the value of exports compared to 8.6 percent in all developing countries, and can be as high as 50 percent of export value for Africa’s 15 landlocked countries –56 percent for Malawi, 52 percent for Chad, and 48 percent for Rwanda, according to the OECD report.
Moving goods across borders can cost official and unofficial fees that amount to extortion.
In Africa, it takes 39 days to export a container of goods including documentation, inland travel, customs clearance, and port or terminal handling compared to 26 days in East Asia or 15 days in high-income OECD countries, according to World Bank’s Doing Business report. Shipping costs an average $2,201 per container compared to the median estimate of $864 for East and Pacific Asia countries.
This is where businesses with long-term strategies can get rich. Ghana, Kenya, Nigeria and South Africa are the most promising logistics markets in sub-Saharan Africa, according to the 2016 Agility Emerging Markets Logistics Index.
Transportation and logistics of food and agri-business will be key, according to Analytiqa. Facilitating this trade will require improvements in cold-storage services.
“There is a huge amount of optimism from (third-party logistics providers) about the future of logistics markets across Africa, as economic growth drives stronger consumer demand and creates higher market attractiveness for retailers and manufacturers alike,” said Analytiqa research director Mark O’Bornick.
If Africans don’t identify these opportunities and take advantage of them, foreigners will, Julius said.
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