Delivering the African opportunity

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The macroeconomics across the continent are impressive, but logistics is still lagging behind, writes Stuart Todd

The macroeconomics across the African continent are impressive, and unlike maturing developed markets, Africa has a young, burgeoning population that will reach 2 billion by 2050 and that is rapidly urbanizing, creating a demand for everything.

According to Geoffrey White, CEO for Africa at freight forwarding and logistics group Agility, this nascent consumer market has a very high propensity to spend and is attractive to the world’s manufacturers, “who have transitioned from trying to understand the ‘African opportunity’ to working out ‘how to execute’ in this new market, motivated by the difficult times in traditional markets and seeking new growth frontiers”, he wrote recently in African Business Central.

The problem, however, is that the infrastructure required to support the urbanization of Africa’s population and the movement of goods to and from markets is woefully undersupplied, increasing the cost of goods and thus stifling potential growth and reducing the ability for African companies to compete in world markets, White adds.

In Agility’s latest Emerging Markets Logistics Index, which offers a snapshot of logistics industry sentiment and ranks the world’s 45 leading emerging markets, based on a survey of more than 1,100 global logistics and supply-chain executives, South Africa and Nigeria come top among African nations in terms of logistics executives’ optimism about emerging markets’ performance in the year ahead, occupying 16th and 17th place respectively.

South Africa has Africa’s most advanced logistics industry and transport infrastructure, but its economy has been hobbled by chronic power shortages, slumping commodity prices, a plunging currency and labour unrest, the Index notes. Nigeria’s size and growth suggest it should rank near Brazil (6th) or Mexico (8th) in the overall Index. But Nigeria is no more business friendly than Venezuela and Uganda, and its weak infrastructure, transport links and customs regime puts it with Bangladesh, Ethiopia and Tanzania in “connectivity.” In North Africa, Morocco has the best business climate and connections. And Egypt’s return to relative stability following the Arab Spring is increasing confidence in its economy and business environment.

But despite recent growth and surging foreign investment, Sub-Saharan Africa “remains a challenging frontier for many”. Only 21.2% of the global logistics industry executives surveyed said their companies have operations there. Another 12.7% said they are in the planning stages to enter African markets. More than 43% said they have no plans to set up in Africa, the Index adds.

“The results show a serious disconnect between the perception of the market and actual opportunities. These are some of the world’s fastest-growing economies. Africa’s requirement for logistics services and supply chain expertise is huge and growing every day,” says White.

“At the same time, many of the companies that need logistics to enter the market don’t know how to get started in Africa or aren’t willing to take the risk. The market is open for first movers who can navigate risk and nurture African talent. The opportunity is for those seeking to build long-term, sustainable businesses that bring world-class practices and adapt to local conditions.”

Thierry Ehrenbogen, president of France’s Bolloré Logistics, a major player in Africa, is also upbeat about the continent’s economic prospects. “The dynamism of the African continent has been confirmed. The service industry and domestic demand are growing along with the infrastructure development and the production of raw materials,” he says. “Africa is increasingly connected to international trade with new partners such as Brazil, China, India, or Turkey.”

Bolloré Logistics has an expanding network of hubs in Africa, strategically located close to regions where economic growth potential is strongest. These complement “the value-added logistics corridors” the company operates from ports situated in both West and East Africa to serve a number of land-locked countries, Ehrenbogen explains. “Opportunities are arising in every sector, in every country, but logistics remains a major challenge to gain access to the various African markets, especially since conditions vary greatly from one country to another,” he notes.

Air freight opportunities

Bolloré Logistics’ air freight director for Africa, Hugues Marchessaux, stresses that air transport fits the bill very well when it comes to sending goods to landlocked African countries such as Niger and Burkina Faso, where road transport can be lengthy with a high risk of delay, especially at borders.

“For instance, it takes around 24 hours to transport goods between Johannesburg, in South Africa, and Katanga in the Democratic Republic of the Congo by plane compared to six days by express truck service and 15 days by traditional truck service,” he notes.

An important factor to take into account when choosing an airport in Africa is whether it offers adequate handling equipment for the loading and unloading of cargo, as a number of them are under-equipped in this respect, Marchessaux adds. “Other challenges include finding an airport able to accommodate some of the larger cargo planes, especially in sub-Saharan Africa. The availability of cargo planes and the reliability of air transport also vary from one country to another, making it essential to have sound local knowledge.

“In addition, political problems such as wars or health scares such as the Ebola virus will inevitably affect transport. But air transport has the potential to make an important contribution to Africa’s continued economic growth because it can help open markets and facilitate trade,” he concludes.

Lufthansa Cargo finished 2015 with a strong performance in Africa, up considerably on the previous year, according to Hermann Zunker, the cargo carrier’s Africa director. This was mainly down to strong demand in its three largest markets – Egypt, Kenya and South Africa.

“We are confident that business for Lufthansa Cargo in Africa will continue to grow. However, the continuous erosion of oil prices presents unique challenges to the economies of producing countries, such as Angola, Equatorial Guinea, Nigeria, and others.

“In those markets, we see reduced activities, not just in oil and gas, but in the general economy as well. Other challenges are ever-growing security threats and high associated costs to comply with many different regulations.”

Zunker supports the view that Africa’s economic growth is being jeopardised by the poor state of the continent’s transport and logistics infrastructure. Some airports still have a great deal of catching up to do in terms of cargo infrastructure, safety regulations, or on the level of staff training.

“There are some role models, though. Accra (Ghana) has invested in a new perishables centre, Addis Ababa (Ethiopia) has a new air freight centre, Cairo is currently building one, and Nairobi (Kenya) has completed new warehouses in recent years, too,” he notes.

He also highlights that there are also many barriers (to trade) in the regulatory environment. For example, the absence of free trade zones or far-reaching free trade agreements or an ‘Open Skies’-type accord.

“In the major hubs and markets, we take an active role in the industry and engage with authorities, airports and handlers regarding improvements in processes and infrastructure,” Zunker says. “Many trading partners have discovered Africa as a target market, but long distances and poor infrastructure still make air transport the best solution.”

Perishables trade

And two particular air freight markets stand out in Africa, chiefly because of their role in the global agricultural and perishables trade.

Indeed, according to Agility’s latest Emerging Markets Logistics Index, Kenya-EU is the third-largest emerging market air export trade lane by tonnage, exceeding not just its continental competitors such as South Africa and Nigeria, but even the likes of India. Tonnage was estimated to increase by 4.5% in 2015 to over 200,000 tonnes. Two product groups are responsible for almost all of Kenya’s air exports – flowers (72%) and vegetables (24%).

And Ethiopia-EU is the tenth-largest emerging market air export trade lane, with the dependency on flowers even greater (92% of its air exports in 2014), and growing very strongly. For January-August 2015, Ethiopia-EU exports of flowers were up by more than 50% year-on-year.