During recent years, the African story has been built around oil, mining and the sale of commodities; as well as foreign direct investment from global businesses, institutional and sovereign investors. Underpinning this has been a hidden but growing logistics sector, forming the backbone for industrial development and becoming a fast-growing industry in itself. Economic growth in sub-Saharan Africa has been driving the demand for world-class transportation and logistics, which is fundamental to the success of businesses, particularly for African entrepreneurs and innovators seeking to ship products and expand their regional footprint. Conversely, the problems that are created by sub-standard logistics present innovators with additional business opportunities. In short, logistics are critical to economic success and a driver of innovation and enterprise.
The scale of opportunity for entrepreneurs is perhaps best understood by looking at some of the challenges created by a weak logistics infrastructure. Drone delivery can be a possible game changer in a challenging continent like Africa, especially in key sectors such as healthcare and agriculture. Drones are a truly interesting pieces of technology that are able to navigate current logistical challenges more efficiently, swiftly and cheaply provided that African governments can develop a proper regulatory framework to enable such innovation.
However, for long-term purposes, one cannot overlook the importance of traditional transport and logistics infrastructure, which are critical to the success of many businesses. In the retail space, according to a McKinsey & Company 2015 report, the growth of e-commerce is expected to soon account for 10% of African retail but is frustrated by poor road networks and inadequate postal services. So how can entrepreneurs work around the current barriers in African logistics to develop innovative solutions that work for Africa?
Necessity is the mother of all invention
The key is to understand what the African-specific challenges are and work around them to arrive at innovative solutions that work for the continent. For example, the Innovation Prize for Africa 2015 showcased hydrogen-fuelled cabs with adaptable, renewable body shells and a mobile application to book cab rides payable with cash or credit. The minicab service fills the gap for commuters who need organized, safe and affordable micro transport within a three mile radius. This environmentally friendly taxi service also eases traffic congestion in cities without causing pollution.
If such innovation can be applied to passenger transportation in Africa, the same can be expected in the broader logistics sector. This is especially true if African countries can take advantage of opportunities to fully electrify the continent. Much of the region’s natural gas, which can be used to generate electricity, is lost in gas flares due to over-capacity. Gas-generated electricity would present an affordable and more environmentally friendly way of building a region-wide electricity grid, with the outcome of connecting businesses far and wide. Electrification will also bring the continent closer to developing an electrified rail network; helping to move away from diesel.
In East Africa, the Logistics Innovation for Trade (LIFT), which was launched in February 2015, matches funding for organisations that are developing innovative logistics and transport solutions; particularly those that commercial lenders might consider too risky. The goal is to help develop solutions that reduce the cost of transport and logistics and help to simplify the supply chain.
Three potentially strong African regions held back by inefficient logistics
Currently, regional logistics infrastructure paints a disparate picture. Central African markets are particularly difficult and expensive for companies to penetrate, in comparison to East Africa, which has benefitted from the East African Community intra-regional trade links and diverse domestic markets. West Africa (reliant on extractives) is lagging behind.
Naturally the most important element is transport, particularly rail and ports, which is crucial for intra-regional and global trade. In these two areas, East Africa is arguably leading the way. TradeMark East Africa (TMEA), an organization that works closely with the East African Community (EAC) institutions, national governments, the private sector and civil society organisations to increase trade aims, by 2016, is set to see a 30% reduction in time for trucks crossing select borders, a 10% increase in value of exports from the EAC region, a 25% increase in intra-regional exports compared with total exports from the region and a 15% reduction in average time to import or export a container from Mombasa or Dar to Burundi or Rwanda.
This is highly achievable as significant progress is already being made on a regional level, with Kenya’s LAPSSET corridor development creating new connections between Lamu Port, Southern Sudan and Ethiopia. These include highways, an oil pipeline, airports and railways. Some of these are being built through bilateral agreements. The Lamu – Moyale – Addis Ababa Railway line for example is the result of a Memorandum of Understanding (MoU) between Ethiopia and Kenya. An MoU has also been signed between Kenya and South Sudan to facilitate the implementation of the Lamu – Juba Oil Pipeline and Fibre Optic Project.
In West Africa projects are underway, although these tend to be national projects connecting countries, as opposed to bilateral or regional arrangements across borders. In Angola, the Benguela Railway (currently under construction) links the Atlantic port of Lobito to the eastern border town of Luau. This will connect it to rail networks in the Democratic Republic of Congo and Zambia. Angola is also constructing its first Public Private Partnership (PPP) deep sea port in the northern province of Cabinda. The Port of Caio will provide Angola with its largest port – over 100 hectares – which will include marine structures, special economic zones, terminal facilities and industrial storage and logistical facilities. It will also create opportunities for entrepreneurship and jobs as well.
Creating efficient inter-regional trading ecosystems
Sound logistics is critical to global and regional trade but also in driving domestic innovation, especially in the growth industries of agribusiness, technology and retail. In retail, the ability to ship products to retail outlets and directly to consumers is crucial in creating customer value and loyalty. Multinational companies such as Wal-Mart, Coca Cola and Nike attribute a great deal of their success to global logistics systems. These companies employ logistics managers who focus on managing the supply of raw materials and the flow of products across borders.
Increasing regional trade, and making it more efficient, leads to natural business development opportunities and for entrepreneurs to trade with each other, across borders. Physical logistics aid this, but governments continue to stymie regional trade by imposing import and export duties. This is an administrative and financial barrier aggravated by trading across multiple currencies.
If the regional supply chain of goods and services is to be liberated, national taxes and tariffs need to be simplified or eradicated. Opportunities exist for African entrepreneurs to help find solutions while governments are building infrastructure. However, to enable this process, regional governments must work together to remove fiscal and bureaucratic obstacles to regional trade, whilst coordinating their logistics infrastructure development projects and creating opportunities for entrepreneurs and innovators to play a keener role in developing solutions. In tandem, the focus must continue to be on the full electrification of the continent as this will transform the way in which consumers interact with businesses and add greater efficiencies to the business supply chain and logistics sector.