The demand for quality warehousing in Africa has been skyrocketing, especially with the rapid mushrooming and proliferation of e-commerce platforms across the continent.
However, the supply has scarcely risen to meet the burgeoning demand. In 2021, the African e-commerce industry grew by 31 per cent to US$28B in revenues from US$21.4 in 2020; whilst in 2022, the industry is predicted to produce US$33.3B in revenue.
This upward trajectory has largely determined the steady growth of the warehousing and logistics market in the continent. Overall, Global Smart Warehousing Market is valued at USD 14.46 Billion in 2020, and is expected to reach USD 31.57 Billion by 2027 with a CAGR of 11.8 per cent over the forecast period. With the implementation of the African Continental Free Trade Area (AfCFTA) going on its second year, the sector is projected to register robust growth due to increased intra-African trading on a macro-level.
The warehousing market wields so much potential to stimulate multisector economic development across African countries, thereby boosting the continent’s GDP, creating employment and alleviating deeply entrenched poverty.
Review of the Warehousing market in Africa
According to a report by Knight Frank, named ‘Africa Logistics and Industrial Review H2 2021, the prime warehousing and logistics market across the Sub-Sahara, has been limited to Nairobi and Johannesburg. Overall, Nairobi’s profile has been on the rise with view that it accounts for 50 per cent of new space requirements. The city remained the best performing market over the past year, recording the highest increase in rents between 2019 and 2021.
Lusaka, Lagos, Abidjan and Addis Ababa recording increased activity. Rental performance has been somewhat mixed in the continent, whilst prime rents in some countries have remained stable such as Algiers, Cairo and Maputo; others such as Kinshasa and Dakar, rank as some of the most expensive cities for prime warehouses in Africa. Blantyre is known to be the cheapest.
Demand has been heavily eclipsing the supply in several markets. For instance in Nigeria, numerous multinational blue-chip occupiers, opt to operate out of purpose-built owned facilities around Ikeja, Sagamu and Agbarawe. This is a clear indication of the robust demand for purpose built prime warehousing space; with the market currently standing at 300,000sqm.
To meet the demand, developers such as Agility have seized the opportunity, with plans on track to develop 270,000sqm of warehousing space. On the other hand, Kenya has been rising to the occasion, responding to the growing demand, delivering over 170,000sqm of speculative prime warehousing over the last five years.
However, prior to this the prime market was confined to a very limited number of developments. The country will record an increase in supply, as plans are underway for developers such as Africa Logistics Properties and Improvon, to deliver over 400,000sqm of speculative space to the market by the end of 2024. South Africa’s weak economic climate has not deterred demand for prime warehouse and logistics assets, which remains stable and is set to increase with perspective to the vibrancy of the e-commerce sector, leading to the emergence of a distinct two-tier market.
Land value has appreciated due to demand for urban locations. In established industrial nodes, land value in some cities have grown between 2015 and 2021, such as Nairobi by 42 per cent and Lagos 58 per cent. Access to urban industrial land is expected to remain a key barrier to the sector, as the value in some cities is set to continue rising in the foreseeable future. With increased infrastructure developments, areas in the periphery of some cities have become prime and are recording a rise in value.
The surge in urbanization levels have driven demand for urban logistics facilities, which has strongly appealed to investors, coupled with the strong revenue profile and positive market outlook. Consequently, this has fueled investment appetite for industrial stock across the continent. By the same token, industrial assets command attractive yields of approximately 12 per cent on average, compared to 9 per cent for both retail and offices and 6 per cent for residential.
South Africa remains the largest and most sophisticated logistics and warehousing market across the continent. In 2020, the country recorded over 5 million sqft of sales transactions. Due to inadequate investment-grade assets attracting global institutional capital has been a challenge. Resultantly, developers are making attempts to seal the deficit. To give an example, Kuwait-based Company ‘Agility’ is developing over 1 million sqm of warehousing across Lagos, Accra, Abidjan and Maputo, and harbours more plans to expand to other cities.
What has driven the meteoritic rise in Warehousing demand in Africa?
Several factors have driven the demand for prime warehousing in Africa, such the burgeoning of the e-commerce sector as aforementioned. According to Statista, online sale revenues have been on the rise and are projected to double to US$46million by 2025.
Infrastructure development has been revolutionizing the face of Africa, and simultaneously industrial activity has increased. The emergence of industrial parks and corridors in recent years, has resulted in a complete transfiguration of the warehousing and logistics sector, which has long been impeded by poor infrastructure. According to the 2018 Logistics Performance Index (LPI), logistics infrastructure across Sub-Saharan Africa scored 2.20 out of 5, indicating the need for increased investment in the sector.
Currently, there are well over US$400B worth ongoing rail and road developments, which in tandem are bound to spur intra-Africa trade. For instance, the rise in infrastructure development along the north corridor that links Kenya to Uganda and DRC; has led to the establishment of over 150,000sqm of prime warehousing in Nairobi. By the same token, its estimated that the ongoing infrastructure development along the West Africa Growth Ring; that links countries such as Ghana, Burkina Faso and Côte d’Ivoire, will result in the establishment of in excess of 1 million sqm of purpose-built warehousing, with cities such as Accra, Lagos and Abidjan projected to be the prime beneficiaries.
Into the bargain, renovations along the north-south corridor that links South Africa to other Southern African countries, has attracted logistics companies who are now relocating towards eastern and north eastern parts of Johannesburg.
Industrialization efforts by governments across the continent, have further catapulted the demand for prime warehousing. This has seen the establishment of numerous special economic zones (SEZ).Currently, the continent is home to over 180 SEZ’s with 51 more under construction. Kenya has the highest number at 61, followed by Nigeria at 38 and 18 in Ethiopia. Moreover, some governments are establishing industrial parks within the zones to drive FDI.
By example, Ethiopia industrial parks has resulted in the delivery of over 15 million sqm of warehousing in just six years. The initiative has been lucrative as it has generated over US$735 million in government revenue, and created over 80,000 jobs. Similarly, Uganda’s plans to expand its Kampala Industrial and Business Park (KIBP); by 4 million sqm will increase the number of companies therein to 500, create 200,000 jobs and generate US$540 million in taxes per annum.
Barriers and Solutions to Effective Warehouse Management.
There are numerous challenges facing warehouse management such as inadequate technologies to automate processes, which creates gaps for potential errors. Poor warehouse layout and supply flow, is a recipe for accidents. Therefore, optimization is key which is enhanced by automation. Inventory accuracy is another curveball and logistics companies are advised to utilize inventory tracking, to minimize the room for human errors and maintain accuracy.
Picking optimization is another impediment, because it is during picking that majority of warehouse management problems occur, especially if it’s done manually.
However, by automation which deploy the use management systems, picking optimization is improved. Additionally, companies can bolster their processes by tracking picking metrics.
Labour costs similarly pose issues, due to the use of large labour forces coupled with utilizing expensive equipment. However, using automated systems that follow digital paths through a warehouse, deals with repetitive manual tasks, and ensures employees focus on more strategic tasks.
Moreover, another hurdle is the stress of redundant processes, which are eliminated by automation. This simultaneously increases speed and reduces costs. Laconically, the future of the warehousing industry looks promising and African countries, should maximize the opportunity by attracting more investments, which will inevitably turn a profit.
