The African logistics market has proven itself ahead of the curve in many areas, with endless potential and opportunities lurking just beneath the surface.
- Investors have mostly failed to capitalise on Sub-Saharan Africa’s e-commerce opportunities due to logistical hurdles and infrastructural inefficiencies.
- Development finance institutions must take the lead in investing actively in asset-heavy logistics firms, while venture funds should keep focusing on asset-light firms.
- As the African market expands, global corporations and local enterprises will exploit the logistics market gaps and emerging opportunities.
t is no doubt that Africa has its share of issues.
Talent retention, a lack of suitable logistical infrastructure and continual modifications and assessments of the regulatory environment remain significant challenges in the world’s fastest-growing continent. But not all is dread and gloom since with expansion comes riches.
The immense potential in the African logistics market
The year 2020 marked the start of a new decade. From 2010 through the decade’s end, the global logistics industry went through significant disruptions caused by various macro and microeconomic issues. Notable changes included the automation of essential operations, a tightening regulatory structure, and a consumer need for access and real-time data on their shipments irrespective of location or time, all of which point to the shrinking global space.
In the previous decade, an expanding middle class and significant advances in internet and mobile adoption have strengthened the belief that African countries are ready for e-commerce success. Consumer expenditure in the region will reach $2.1 trillion by 2025, at which point mobile phone adoption in Africa will stand at 50 per cent.
As the Covid-19 crisis intensified in 2020, people on the African continent increased their online purchases of everything, including groceries, medications and household goods. The African logistics market has proven itself ahead of the curve in many areas, with endless potential and opportunities lurking just beneath the surface.
Overcoming infrastructural and logistical challenges remains key
Investors have mostly failed to capitalise on Sub-Saharan Africa’s e-commerce opportunities due to logistical hurdles and infrastructural inefficiencies. According to the World Bank, Nigeria, Africa’s most significant logistics market, ranks 110th out of 160 nations in terms of logistical efficiency.
Importing an auto part through Lagos, Nigeria, can take at least three times as long as through Durban, South Africa. According to 2015 estimates, transporting products in Sub-Saharan Africa can cost up to five times more than in the United States. Due to a lack of integration throughout the continent, businesses confront limited markets and significant red tape when crossing borders.
In 2003, while Alibaba was establishing and expanding its e-commerce ecosystem in China, it leveraged the relatively mature urban infrastructure, which resulted from considerable government investments in the 1990s. The enterprise achieved profitability with its operation owing to the solid infrastructure coupled with the existing financial infrastructure.
Companies in America, Europe, and other developed nations enjoy even more significant advantages, including robust national postal structures and last-mile instant delivery services. Companies like UPS and FedEx benefit from widely used and reliable credit-card systems.
African e-commerce enterprises, by comparison, cannot always count on highways or street signs. Furthermore, few Africans have credit and debit cards (in Nigeria, the number is approximately 3 per cent), and in many nations, only about 10 per cent of individuals have mobile money access.
Infrastructure investment remains necessary to support substantial e-commerce expansion in Africa. According to the African Development Bank, the continent needs $130-170 billion in infrastructure investment each year to fulfil baseline commitments by 2025, meaning a financial shortfall of $68-108 billion.
It is also critical to expanding both asset-heavy and asset-light local logistics enterprises. Before the pandemic, there was an increased demand for logistics firms in Africa, and a significant amount of venture financing went to local logistics entrepreneurs.
Development finance institutions must take the lead in investing actively in asset-heavy logistics firms, while venture funds should keep focusing on asset-light firms.
African nations will be stronger to guarantee a more robust economic resurgence, fueled by middle-class development and necessary infrastructural investments.
Rural populations offer great potential for African logistics
African logistics firms are expanding outside megacities to link Africa’s rural areas to regional supply networks. While megacities entice millions of young Africans across the continent, Africa’s population continues to be predominantly rural.
A large population and a lack of suitable road infrastructure in rural regions cut off a large percentage of people from supply networks. One of the next frontiers of African logistics is bridging the urban-rural gap.
Twiga Foods in Kenya and InspiraFarms, which operates in Kenya, Rwanda, and South Africa, are two companies actively providing services for rural areas.
Twiga Foods connects rural vegetable supply to urban customers by connecting farmers directly with merchants on an easy-to-use platform.
InspiraFarms solves the problem of rural logistics from a unique perspective. It employs off-grid solar technologies to offer farmers cold storage. Farmers have more options to engage in regional supply chains because of the flexibility of on-site cold storage.
These companies’ solutions will continue interconnecting rural and urban markets, making regional logistics more effective.
The opportunities in Africa’s intra-regional development
Africa appears to be on track, with its most significant economic game-changer in the shape of a new free trade pact. After years of deliberations, the African Continental Free Trade Agreement (AfCFTA) came into operation in January 2021.
The AfCFTA is a significant development, with 54 nations in the union forging a free trade zone embracing more than a billion people and a market size of roughly $2.5 trillion. The arrangement established a single market for its member countries’ services and goods, enabling free movement of people and investments while laying the groundwork for establishing a single-currency union.
The AfCFTA ushers in a new age of economic progress in Africa. The historic pact established the world’s largest free trade zone since the World Trade Organization, opening up yet another tremendous opportunity for expansion.
However, the AfCFTA’s revolutionary potential will depend on the free movement of commodities across borders, which only the logistics industry can assist unleash. Local enterprises and corporations have decried the continent’s broken logistics and supply systems.
Although AfCFTA will assist companies conducting business across the continent by lowering border tariffs, the region’s infrastructure gap remains a stumbling block to reducing logistics costs. Hundreds of African enterprises are solving the region’s logistical concerns, despite the region’s challenging obstacles.
The prospects in the African logistics
Africa is a place of opportunity for logistics investors. The continent boasts 1.3 billion inhabitants, 20 per cent of the planet’s land area, a massive market potential, and an urgent need for an optimised logistics environment.
Although the continent’s infrastructure remains less developed compared to other regions of the more developed nations, investments in Africa have made a real difference in the infrastructure. Tanger-Med port in Morocco recently increased its capacity from 3.5 million twenty-foot equivalent units (TEU) in 2007 to 9 million TEU currently. The port now ranks among the top twenty ports in the world, with a capacity comparable to well-known ports such as Hamburg, Germany.
As the continent’s infrastructure evolves, logistics costs continue to have a significant impact on its GDP. According to David Atkin and Dave Donaldson, the cost of delivering products in some Sub-Saharan African nations might be up to five times greater (per unit mile) than in the United States.
Of course, numerous chances exist to enhance and lower costs for all parties involved, including shippers, consignees, and, most crucially, the final customer. It will take time for infrastructure development to catch up with that of the first world. Still, as the African market expands, global corporations and local enterprises will exploit the logistics market gaps and emerging opportunities.