by Tafara Mav

Now's the time

Invest in transport infrastructure

There are investment opportunities in the transport industry, despite challenges
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Africa’s transport industry is fraught with challenges that run the gamut from poor infrastructure systems, prohibitive legislative environments, lack of sufficient air connectivity and congestion, to mention just a few.  

Charles Brewer, managing director for sub-Saharan Africa at DHL, is optimistic and excited about the growth of the industry and believes there is massive opportunity in Africa.  

He concurs, however, that there are some major challenges, chief among which is the continent’s poor infrastructure. According to Brewer, “High inland transportation costs have had a major impact on global supply chains originating and ending in Africa. In this respect, the region’s geography is partly to blame.

"There is a low ratio of roads per square kilometre and scattered population with long distances between urban areas. Furthermore, Africa has the highest number of landlocked countries of any continent. This coupled with poor road, rail and air infrastructure, with slow and inefficient borders means – and not surprisingly – that transportation costs are higher in Africa than in other regions.” 

It has been alluded that multimodal transportation – in which roads, railways, airlines and shipping operate in sync – can provide a significant contribution to growth and productivity. Integration on the continent, however, is difficult. “There just isn’t enough flight connectivity between major cities. A little over 12% of cities in Africa are served by just one flight a week, and over 50% by fewer than five flights per week.    

"Only three cities out of 100 are served by 50 or more flights a week – this is a major hurdle if you would like to bring goods in or out of a country in the fastest possible transit time,” says Brewer.  

Another major hurdle faced by the continent, he says, is that of a prohibitive legislative environment. The World Bank’s Africa Infrastructure Country Diagnostic (AICD) found that a cocktail of factors such as corrupt customs administrations and restrictions on entry into transport markets resulted in the raising of transport costs and these costs were liable to raise the cost of African goods by 75%.  

Brewer mentions that there are 54 countries on the continent, each with its own unique challenges. “Whether it is unique customs laws, a de minimus (threshold over which all goods are dutiable/ taxable), legislation around resources or staff – the legislative environment in Africa can be prohibitive. This impacts the ease of doing business for the transportation industry.” 

Congestion is another factor that compromises the logistical systems upon which global trade is dependent. Brewer agrees, citing that, “So many cities in Africa suffer from major traffic congestion. This poses a problem for logistics providers like DHL, since it means that we are constantly and dynamically adjusting routes, delivery methods and our supply chain.”

Although he will admit that these challenges can be very frustrating, he does not see any of them as insurmountable at all.  

“Airlines are investing, governments are developing and investing in infrastructure, and DHL will continue to push the envelope and find creative ways to ensure Africa realises its potential.” Industry experts seem to agree on one point: investment opportunities for the sector are ripe for the picking and that this subsequently presents major growth opportunities as well. 

Brewer agrees: “Notwithstanding the global economic uncertainty, there is significant growth potential. Consider that Africa is home to seven of the 10 fastest growing economies in the world, that there are one billion people with an ever increasing disposable income, and that 28 of the 52 countries in sub-Saharan Africa have 5% average annual growth." 

There is also huge untapped potential outside of the cities. 

While many people in Africa are moving into the cities (there is an urbanisation pace of 4% per year), approximately 60% of Africa’s population still reside in rural areas, he says. 

“According to The Economist, Africa is home to only 3% of the global economy, but is growing the fastest – all of these point to major economic potential and, thus, potential for the industry. 

"Very typically, the logistics industry is a bellwether of the macro-economic performance: if our industry is busy, it bodes well – if not, it would suggest a slowing economy. The industry has continued to post very solid returns over the last few years and the future will be increasingly positive.”   

When it comes to investment opportunities in the industry, Brewer mentions that they are already seeing major opportunities in the industry linked to oil and gas finds across Africa; in Pemba, Mozambique and in Tanzania. “These energy finds are usually in remote parts of the continent and need major logistical investment to support the finds.”  

He adds, “Another key sector we foresee will enjoy major growth is that of consumer electronics. Our global electronics clients, most of which are the largest in the world, are actively looking into distribution into Africa, and need strong logistics to support this.”

So what does the future hold for the industry? Brewer believes that this is difficult to predict. However, “for countries that are less reliant on Europe, we would see continued and strong growth. For others, where a large proportion of trade is still tied to the EU, we may see slightly softer growth numbers.

"In all cases, trade growth will be led by oil, energy and mining and, in the medium term, by ecommerce and manufacturing in the pharmaceutical, chemical and technology fields.  

"The industry will see growth on major trade lanes, probably to Asia and intra-Africa, as connectivity. In terms of specific countries, Nigeria, Cote d’Ivoire, Ghana, Kenya, South Africa, Tanzania, Mozambique should boom in the next few years.”  

In closing he says, “I really believe there is major opportunity around ecommerce in Africa, but it needs a mind shift from authorities… Governments can look into a formal de minimus, which is high enough to support etailing; we should see an explosion of trade activity almost overnight.

"Coupled with investment in Internet infrastructure – SSA Internet-user penetration is already up from 0.5% in 2000 to 10.6% in 2011 – and the use of mobile phones to transact, ecommerce presents a major opportunity that is currently ignored in most countries.”

 

 

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