Market Profile: Africa's logistics market opportunities
Although not on the same playing field as the emerging economies of Brazil, China and India, which continue to boom in terms of market potential; Africa has been earmarked by industry experts as a region to watch closely following strong performances from South Africa, Morocco and Ethiopia last year.
The global demand for the continent’s huge pool of natural resources continues to escalate, leading to interest from the international logistics sector keen to snare a piece of the action. While much of the continent has long been beset with political instability and corruption, the African markets have been increasingly showing positive signs for investors, and consequently for the logistics industry.
The 2012 Agility Emerging Markets Logistics Index shows both the Middle East and Africa amongst the fastest-growing ocean trade lanes in 2005-2011. Africa also featured some of the fastest growing air freight trade lanes and had the likes of Nigeria, Kenya, Morocco and Tunisia listed in the top ten fastest-growing exporters.
Global logistics leader Barloworld’s 2012 Supply Chain Foresight report has similarly noted great potential for the continent as an emerging logistics market. “With the fast growth of GDP in some regions and with relatively low intra-trade taking place within Africa, demand for cargo services across most industry sectors looks set to increase over the next five years,” predicts Frank Courtney, chief executive for Barloworld Logistics, Europe, Middle East and Africa. “African economies are undoubtedly growing economies and the range of cargo required is wide.”
Although Barloworld offers a diverse range of supply chain management solutions across many different global trade routes, the company’s presence in Africa remains predominantly in its birthplace of South Africa. With the expansion of emerging market economies such as China, India, Russia and some African countries, trade between Africa and the Middle East is expected to flourish as the latter is perfectly placed as a central transhipment hub.
“The Middle East is a well-positioned distribution hub for Africa. GCC countries with their state-of-the-art facilities, free zones, open sky policies, mega terminal ports and airports, easy customs procedures and simple taxation policies also make it easy to establish trade links here,” says Courtney. “With China being Africa’s largest trade partner, the Middle East is well positioned to leverage off this trade flow. Much of the cargo flow driving this demand is made up of the natural resources needed to fuel these growing global economies, coming from Africa’s traditional industries of mining, oil and gas, chemicals and agriculture.
“Middle Eastern economies are also fuelling their manufacturing sectors, which will require African resources,” says Courtney. “So the trade between these two regions is expected to grow even further.”
Within the African trade zones; South Africa, Angola, Nigeria, Kenya and Egypt represent the largest trading economies, although Courtney expects this list to rapidly widen to include the up and coming countries of Namibia, Mozambique, Tanzania and Ethiopia. With this much potential on the African horizon, it is understandable why the Middle East’s cargo operators could be tempted to dive straight into this budding market.
Market veterans like Courtney, however, are quick to warn that as a growing economic continent, Africa is not without its challenges. “The infrastructure is not really adequate to handle this level of growth, which can lead to inefficient supply chains,” he says. “There are also other obstacles to overcome, such as complexity of customs, different import laws and trade regulations in each country.”
With transport costs for trade estimated to be up to 40% higher than in other developing countries, additional stumbling blocks include port congestions, political instability and security issues.
Like Courtney, Mohamed Parkar, vice president commercial at Maximus Air Cargo, recognises that on a wider scale Africa’s economic geography does indeed present both a serious challenge and a huge opportunity at the same time. Africa has long been identified as a strong emerging market by the Abu Dhabi- based air cargo operator.
“But for Maximus, the opportunities lie in the challenges of the continent, such as its inadequate transport and communication infrastructure. Air transport can complete the missing links in the regional network and the poorly maintained infrastructure,” says Parkar. “We can operate on a hub and spoke system serving Africa and either Europe, Asia, India and China through the gateway of Abu Dhabi.”
In the absence of capacity in the continent to move perishables in large quantities, Maximus Air’s fleet presents what Parkar believes to be a perfect air freight model for perishable cargo through its ACMI lease service for other operators.
“Nairobi, in particular, exports around 2000 tonnes of perishables by air to Europe every week, which includes cut flowers, fresh vegetables and fish,” he says. “Kenya also sells 82% of its horticultural exports in EU countries which reflects African export trends.”
As the appointed air relief support partner for the UAE Red Crescent, there is also huge potential for Maximus in terms of humanitarian relief flights, including outsize charters like helicopters, armoured vehicles, generators and water tanks.
As Africa continues to grow in economic strength, the role of alliances such as COMESA (Common Market for Eastern and Southern Africa) become increasingly important to manage the sustained growth of its trade lanes. The top five COMESA regions of Sudan, Libya, Egypt, Kenya and Zambia all continue to show great promise for the future and the Middle East is strategically placed to benefit from this.
“As a gateway to regional markets, the UAE’s strategic location and advanced infrastructure at its ports, airports and free zones, along with the excellent business relationship between the countries of COMESA, is expected to facilitate increased trade between COMESA countries and other markets over the coming years,” says Parkar.
Dubai-based Freight Reach Services has also been positioning itself as an Africa-specialist to maximise on the opportunities presented by the continent. “The connectivity of Dubai to Africa is fantastic as we benefit from an amazing network for both air freight and sea freight into Africa,” says B Rajagopalan, chief executive officer of Freight Reach Services.
“Dubai is a big market for African traders as they can purchase multiple products at competitive prices and the transit times are not long.”
The company’s success in the field has led to a huge expansion of its office network across Africa within the last 18 months. “Africa represents a better market at these economically unpredictable times as it has huge volume potential at much better margins,” adds Rajagopalan. “Many additional factors will lead to increased market growth in these countries in the near future.”
As far as continental prospects go, Rajagopalan is particularly excited about East Africa as one of the more stabilised markets in the region. Experts have long pinpointed the region for growth, due to factors such as the discovery of oil in Uganda, the development of the East African Common Market and a robust economic performance for the region’s nations. A joint plan by the Southern African Development Community, East African Community and COMESCA to form a free trade area has also primed Kenya, in particular, for investment from multinationals.
So why does the African continent hold so much potential for Damco? “It is important to remember that where some markets in the world are stagnant or only growing very slowly, Africa offers faster growth,” answers Jacob Moe, Africa CCO for the company formerly known as Maersk Logistics. “While working on a growing trade lane, one of the main benefits is that Damco has an already established strong local presence in Africa and it needs competences like this to deliver end to end services in the emerging markets.”
He points to the level of complexity between different countries, which dictate that just opening up in one country does not mean services can automatically be replicated in the next. “But these problems are also the key to success, as you need to be able to bring reliability to a very unreliable environment,” he adds.
The supply chain management solutions provider has been operating in Africa for more than 20 years and has developed a strong presence across the continent. “Our strength in the region is operating in landlocked countries where bringing reliability to supply chains is somewhat more challenging,” says Moe. “We handle daily movements of goods from all over the world to African ports, but also local deliveries and project cargo.”
The company has been witnessing a peak in interest from an increasingly diverse range of industries due to the growth and stabilisation of the African economy and has been investing in warehousing infrastructure to support global imports. Already strong in the Eastern part of Africa, and with more than 19 locations throughout the Middle East, Damco has also been targeting Southern and Western Africa to assist in developing its Middle East-Africa trade lane.
It does appear that having a greater understanding of how logistics work on the African continent is crucial for companies hoping to break into this burgeoning but unpredictable territory.
Veteran logistics player, Swift Freight knows this only too well. Operating in Africa for more than 22 years, the company has scored huge dividends from a heavy focus on the provision of freight logistics solutions specific to the vast and promising African markets.
Over this period, Swift has successfully developed a number of Africa-centric products specifically to meet the logistics needs of the continent. The company’s SAM (Sea-Air Model), for instance, transports cargo by sea from the Far East to Dubai and then by airline into Africa. “This is a wonderful solution, particularly for the inter-land destinations in Africa, where the road infrastructure from the ports can be quite bad,” says Warren Erfmann, chief executive officer of Swift Freight.
The company also operates Swift Perishables Logistics, a service developed in Africa to make use of Dubai as a transhipment hub for niche destinations and NVOCC (Non Vessel Operation Common Carrier) operation Surelines, which offers regular dedicated groupage services in the Far East and Middle East as well as Africa’s hinterland destinations. “All of these products have shown tremendous growth over the years and we are well poised to take advantage of the boom that Africa is experiencing now,” says Erfmann.
Market veterans like Erfmann can totally appreciate why the Middle East’s logistics industry is keen to capitalise on Africa’s growing trade. “It represents a largely untapped market from a business opportunity point of view,” he says. “Focusing on Africa and having niche products for the Dubai-Africa markets is what has made us successful.”
As Africa’s political and economic outlook improves, Erfmann believes that Africa’s “floodgates” will open, providing many more opportunities for the company. With China and India already turning their focus on the continent, the Middle East’s logistics industry needs to act fast and strategically in order to capitalise on its pole geographical position on the African trade lanes.
“Most logistics companies are starting to turn their attention to Africa for growth as the more mature markets where they traditionally focused show little or no growth,” continues Erfmann. “Although the Middle East is a perfect platform to launch African ambitions, the biggest challenge for these companies will be going in with an open mind and learning how business is done there.”