Monday, June 24, 2024
Monday, June 24, 2024
Home » Africa’s logistics sector set to deliver results as free trade agreement kicks in

Africa’s logistics sector set to deliver results as free trade agreement kicks in

by Jessie Chambers
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Intra-African trade has long struggled to cope with the continent’s inadequate logistics and freight sector.

African logistics have struggled to cater to the country’s growing population and dynamic private sector for far too long. New research suggests that is about to change — and the benefits for the continent’s wider economy could be transformative.

That shift is thanks to the African Continental Free Trade Area (AfCFTA) agreement, which introduces frictionless trade between its African signatories. Signed in February 2021 and now coming into force, AfCFTA is a catalyst for rapid investment and expansion of the continent’s nascent logistics sector, according to a report by the World Economic Forum: AfCFTA: A New Era for Global Business and Investment in Africa.

African logistics: from challenge comes opportunity

Inconsistent or inadequate freight and logistics have long hindered intra-African trade. Countries face high custom delay periods, shortages of paved roads upon which freight can be transported and a higher loss of goods due to limited cold chains compared to other regions globally. The AfCFTA is addressing these challenges.

African states currently import $36.8 worth of freight or logistics goods, from passenger freight and transport to parcel and courier services, every year from within and outside the continent. Under AfCFTA, that amount is set to swell — and African companies can fulfil that demand.

The Forum expects an increase in intra-African freight demand of 28%, translating to additional demand for almost 2 million trucks — used primarily for the expected growth in trade of automotive parts and pharmaceuticals — 100,000 rail wagons, 250 aircraft and more than 100 vessels by 2030.

Maritime trade is projected to increase from 58 million to 132 million tonnes by 2030 with the implementation of AfCFTA, and the growth in this sector will help, in particular, with a projected boom in agro-processing trade caused by AfCFTA.

African companies and people set to benefit

As the largest continent in the world, and with a hitherto struggling intra-continental logistics network, the AfCFTA presents a major opportunity to invest in logistics and freight at a growth inflection point.

The overwhelming demand and need for logistics and transport services will only increase as the AfCFTA is implemented, intra-African trade increases and more small and medium-sized enterprises require logistics providers to connect to larger markets. If commodity prices decrease, as they are projected to due to the removal of trade barriers and import costs, consumption and demand will increase, benefitting African manufacturers and the mobility sector.

Large logistics companies have historically been too expensive for African companies to use, but we are now seeing the rise of new digital logistics companies that reduce costs and can improve the quality of services while also promoting sustainability.

Closing the urban-rural divide will also yield significant opportunities. Rural areas are naturally more reliant on regional supply chains than urban dwellers, but inadequate road infrastructure too often leaves them isolated and economically excluded. Start-ups have already begun to address these issues, proposing innovative solutions to integrate rural and city markets.

Infrastructure gaps, especially those that take a long time to fix, such as road issues, have spurred companies to turn to novel solutions, including cargo drones, inland waterways and ports and other means of transport to reach rural communities and bring them into the growing economic system.

Business-to-business (B2B) logistics, already a major component of Africa’s logistics economy, is expected to dominate the sector in the short- to medium-term. African companies spent $2.6 trillion on B2B services in 2015 and are expected to spend another $1 trillion by 2025 — and the AfCFTA will only accelerate opportunities for companies providing B2B services.

Business-to-consumer logistics will also continue to increase as consumer spending rises, e-commerce becomes more prevalent and urbanisation continues.

Case studies: strategising for a new era of African trade

A number of global companies have found success capitalizing on these opportunities, and their experience can yield valuable insight for new investors.

Many companies credit their success in Africa to leveraging macroeconomic trends, anticipating the positive impact of the AfCFTA and focusing on the key enablers that facilitate increased intra-African trade.

Leveraging macroeconomic trends & the AfCFTA

Agility Logistics, a company that focuses on many different aspects of transport and logistics, has successfully developed a strategy that both enables local companies to scale up and attracts international companies to enter African markets. By tracking macroeconomic trends including demographics, regional trade, growing consumption, digitisation, small and medium enterprise development, FDI, local manufacturing and the AfCFTA single market, it has been successful in building warehouses that efficiently match supply and demand and reduce time barriers and costs for companies.

Menzies Aviation is the largest aviation services provider in Africa, supplying air cargo, fuel and ground services in 20 African countries and employing more than 3,500 people. Menzies has identified Africa as one of the fastest-growing aviation markets for both air cargo and passenger travel — both of which will be accelerated by the AfCFTA. The company recognises the AfCFTA’s potential to make air travel and cargo movement easier, cheaper, safer and more competitive and so it is already working with airlines looking to enter the African market, including several Middle Eastern carriers seeking to jointly expand their networks with Menzies.

Leveraging key enablers

DP World is a global logistics provider that has spent the past 20 years on the continent meeting the great demand for road, rail, maritime and air freight by investing in exactly the kinds of infrastructure, logistics and fully integrated services that will accelerate the AfCFTA and add maximum value as intra-African trade increases. It currently employs 9,000 people on the continent and operates 10 ports and terminals. These efficient, well-equipped sites drive down costs and will support export competitiveness, help African countries grow global trade relationships and further integrate economies into the global trade system.

The African Finance Corporation (AFC) focuses on overcoming Africa’s infrastructure deficit and has been successful in understanding the infrastructure needs that will accelerate the implementation of the AfCFTA, including transport and logistics, power and technology. The recognition that high-quality infrastructure significantly increases bilateral trade intensity among African countries was a main driver for AFC to both add value and bridge infrastructure gaps. So far, AFC has led or contributed to approximately $4 billion in sovereign facilities for power, roads, water and other infrastructure assets.

These strategies are tangible examples of how the AfCFTA is shaping the future of the transport and logistics sector across the continent. They can serve as guideposts for new investors in this high-potential sector as intra-African trade takes off under the AfCFTA.

Source: We Forum

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