Africa has great potential for logistics investment: report

Logistics companies are looking to the rest of Africa for investment opportunities although South Africa tops the list for having the most developed transport and logistics sector in Sub-Saharan Africa, the International audit firm PricewaterhouseCoopers (PwC) said on Thursday.

“As Africa has risen to prominence as an investment destination over the past few years, so the role of transportation and logistics has taken on greater significance,” says a PwC report.

Whether moving resources off the continent or bringing goods and services into its burgeoning economies, Africa’s future growth and development will depend on the quality of its infrastructure and the efficiency of its transport networks, PwC Transportation & Logistics Global Leader Klaus-Dieter Ruske in the report released in Johannesburg.

The report aims to give investors and other interest groups an insight into the transportation and logistics issues facing the key economic regions in Africa by focusing on 10 of the leading developing nations: Algeria, Angola, the Democratic Republic of Congo (DRC), Egypt, Ghana, Kenya, Mozambique, Nigeria, South Africa and Tanzania.

The countries were chosen based on their economic significance, strong growth in recent years and their potential as transportation and logistics gateways, Ruske said.

The research was carried out by PwC together with Econometrix, one of South Africa’s leading economic consultants.

Interviews were carried out with the executives from African, European and Asian companies that operate in Africa.

“There is a fast growing demand for the vast raw commodities available on the African continent. Africa has an abundance of oil, gas, and mineral resources and significant opportunities for agricultural expansion. For logistics companies prospects in the retail and manufacturing sectors are also significant and lead from a period of sustained growth experienced by many African countries,” PwC Transport & Logistics Leader for South Africa Andrew Shaw said.

Observers expect that African retail markets will grow substantially over the next decade, he added.

According to the report, on the whole, Africa’s infrastructure lags well behind the rest of the world.

Although South Africa continues to show strong infrastructure capability, it has the lowest projected annual growth at 3 percent for the period 2012–2017 of the 10 economies surveyed.

On the other hand, Nigeria and Kenya have the highest projected rates at 6.8 percent and 6.2 percent, respectively.

“While none of the African countries we analyzed comes close to the U.S. and China, South Africa’s overall transport infrastructure scores almost identically to India’s, and better than Indonesia’s, lauded by many as one of the next economies to watch,” said Shaw.

“Logistics strategists can’t afford to ignore the African market of the future. The global transportation and logistics industry can play a vital role in Africa’s efforts to gear up – building its infrastructure, enabling supply chains and distribution networks, providing mobility – and ultimately helping create jobs for its people.”

Gateways to connect Africa to the rest of the world are also important. There aren’t enough ports to handle existing traffic. However, this is set to change, with plans in motion to build or expand five major ports: in the west at Barra do Dande and Lobito in Angola, and Lekki in Nigeria, and in the east at Musoma in Tanzania and Lamu in Kenya, according to the report.

Many companies looking to expand into East Africa are looking at Kenya as their preferred entry point. Kenya is still one of the easier African countries in which to do business – it has flexible labor regulations and investment laws that allow foreign investors to receive the same treatment as local ones, said the report.

But Kenya’s current transport infrastructure is inadequate to meet the country’s needs and significant improvement is required in the sector.

According to the report, a lot of companies expanding into West Africa see Nigeria as a gateway into the region. The country ranks as the world’s fourth fastest growing economy, largely driven by oil exports.

Nigeria is the largest market in the region, being home to almost 170 million of the 250 million people living in West Africa. Fifty percent of the population is urbanized and the middle class is growing rapidly. This makes it extremely attractive for the retail and consumer sectors.

Nigeria aims to be among the world’s top 20 economies by 2020. However, obstacles to the ambitious target remain in the form of inadequate infrastructure.

“Notwithstanding these challenges, we believe that Nigeria will continue to be a leading destination for international investors and that this, in turn will generate strong potential for transportation and logistics providers,” Shaw said.

Ghana is also making strides to establish itself an important gateway to the West African market. Ghana has a favorable business environment. Trade and economic factors also favor growth.

The Organization for Economic Co-Operation and Development expects Mozambique to become the fourth largest exporter of liquefied natural gas globally and second-largest in Africa after Nigeria.

However, Mozambique’s growth potential remains constrained by poor transport infrastructure.

“Each country in Africa has its own value proposition. There is a strong need for the road, rail, air and ports transport networks in some economies to be improved. Transport and logistics infrastructure has the potential to unlock the economic growth value of the continent. It can also provide businesses with great opportunities for growth and creation of employment,” Shaw said.

“Smart investing in Africa means investors need to understand key regions and local markets. If they make the decision to expand in Africa, they will need a solid long-term strategy. The continent needs better transport infrastructure, more connectivity across borders, and an improved business environment to reach its potential,” he added.