Africa is one continent, but it s made up of 54

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3 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight AUGUST 2014 HUGE CONTINENT, MASSIVE DIVERSITY, CHALLENGING LOGISTICS Africa is one continent, but it s made up of 54 countries with very low connectivity between them. Total intra-african trade in recent years represented only 11% of Africa s trade with the world - contrast that to Asia, where half of total trade is between countries within the region. Africa s transport infrastructure lags well behind that of the rest of the world, but between the regions there are also significant differences. PWC found that whilst none of the African countries analysed comes close to the United States or China, South Africa s overall transport infrastructure scores almost identically to India s, and better than Indonesia s, whilst Kenya is ranked higher than Vietnam. Africa s terrain also varies widely, from desert to rain forest. Such geographical diversity has a big impact on critical transport infrastructure, making it more challenging to build road and rail networks, not to mention much needed bridges and tunnels. But even without extreme geographic conditions, there s a huge range of the levels of maturity in terms of infrastructure. The Transport Intelligence (TI) report on Sub Sahara Africa Logistics cautions that challenges to doing business remain high, including weak transport infrastructure, lack of quality service providers, a disparate population, security issues and corruption - all of which make doing business in the region highly problematic. CLN EXCLUSIVE WHITEPAPER /3

4 AUGUST 2014 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight Domestic Logistics hindered by poor infrastructure The poor state of infrastructure across the continent hinders the provision of domestic logistics services with related inefficiencies driving the high cost of logistics throughout Africa. Many studies have suggested that the logistics sector in Africa costs anything between six and nine times more than it does in Europe, Asia Pacific and the Americas, said Charles Brewer, the managing director of DHL Express, Sub-Saharan Africa. The poor infrastructure is hampering the entry of more multinational companies into the region due to high operational cost. He said that the bureaucracies spelt out by customs procedures are derailing faster economic growth in many parts of Africa. Across the continent, the domestic logistics sectors are growing at varying rates. Research from Analytiqa reveals that spending in Africa on logistics services by manufacturers and retailers, both in-house and outsourced, is set to increase by almost USD 28.8 billion by 2016, as the size of the outsourced logistics market grows by 38.4%. Analytics report that third party logistics providers (3PLs) are set to take advantage of new growth opportunities in the African region, but they must understand new markets well and acknowledge the operational challenges that will inevitably arise. Rates of logistics outsourcing to specialist contract logistics service providers are at some of the lowest levels in the world, but the market is evolving and the region includes many countries with highly varying characteristics. Africa Contract Logistics Markets Growth by Country, South Africa Outsourcing Rate (%), 2012 Tunisia Morocco Algeria Egypt Kenya Nigeria Uganda Note: Bubble size denotes market size Source: Africa Logistics, Analytiqa Contract Logistics Market Growth (%), / CLN EXCLUSIVE WHITEPAPER

5 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight AUGUST 2014 Freight Forwarding Markets showing healthy growth However, in line with the overall positive economic growth discussed in the first whitepaper, Transport Intelligence forecast that Africa s freight forwardingmarket will see strong growth through 2015, increasing at a CAGR of 11.3%, with growth being driven by the oil exporting economies. AFRICA: FREIGHT FORWARDING MARKET FORECAST m 4000 m 3500 m 3000 m 2500 m 11.30% 2000 m 1500 m 1000 m 20% 18% 16% 14% 12% 10% 8% 6% 4% 500 m 0 m 2009 Source: Transport Intelligence % 0% AFRICA: FREIGHT FORWARDING MARKET SHARE BY COUNTRY 5.2% 3.8% 3.4% 7.2% 8.7% 8.8% Source: Transport Intelligence 2.1% 2.2% 2.7% 27.0% 28.9% South Africa Nigeria Morocco Algeria Tunisia Angola Ghana Kenya Zambia Tanzania Other CLN EXCLUSIVE WHITEPAPER /5

6 AUGUST 2014 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight TRANSPORT INFRASTRUCTURE FOR AIR CARGO AND OCEAN FREIGHT With international freight forwarding set for exponential growth, connecting the African continent to the rest of the world is now becoming a strategic imperative - in order to serve the surge in imports and exports arising from expanding economic activities and burgeoning consumer markets. 6/ CLN EXCLUSIVE WHITEPAPER

7 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight AUGUST 2014 Network of Major Maritime Gateways The PWC Africa report identifies key international maritime gateways connecting Africa to the rest of the world as follows: In the South, Durban is indisputably the number one port not only in southern Africa, but the whole of the continent. In North Africa, by far the most important shipping route is the Suez Canal in Egypt. The transhipment centre at Port of Said has emerged as a state-of-the-art facility since it began operations in 2004, serving the Mediterranean as well as the entrance of the Suez Canal. East and West Africa have a number of competing ports, but there are big issues with capacity and efficiency. While the western African coast includes several larger ports, it still lacks a clear maritime hub. One strong contender for the role was the Port of Abidjan in the Ivory Coast, but a local political crisis in 2011 has had a negative impact. On the east coast, Mombasa in Kenya and Dar es Salaam in Tanzania compete as the preferred maritime gateway into East Africa. Congestion in Mombasa has led to some shippers shifting to Dar es Salaam, but that port is now also congested and faces issues around clearing through customs efficiently. New railway connections between Dar es Salaam and Rwanda, Burundi and Uganda are planned, which could help goods move through faster. Similarly, in Kenya there are plans to build a new access road and railway link to better connect the Port Mombasa container terminal and existing port network to the hinterland. As Africa grows, all of these ports will need to decrease congestion and become more efficient, with infrastructure expansion underway across much of the continent. Another competitor, the Lagos Port Complex, offers direct access to the large Nigerian market, but it is massively congested. This picture could shift after 2016, when a new deep-sea port at Lekki in Nigeria is due to be completed. The Port of Tema benefits from Ghana s political stability, but it currently has severe capacity constraints and long waiting times pose security risks. CLN EXCLUSIVE WHITEPAPER /7

8 AUGUST 2014 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight CONTAINER PORT INFRASTRUCTURE DEVELOPMENTS Major maritime infrastructure developments identified by PWC include current plans to build or significantly expand five ports in the west at Barra do Dande (north of Luanda) and Lobito in Angola, and Lekki in Nigeria, and in the east at Lamu in Kenya and Musoma in Tanzania. Although these projects will increase overall capacity, demand is increasing faster than supply and therefore port congestion will continue to challenge supply chain ecosystems with increased costs and slower throughput. Comparing African ports to container ports on other continents, the OECD Port Cities program report that African ports are generally less efficient, more congested and less connected, all of which are barriers to economic growth. Olaf Merk, OECD program director, identifies a lack of good quality port capacity, saying the quality of most ports is sub-standard, with generally poor hinterland connectivity. Governance and regulatory frameworks add to the scenario - there is generally a lack of competition, lack of professional management and an excess of cumbersome regulation and administrative procedures. But the upside of all these challenges is enormous opportunities! Global port terminal operators - in many cases a driver of port efficiency - are recently beginning to discover Africa, and their presence over-time will deliver efficiencies and increase port productivity and performance. Considering the emerging African middle class, Africa as a new manufacturing centre and increasing South-South trade volumes - all these trends will increase demand for high quality ports in Africa. Capitalising on these opportunities, Merk says, will need further upgrading of infrastructure, as well as better regulation and governance. This would require infrastructure investment and port reforms, aiming at increasing competition and professionalization of port management, including enabling better access for the global port terminal operators. According to OECD, government priorities and policies have a massive influence - ports generally perform well because they are seen by their governments as strategic drivers of economic development, which results in investment, solving of bottlenecks and administrative simplification. 8/ CLN EXCLUSIVE WHITEPAPER

9 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight AUGUST 2014 AIR FREIGHT HUB AND SPOKE NETWORKS Air Cargo is key to the economic growth of any country, much so, in the case of emerging countries in Africa. However, transporting Air Freight can be more difficult than road, rail or waterborne freight transport, in large part due to security issues. Africa has a number of international airports, with the busiest being OR Tambo International Airport in Johannesburg, South Africa with annual capacity of almost 21 million passengers. Hub-and-spoke air cargo networks have already developed in the east and south of the continent. Hubs at Nairobi in Kenya, Addis Ababa in Ethiopia in the East and Johannesburg, South Africa, in the South are increasing the connectivity in those regions. West Africa lacks a strong hub-and-spoke structure. Two new international airports are already planned at Angola s capital, Luanda, and in Abuja, Nigeria. Luanda, for instance, is expected to have capacity for over 13 million passengers and a cargo terminal with an annual capacity of 35,000 tonnes. The large size of the West African market and the rising consumer demand in the West African economies suggest that more spokes will develop around these future hubs. Now that the growth potential of Africa has been clearly identified, the Air Freight industry has been experiencing a spurt in growth. The air freight traffic in Africa is growing at an average of over 6% while the global average is 5.8%. Africa is behind only the Middle East and Asia Pacific in growth statistics. The growth in Air Freight industry has had a positive impact on the economic front with 28 out of 52 countries in Africa showing an average 5% annual growth which is likely to increase. Amidst this encouraging expansion, air freight in Africa has some issues that need to be addressed if the continent s full potential for growth is to be tapped. As with many frontier markets, the main constraints relate to safety, security, infrastructure and the lack of policy regulations. Continuing government progress on policy and infrastructure, together with adopting international best practices across the industry will undoubtedly unlock the true potential of the Air Freight Industry thus paving the way for exponential economic growth of the African nations. CLN EXCLUSIVE WHITEPAPER /9

10 AUGUST 2014 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight NIGERIA THE ECONOMIC POWERHOUSE OF SUB SAHARAN AFRICA With over 168 million people, Nigeria is Africa s most populous nation and in early 2014 became the biggest economy in sub-saharan Africa. The West African country s GDP for 2013 totalled 80.3 trillion naira (about USD 510 billion), compared with South Africa s USD 370 billion, according to the Nigerian statistics office. Nigeria became Africa s biggest economy after the country rebased its gross domestic product (GDP) data, which now includes previously uncounted industries like telecom, information technology, music, online sales, airlines, and film production. The new figure shrank Nigeria s debt-to-gdp ratio to 11 percent for 2013, versus 19 per cent in 2012, said statistics chief Yemi Kale. In the 2014 Logistics Performance Index (LPI) global rankings, Nigeria rose to number 75, a significant improvement from its 2012 ranking of 121 out of 160. Specific improvements were recorded in the areas of international shipments, logistics competence and tracking & tracing. According to CILT Nigeria, for domestic cargo movement, road transport is the most prevalent mode, with 97% of imported cargo whether by sea or by air - eventually ends up travelling by road. Similar to the rest of Africa, low levels of infrastructure impede effective transport and logistics operations. For example, there is an absence of freight villages where cargoes can be consolidated and packaged for further deliveries. Low levels of technology adoption results in only very limited availability of electronic data about the activities of even the major players in the logistics, transport and supply chain management. However, the government is collaborating with some private sector stakeholders to develop Trailer Transit Packs for cargo ex exchange and the temporary parking of trailers. CILT believe that the Logistics, Transport and Supply Chain sectors in Nigeria - although relatively large - are still very much in their infancy and therefore offer great opportunities for investment. Capacity building and technology deployment are critical success factors for efficient supply chain ecosystems in Nigeria, for which CILT call for international cooperation and collaboration. At the federal level, Nigeria s government fully recognise the importance of transport and logistics in empowering further economic development, as outlined in the keynote address from Honourable Minister of Transport, Sen. Idris A. Umar at the opening of the 12th Intermodal Africa Conference in Lagos: 8/ CLN EXCLUSIVE WHITEPAPER

11 Africa the next big opportunity? AFRICA 2 - Transport Infrastructure for Air Cargo and Ocean Freight AUGUST 2014 The Federal Ministry of Transport of the Federal Republic of Nigeria is responsible for Rail and Marine Transport as well as Intermodal Coordination, being reflected in our Vision and Mission Statements: Vision: to evolve a world class transportation system in Nigeria and to position it as a hub in West and Central Africa. Mission: to establish a safe, efficient, affordable and seamless intermodal transport system in line with global best practices while creating an enabling environment for Public Private Partnership (PPP) The promotion of inter-modalism in Nigeria envisages among others the connection of all state capitals, sea ports, airports and river ports with railway lines to complement the existing road infrastructure. Over the last two years, Nigeria has been carrying out a number of Maritime Sector reform measures aimed at enhancing the operational efficiency in the various ports, including implementing 24 hour operations in the Lagos Ports, where more than 60% of port activities take place. For the longer term, the Federal Government is making concerted efforts towards ensuring the continuing development of Deep Sea Ports in the Country, which it sees as the ultimate solution to the current port congestion resulting from the cargo handling demands being beyond their designed capacities. The Federal Government has recently approved the Development of the Lekki Deep Sea Port here in Lagos which will handle bigger vessels and also create employment, with the port being developed under a Public Private Partnership (PPP) initiative. CLN EXCLUSIVE WHITEPAPER /9

12 CONCLUSION As the exciting African growth story continues to unfold, we can expect governments to gradually mature in their policy making, while investing in transportation infrastructure. Meanwhile the huge market potential will attract international investments that will help upgrade logistics capabilities and standards, enabling collaboration with local providers and enhancing domestic distribution networks and international freight forwarding networks. Mark Millar 马克 MBA, FCILT, FCIM, GAICD Mark Millar leverages 25 years global business experience to provide value for clients with informed and independent perspectives on their supply chain strategies in Asia. His Asia Supply Chain Insights series of presentations, consultations, whitepapers, corporate briefings and seminars help companies navigate the complex landscapes in China and ASEAN,make better informed business decisions and improve the efficiency of their supply chain ecosystems. Acknowledged as an engaging and energetic presenter, clients have engaged Mark as Speaker, Moderator, MC or Conference Chairman at more than 300 events in over 20 countries. Mark is a Visiting Lecturer at Hong Kong Polytechnic University and has delivered Guest Lectures at Georgia Tech (Atlanta and Hong Kong), RMIT (Ho Chi Minh City) and SP Jain (Singapore & Dubai). His industry contributions have been recognised with a number of accolades, including being named in the Who s Who of Power Players in Supply Chain Management in China, the Pro s-to-know Thought Leaders in Supply Chain and as One of the most Progressive People in World Logistics. London based business publisher Kogan Page have recently commissioned Mark to write the book entitled Global Supply Chain Ecosystems, due for publication in Africa 2014: Mark Millar was engaged as International Guest Speaker at the Intermodal Africa 2014 Conference in Lagos, hosted by the Nigerian Ports Authority. Intermodal Africa is the biggest and most established annual Container Ports, Shipping and Transport Logistics Exhibition and Conference event on the African continent, now in its 12th successful year.

13 We are proud to announce that we have signed a memorandum of understanding with industry thought leader Mark Millar. The purpose of whitepapers is to provide you insight for innovative business development. Industry thought leader Mark Millar has been engaged by clients as Speaker, MC, Moderator or Conference Chairman at more than 250 events in 20 countries and is recognized by the Global Institute of Logistics as One of the most Progressive People in World Logistics