Logistics and Transportation: The backbone of economy

  • April 18, 2017

Africa, the continent enriched with hopes and lucrative business opportunities, provides some low-hanging fruit in terms of investment opportunities. Formerly known as a dark continent, it has now become the favorite business destination of entrepreneurs across the globe. This region of the world provides the untapped opportunities, which could be used as the stepping stones to reach milestones. With more and more number of corporates and investors, showing keen interest in Africa for expanding their roots, continent is becoming host of world’s top business models. With increasing business activities, many of the obstacles have also been identified. One such prime obstacle is transportation and logistics in Africa.

Quite an overlooked fact, but according to the United Nations Economic Commission for Africa, only about 30% of African roads are well constructed and paved, and 50% of them still remain in pathetic condition. According to the facts, shipping cost of cement from Shanghai (China) to the shores of Djibouti is approximately 60%cheaper than shipping it from Addis Ababa, Ethiopia’s capital city to Djibouti by road. These facts obviously doesn’t portray a positive image of logistics and ports. But the biggest question is, why is logistics in such a poignant condition in Africa? According to a local source, it requires nearly double the amount of days and more than 10 times the price to move a 40ft container from Kenya’s second largest city, Mombasa, to Rwanda’s capital Kigali, than it is to move the same container from Shanghai to Mombasa, according to a local shipper in Kigali. These figures are sufficient enough to present the actual and appalling reality of the logistics industry in Africa. The dire need of improvements is attracting investors from all over the world to invest in this industry.

Obstacles

The biggest challenges for African logistics are huge custom fees and bribe demands. It subsequently leads to the delayed transportation. Furthermore, the costs due to business delays make the situation grow worse. Delays leads to loss of business which in turn affects revenue in a negative manner. Africa needs government’s intervention for boosting economies and to lower down the costs of production. The transfer of goods, services and technology still stagger around, as people struggle to find ways to share. Logistics industry has a good potential in Africa and a successful transition is very much possible for the logistics sector. Developing specific corridors and special economic zones has proved successful in Ethiopia and Mozambique. Tanzania is also seeing great benefits under these kind of schemes. It will not only reduce the transportation cost, but would also eliminate the delays in the movement of goods and services. Timely movement will also affect the revenue in a positive manner.

Projected scenario

Across the multitude of investments in transport and logistics throughout the continent, the Nacala line is one amongst this huge pool of investments. Approximately $37 billion has been invested in current road and infrastructure projects in sub-Saharan Africa. As per the facts given out by a report prepared by British researchers, logistics spending in Africa by manufacturers and retailers is projected to elevate up in the coming years. The size of the logistics market is expected to grow rapidly. Africa is already home to some of the world’s fastest growing economies and more and more number of investors and corporates across the world are seeking to invest in the African countries. The competition is already so fierce that people now want to explore the unexplored and untapped destinations to explore new opportunities. This invasion by business seekers will subsequently increase the demand of smooth transportation of goods and services.

Ray of hope

Apprehending the serious need of amendments in the current logistics and transport sector, African governments have started working on it to facilitate and promote a healthy business environment. Initiatives such as railway projects and upgradation of airport in Ethiopia, Uganda and Kenya embodies the expeditious change in East African corridor. More and more such initiatives are in pipeline. The African governments have started admitting the gravity of the situation and subsequently more and more number of such projects and ventures are being discussed. These efforts by African governments are indeed enough to prove the critics wrong and to win the faith of all those who are seeking to grow their business simultaneously with Africa’s growth.

Till date, the biggest boon and revolutionary pioneer for Africa has been considered to be introduction of mobile phones. It has been used as a stepping stones by numerous investors, corporates and entrepreneurs to kick start their business models. Indubitably logistics and transportation has the ability to create such large scale impact as that of mobile. Though it is a time consuming and a bit challenging process, but once established successfully, it would change and impact the economies of the African countries rapidly in a favorable manner. Now is the right time to invest in the logistics and transportation sector in Africa. Governments are looking for global help. Getting an opportunity to collaborate with African governments would be a ‘once in a blue moon’ sort of chance, which no one would like to miss. According to Ray Johnson, an entrepreneur from Rwanda “Investing in logistics would be a sure shot lucrative opportunity. Every business needs logistics and transportation in a direct or an indirect manner.” This statement is indeed true in every aspect. Transportation is the most significant thing and the initial element for the execution of business. Goods and services require frequent movement from one place to the other. Having an appropriate transportation and logistics means timey delivery. As discussed above, business delays leads to huge losses and impacts the revenue generation negatively. Having a good and well established transportation and logistics system means 30% of the work has already been accomplished. This sector is waiting to be explored and established through the help of potential explorers in the form of entrepreneurs and investors. Whole growth rate relies upon trade and business which requires movement of goods and services. As Ray Johnson concludes “Thus considering transportation and logistics as the backbone of a country’s economy wouldn’t be an exaggeration”.

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