Understanding Logistics in Africa - Interview with DHL MD, Charles Brewerby Asia Pacific Video Series on 2013-11-19 13:38:24
As part of Global Logistics Media Online Video Series, we wanted to introduce a collection of written interviews that will either inform, inspire or educate business owners and logistics professionals around the world. The below interview is with Charles Brewer, Managing Director of DHL Sub Saharan Africa, in this interview we get a deeper understanding about the market conditions in Africa, and the logistical challenges a company may face if considering entering an African Region.
What are some of the current major challenges facing the transportation industry in Africa? What are the implications of these challenges for the continent? Are these surmountable in youropinion?
While there is still massive opportunity in Africa, and I remain not only optimistic, but excited about it’s growth, there are some major challenges.
Infrastructure. High inland transportation costs have had a major impact on global supply chains originating and ending in Africa. In this respect the region’s geography is partly to blame. There is a low ratio of roads per square kilometer and scattered population with long distances between urban areas. Furthermore Africa has the highest number of landlocked countries of any continent. This coupled with poor road, rail and air infrastructure, with slow and inefficient borders means, and not surprisingly, that transportation costs are higher in Africa than in other regions.
Air Connectivity. There just isn’t enough flight connectivity between major cities. Just over 12% of cities in Africa are served by just one flight a week and over 50% by fewer than five flights per week. Only three cities out of a hundred are served by 50 or more flights a week – this is a major hurdle if you would like to bring goods in or out of a country in the fastest possible transit time.
Legislation and the ease of doing business. There are 54 countries on the continent, each with their own unique challenges. . Whether its unique customs laws, a de minimus (threshold over which all goods are dutiable/ taxable), legislation around resources or staff – the legislative environment in Africa can be prohibitive. This impacts the ease of doing business for the transportation industry.
Congestion. So many cities in Africa suffer from major traffic congestion. This poses a problem for logistics providers like DHL since it means that we are constantly and dynamically adjusting routes, delivery methods and our supply chain.
Then, the general challenges that face most businesses here are also key to remember. This includes finding the right human capital, dealing with the authorities (who are prone to change quickly in some instances!), and securing local resources.
All of the above can be very frustrating and certainly poses a challenge, but none are insurmountable.
Airlines are investing, Governments are developing and investing in infrastructure and DHL will continue to push the envelope and find creative ways to ensure Africa realizes its potential.
What does the growth potential for the transportation industry in Africa look like?
Not withstanding the global economic uncertainty, there is significant growth potential. Consider that Africa is home to 7 of the 10 fastest growing economies in the world, that there are 1 billion people with an ever increasing disposable income, and that 28 of the 52 countries in Sub-Saharan Africa have 5% average annual growth. There is also huge untapped potential outside of the cities.
Whilst many people in Africa are moving into the cities (there is an urbanization pace of 4% per year), approximately 60% of Africa’s population still reside in rural areas.
According to the Economist, Africa is home to only 3% of the global economy but is growing the fastest – all of these point to major economic potential and, thus, potential for the industry.
Very typically, the logistics industry is a bellweather of the macro economic performance, ie if our industry is busy it bodes well, if not it would suggest a slowing economy. The industry has continued to post very solid returns over the last few years and the future will be increasingly positive.
Some industry experts have mentioned that there are many investment opportunities available in this sector. Do you agree? Any comments?
Absolutely. We are already seeing major opportunities linked to key sectors in the industry. Consider the oil and gas finds across Africa, like Pemba in Mozambique or Tanzania. These energy finds are usually in remote parts of the continent and need major logistical investment to support the finds.
Another key sector we foresee will enjoy major growth is that of consumer electronics. Our global electronics clients, most of which are the largest in the world, are actively looking into distribution into Africa, and need strong logistics to support this.
Then there are particular country industries which you could look at. As an example, healthcare and ICT are growing in Nigeria, as they modernize their healthcare sector and look at better telecommunications structures. Similarly, they have developed a ‘just in time’ maintenance culture on their cars, which means opportunity around automotive parts.
Compared to powerhouses such as Asia, how far behind would you say Africa is in terms of it's transportation infrastructure? What needs to be done in order to improve upon this?
As I mentioned earlier, Africa certainly has its infrastructure challenges, but it is improving and, many countries are making substantial investments, as are major players like DHL. Just last year, we opened substantial new facilities in Tanzania and Nigeria, as well as a regional quality control centre in South Africa and laid on new flights and aircraft (including a dedicated new flight for Nigeria).
Its up to both governments and business to invest in infrastructure to improve the economic outlook for Africa.
In your experience, what are some of the border control issues coming up in terms of, say, policy, etc?
Each country is incredibly unique, however the most common issue is stablishing a formal and best in class de-minimus, coupled with implementing modernisation programs that use WCO standards and IT as an enabler to faster, cleaner and more transparent clearance processes.
As an example, South Africa has an informal de minimus of R500 which means that all goods over R500 entering the country need to be formally cleared (read delay) and will attract duty and tax. This is trade prohibitive. If they minimally used the same allowance/ de-minimus as a passenger arriving at OR Tambo, as an example, then the speed and cost to import would improve tremendously.
What does the future of the industry look like?
Its difficult to predict. For countries that are less reliant on Europe we would see continued and strong growth, for others where a large proportion of trade is still tied to the EU, we my see slightly softer growth numbers In all cases, trade growth will be led by oil, energy and mining and, in the medium term, by ecommerce and manufacturing in the pharmaceutical, chemical and technology fields.
The industry will see growth on major trade lanes, probably to Asia and intra-Africa, as connectivity increases. In terms of specific countries, Nigeria, Cote d'Ivoire, Ghana, Kenya, South Africa, Tanzania, Mozambique should boom in the next few years.
Generally, the industry will continue to adapt. I think we’ll see more innovative ways of collecting and delivering packages, better options for general consumers to use express services, more sustainable ways of transportation to decrease our carbon footprint and a myriad of things we can’t foresee.
Any further mention of issues you feel are pertinent and worth mentioning?
I really believe there is major opportunity around ecommerce in Africa but it needs a mindshift from authorities. In Australia, we saw our etailing business grow 30% year on year in 2010, surging not only on the back of a strengthened currency but due to an attractive tax structure whereby imported goods to the value of Aus $1000 (R8 000) were exempt.
If governments can look into a formal de minimus which is high enough to support etailing, we should see an explosion of trade activity almost overnight. Coupled with investment in internet infrastructure – SSA internet-user penetration is already up from 0.5%in 2000 to 10,6% in 2011 – and the use of mobile phones to transact, ecommerce presents a major opportunity that is currently ignored in most countries.
Managing Director of DHL Sub Saharah Africa