South Africa, Nigeria, Kenya and Ghana are the most promising logistics markets in Sub-Saharan Africa, according to a new survey which is part of the 2016 Agility Emerging Markets Logistics Index. However, poor infrastructure, low power generation and corruption continue to pose the most risk to African economies.
“The results show a serious disconnect between the perception of the market and actual opportunities,” says Geoffrey White, CEO of Agility Africa, who noted that African countries are some of the world’s fastest-growing economies.
Despite recent impressive growth and surging foreign investment, Sub-Saharan Africa remains a challenging frontier for many. Only 21.2 percent of more than 1,100 logistics industry executives surveyed said their companies have operations in the region. Another 12.7 percent said they are in the planning stages to enter African markets, while more than 43 percent said they have no plans to set up in Africa.
Although Africa’s requirement for logistics services and supply chain expertise is huge and growing every day, many of the companies don’t know how to get started in Africa or aren’t willing to take the risk. “The market is open for first movers who can navigate risk and nurture African talent. The opportunity is for those seeking to build long-term, sustainable businesses that bring world-class practices and adapt to local conditions,” White said.
Among countries in Sub-Saharan Africa, South Africa has the best “connectivity.” The country ranks 16th (1st in Africa) on the Agility Emerging Markets Logistics Index. South Africa has Africa’s most advanced logistics industry and transport infrastructure. Sadly, its economy has been hobbled by chronic power shortages, slumping commodity prices, a plunging currency and labour unrest.
The fortunes of Africa’s largest economy are similar. Nigeria ranks 17th on the index (2nd in Africa), climbing 10 spots in the 2016 Index. Nigeria’s enormous potential has become clearer since its recent decision to update the methods by which it collects economic data. However, its oil-based economy has been hurt by low energy prices. While its gain on the index over the past seven years is commendable, Nigeria’s size and growth suggest it should rank near Brazil (No. 6) on the Index. But Nigeria is no more business friendly than Venezuela and Uganda. Its weak infrastructure, transport links and customs regime puts it in the same category as Bangladesh, Ethiopia and Tanzania in “connectivity.”
To put the region’s acute infrastructure crisis into perspective, the weight dragging on productivity in the worst affected areas in some countries is estimated to reduce output by as much as 40 percent, according to the report. That’s not all; providing a consistent supply of power is also a significant challenge on the continent where 48 countries have a power generation capacity in line with that of Spain, whose population totals roughly 5 percent of sub-Saharan Africa’s. Although these challenges vary across the region, they demonstrate the scale and salience of the problems sub-Saharan Africa’s emerging markets have to solve. For those that are risk-averse, taking a bet on the region may not be a bad idea, especially due to the progress recorded — a rising middle class with spending power, poverty reduction, growing populations — in the face of its challenges.