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How SFO is helping build better Warehouses in Africa's

The forgotten heroes of the economy: why better warehouses will be key to Africa's growth  

Workers sit on bags of cocoa inside an Ivory Coast warehouse.
  • Africa contains many of the world’s fastest growing economies, but an acute infrastructure gap is constraining growth. The African Development Bank estimates that investment of $130-170 billion per year is needed to tackle the continent’s lack of quality roads, warehouses, power and other infrastructure.
  • SFO has tied up with the biggest RE Funds, PE Players, Sovereign Wealth Funds, Pension Funds, University Endowment Funds and many more in our capital pool to boost this important infrastructure. 
  • Warehouses tend to be one of the most ignored elements of infrastructure and logistics, but they are a fundamental part of the supply chain, critical for economic development and growth. High-quality warehousing is not only needed for storage and distribution, but also for the packing, processing, assembling and light manufacturing of goods, the foundations of any economy.
  • Industrial real estate demand is estimated at over 15 million m² in Africa’s highest-potential markets. This shortage of quality warehousing is increasing the price of goods and stifling business growth.
  • To reach its true potential, Africa needs a fundamental warehousing transformation. African countries need to transition from low-quality “godowns” – makeshift warehouses that tend to lack basic security and safety features – to facilities that meet international standards with consistent, reliable IT connectivity and power. The ongoing transformation of warehousing in markets such as Asia demonstrates how a country can leverage improved facilities to stimulate trade, with a knock-on positive impact on economic development, jobs and prosperity.
  • In the African market, flexibility is key. Local companies looking to scale up and export, and international companies keen to establish a presence in the region are seeking high-quality warehousing without the need to raise or invest large amounts of capital – which could potentially delay the start of trading by several years.
  • A warehousing transformation in Africa can make a difference in five key areas:

1. Providing a platform for African manufacturing and the Fourth Industrial Revolution (4IR)

  • Many multinationals are hesitant to invest in African facilities because of the perceived risks. A warehouse park that is ready to move into, with de-risked land acquisition, reduces the capital required for companies to enter the African market, and helps businesses get to market faster. Multinationals can easily lease space for light manufacturing and added value storage and distribution.
  • With the 4IR under way, tech innovations like 3D printing and real-time connectivity are stimulating local manufacturing, increasing the need for secure, environmentally responsible warehousing platforms. These need to be international-standard facilities with data connectivity and internet of things technology, which improves supply chain visibility by making it possible to track and trace all goods.

2. Enhancing agricultural value chains and reducing food losses

  • According to the UN’s Food and Agriculture Organization (FAO), roughly one-third of food produced for human consumption gets lost or wasted globally. In Africa, wastage is particularly high at the agricultural production and post-harvest handling and storage stages.
  • Modern warehouses with security and pest and temperature control could radically reduce this loss. Consolidated warehousing for commodities and agriculture – allowing for local processing and packaging to take place under the same roof as storage – reduces wastage, and allows far more value to be captured in-country.

3. Enabling the growth of African SMEs

  • Seventy-five percent of growth in Africa will come from small and medium-sized enterprises, according to McKinsey. Many African SMEs struggle to get access to finance for infrastructure. Flexible warehousing models that allow for lower upfront payments give SMEs easy entry to quality warehouses that meet the standards required by international customers.
  • For example, a Ghanaian entrepreneur was struggling to expand her food processing business to supply the formal sector because the loan costs to set up a processing and packaging facility were prohibitively high. By leasing warehouse space in Agility’s Ghana park, she could use her capital to grow her business instead of having to buy land and build a facility.

4. Accelerating e-commerce

  • African e-commerce is booming, with projected annual sales of $75 billion by 2025. In April, African e-commerce company Jumia listed on the New York Stock Exchange. Shares soared 75% on the first day of trading, valuing the company at more than $1.9 billion.
  • E-commerce fulfilment requires four times the warehouse capacity in the destination market compared to the traditional logistics model. The expansion of e-commerce relies on the availability of international standard warehousing fulfillment centers, allowing for the automation and racking that international e-commerce companies use in both developed and emerging markets.

5. Driving economic growth, regional trade and skilled job creation

  • Large-scale warehouse parks allow for logistics and manufacturing clusters to form across Africa as an interconnected network, enabling more intra-regional trade. Currently, intra-regional trade accounts for just 17% of Africa’s exports, compared to 59% in Asia and 69% in Europe. The AfCFTA will create the world’s largest single market, of 1.2 billion people.
  • International standard warehousing will also allow the development of warehouse management skills, including materials management, racking and efficiency improvement, adding to the continent’s competitiveness as it develops its export potential for global markets.

What SFO Is Doing

  • Building the right infrastructure in the right places can catalyse Africa’s growth, driving investment and underpinning development.
  • The availability of international standard warehousing will encourage multinationals to invest in Africa and provide small local businesses the facilities they need to scale up and reach regional and international markets.
  • With support from governments and investment by the private sector, a warehousing transformation can revolutionize African supply chains, helping the continent fulfil its immense potential. 
  • In Africa, warehousing strategies and facilities have remained the same for decades. And the sector tends to be the most ignored link in the supply chain. Now, with imports and exports compromised due to escalating Covid-19 cases, which have been reported in 23 countries in Africa at the time of writing this story, and the prospect of freeing the African continental area for trade, large scale modern warehouses are likely to proliferate and facilitate local manufacturing. Moreover, the already booming ecommerce sphere and the popular choice of outsourcing logistics services are thriving to bring the needed international grade warehousing facilities to the region. Boosting the overall economy, Industrial real estate demand is estimated at over 15 million m² in Africa’s highest-potential markets.
  • Africa’s exponentially growing ecommerce industry and the rapid adoption of third party logistics (3PL) services are driving the demand for speculative warehouses. These warehouses can conveniently be divided into small units and accommodate multiple tenets and are flexible to meet many requirements of different goods dealt by ecommerce businesses and 3PL services.
  • The AfCFTA agreement is expected to take an economic turn historically seen during the formation of World Trade Organisation (WTO). The agreement, which is scheduled for 1st of July, 2020, will enfold a market of more than 1.2 billion people with a combined gross domestic product (GDP) of more than USD 3.4 trillion. The trade-marriage between 55 member states of the African Union has the potential to increase the trade by a spectacular 52.3 percent, eliminating the import duties, as estimated by the United Nations Economic Commission for Africa (UNECA). Also, according to the Ken Research, logistics and warehousing market is expected to reach USD 80 billion by 2023.

Warehousing is redrawing the logistics network in Africa

Containing the challenges

  • One of the major complaints of international community and local businesses concerning African logistics is the poor infrastructure that serves as the weakest link in supply chain, dragging the overall speed of the shipment implicitly down. Logistics surrounding humanitarian services in Africa provides a revealing case.
  • In an attempt to circumvent the poor infrastructure, historically, the International humanitarian and other peacekeeping operations, which are very vibrant in the region, supported the use of ad hoc and contingency-scheduled missions. However, the increased support demands, poor specialised storage facilities and inefficient distribution hubs are further turning the system immoderately unreliable. Currently, continuing the humanitarian services in face of Lassa virus and coronavirus epidemics, a hub-and-spoke distribution network is put in place, with main hubs on the West African coast.
  • Quality constraints in port infrastructure, as reported by the African Development Bank (AfDB), like limited capacity in terminal storage, operation, and maintenance severely limit the scope of logistics in the region. The bank has also estimated that an investment of USD 130-170 billion per year is needed to tackle the continent’s lack of quality roads, warehouses, power and other infrastructure. Apart from the storage constraints and inefficient distribution hubs, shortcomings like lack of real-time accuracy and visibility of available stock levels and manual interventions breed inaccuracies and affect stock valuation. Adding more to the problem, manual stock retrieval and racking further heightens the worry of goods not being correctly stored.
  • Having put forth the challenges and shortcomings, SFO is working with logistics corporations like Africa Logistics Properties (ALP), Agility Africa etc. and strategically setting up warehouses in key locations —ports and junctions— across the region that are eliminating the complications of buying land for entrepreneurs and small and medium enterprises (SMEs), giving access to fully secure, affordable modern warehousing facilities. ALP develops and manages modern grade-A warehousing across Sub-Saharan Africa and Agility has logistics parks in Cote D’Ivoire, Mozambique, Ghana and Nigeria. The adoption of modern warehousing is essential in bringing down the overall logistics cost going ahead.
  • Containing the challenges, the companies mentioned above have set up class-A warehouses across the region. These warehouses are typically high with around twelve meters height, enabling high stacking of the goods. This enhances the storage density, driving down the storage cost significantly. The warehouses are also equipped with moderate automation and digital infrastructure, which includes mechanical handling equipment, utility vehicles and warehouse management system.

Strategic warehousing near ports and railways

  • Africa is perpetually erupting infrastructure to facilitate trade. For example, the LAPSSET project –Lamu port, South Sudan, Ethiopia transport corridor, which is Eastern Africa’s largest infrastructure project bringing together Kenya, Ethiopia and South Sudan; Lagos-Calabar Coastal railway in Nigeria; Mombasa-Nairobi Standard Gauge Railway (SGR) in Kenya etc. are potentially shifting the course of warehousing, bringing in new challenges and regulations. Let’s explore the regulatory and economic challenges at the SGR route, which recently saw (and continues to see) protests drawn due to increased cargo transportation cost inducted by the new government regulation.

Warehousing is redrawing the logistics network in Africa

  • SGR route connects Mombasa port to capital city, Nairobi, along with intermediary towns: Mariakani, Miasenyi, Voi, Mtito Andei, Kibwezi, Emali, Athi River. In 2019, the government passed a policy forcing all cargo being cleared in the port of Mombasa and railed to Nairobi, an immoderate directive which cargo traders protested.
  • The consequent directive that all cargo must be railed to Nairobi created challenges that needed quick fixes to reduce the high costs, which in an essence meant that all cargo must be cleared out of the port in 4 days if the traders are to avoid port storage. The effect further meant that it is incumbent on the trader to find alternative storage facility on bulk cargo for further distribution to wholesalers and or consumers.
  • The only viable option is strategic warehousing after port clearance, especially after the introduction of further surcharge of $200 and $100 for FEU and TEU respectively immediately after customs release, which has made keeping the boxes a day longer at the port facility after customs release extremely expensive.

Facilitating manufacturing

  • To encourage manufacturing initiatives, it is crucial for warehousing sector to pave the way to grow the manufacturing output of the region, especially for pharma sector, as the African continent relies significantly on India for pharma products. Rise in pharma manufacturing sector becomes a more critical consumer centric end product that needs controlled distribution across African region at large, most manufacturing companies find it cost effective to maintain their core business of manufacturing and leave the warehousing and subsequent distribution to the strategic market who have the option of mapping out demand and subsequent distribution.
  • Underscoring the sustenance of cost effective environment for the manufacturing sector, logistics operations need to be equally economic, and a trend of moving warehousing facilities away from cost intensive cities to more sustainable locations is being sought out.
  • Warehousing will continue to depend on the implementation of the Trade Facilitation Agreement (TFA), the process of clearance and cargo handling should equally be decentralised effectively if meaningful trade distribution will be part of the transition. For now it remains policy on paper, yet to be tested by the traders as a better option. Most significant would be the operational areas determined by the SGR cargo terminus, which would dictate strategic warehousing for businesses. I see main warehousing attraction in three major towns: Mombasa as the port of entry, Nairobi as the main city through which part of the SGR first leg terminates and Kisumu which has both potential for airfreight, water transport and rail transport to service the regions and the western part of Kenya. It is just a matter of time for warehousing to become the most preferred service after manufacturing and or bulk finished cargo imports.”
  • The new large-scale, modern warehouse parks are facilitating logistics and manufacturing clusters across Africa and creating an interconnected network, enabling more intra-regional trade. Currently, intra-regional trade accounts for just 17 percent of Africa’s exports, compared to 59 percent in Asia and 69 percent in Europe.

What is creating the waves?

  • Africa’s high interests in trade infrastructure; and growing ecommerce and 3PL are inevitably pushing warehousing sector to form an efficient network, which will inevitably reduce the overall cost of logistics in Africa and significantly reduce the supply chain time. The retail sector is adding momentum to the warehousing sphere, too. More than 70 percent of the world’s largest consumer goods companies are already operating in Africa, and there are a number of high-profile companies influencing institutional changes in the region. A study conducted by the Ichikowitz Family Foundation charity showed that around half of the young participants across Africa said that if offered USD 100, they would want to start a business. Of that, nearly 17 percent showed interest in investing in retail business. This is the kind of entrepreneurial wave African warehousing sector has to contain going ahead.

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