Tuesday, November 17, 2015

New Report Shows Shipping and Freight Forwarding Groups How to Do It

Africa Cries Out for Infrastructure Regeneration to Promote Logistics
Shipping News Feature
AFRICA – Unlike many of the ‘reports’ prepared by shipping and freight forwarding groups about the current state of the logistics industry (the current buzzwords are ‘circular economy’ and the still popular ‘leverage’) when DP World produce such a document it is generally worth reading. This week one of the company’s reports is to be revealed at the Africa Global Business Forum (AGBF) where the Dubai headquartered company is a corporate sponsor. The report, 'Africa At The Crossroads: Bridging The Infrastructure Gap', will shortly be available on the DP World website.

The report, prepared in association with the Economist Intelligence Unit, carries information mainly concerned with the shortfall of investment with regard to infrastructure and covers many of the essential points preventing progress, cynics will say with one glaring omission. The document illustrates the continent’s strong economic growth in recent years and highlights how infrastructure development has not kept pace, placing an increasing strain on existing assets.

Over the past decade, investment in African infrastructure has risen sharply and some notable projects have been completed. But despite the impressive flow of projects and policy reforms, the continent’s infrastructure development has failed to keep up with the average annual GDP growth of 5%. The development of so called 'soft' infrastructure, such as the legal and regulatory frameworks that enable physical infrastructure to be built and maintained, has also fallen short of requirements.

To overcome these continental wide infrastructure deficits, as much as US $93 billion will be required annually (approximately 10% of African GDP), with only around half of that amount currently available. For example Sub-Saharan Africa currently spends around $6.8 billion per year on paving roads, whilst the report concludes the figure needs to be closer to $10 billion.

With its experience in African port development DP World is, somewhat naturally, a big corporate supporter of Public Private Partnerships (PPPs) having agreements with governments in all six of its ports in five African countries. It also trumpets support for the proposed pan-Africa free trade agreement. DP World Chairman HE Sultan Ahmed Bin Sulayem observed:

“African countries need a solid foundation on which to place the building blocks of their economies. Both soft and hard infrastructure is needed, which will determine how quickly physical assets are built and how quickly trade develops. Our ports in Africa have shown us how the region has enjoyed strong growth over the last 10 years, leading to rising incomes, falling poverty and a step toward economic diversification. However, all this has also placed an increasing strain on existing inland and marine infrastructure.

“If Africa’s countries and regions were better connected, market sizes would increase and encourage greater foreign investment. PPPs are an increasingly popular model to fund projects and the regulatory frameworks supporting them are improving. In addition, resource-rich countries are using their commodities as leverage to obtain infrastructure investment. Today, a growing number of the new natural resource contracts that African governments hand out have an ‘infrastructure industrialisation’ component, requiring the company in question to invest in new infrastructure."

Examples of commercial success are quoted with some encouraging signs of world-class infrastructure delivery across the continent, like South Africa’s Gautrain rapid rail transit system and Kenya’s new railway connecting Nairobi with Mombasa. Other high impact projects underway could also be game-changers if they can overcome operational challenges and the Inga Dam in the Democratic Republic of Congo is quoted as a notable example.

It is easy however to simplify Africa’s problems and the continent is simply too large, diverse and complex to imagine every country will modernise its supply chain in the near future. The Chinese are active in several states but there are complaints that they bring their own labour and do not create the jobs needed by locals, there is also the ever present problem of tribalisation.

The elephant in the room however is the ever present threat of corruption which pervades so much of African society. This of course is a problem elsewhere in the world but the mixture of bribery, which is endemic across the continent, and tribal bias is surely one which will need to be eradicated before much of Africa will be considered a sound place to invest and expand.