The bumpy ride of logistics within Africa and AfCFTA’s potential solutions

BY OLAKUNLE MOHAMMED

Africa has become a thriving continent for business in recent years but the logistics and supply chain industry continues to play catch up. The challenges facing Africa’s logistics such as the high cost of moving goods within the continent, inadequate transport infrastructure and lack of regulatory frameworks have led to inefficiencies in the supply chain. As nations within the continent begin with the implementation of the African Continental Free Trade Area (AfCFTA), there is potential for the logistics and supply chain industry to thrive and boost intra-African trade, provided it is pumped with more finance, customs cooperation and requisite infrastructure.

Intra-African trade is merely 13 percent which is low when compared to intra-regional trade achieved by Europe at 60 percent, North America at 40 percent, and Asia at 30 percent. The reason for low intra-African trade is attributed to the poor quality of roads and weak transport infrastructure amidst protectionist trade policies.

Ethiopia is one of the largest coffee producers in the world but poor transportation infrastructure such as bad and unpaved roads, outdated ports and airports has made it difficult for coffee farmers to get their products to market. In situations where goods are able to move within the woeful transportation network, the cost is high. In Nigeria, the 2020 average spot rate to ship a 20 feet container from Shanghai to Lagos is between $3,750–$4,000 but transporting from Lagos port to a warehouse within the city costs about $4,000.

Moreso, there is a lack of road networks in the sixteen landlocked nations in Africa, and alternative transport options are expensive. The Economist data from last year showed that it cost about US$2,000 to transport a container from China to Beira in Mozambique, while it cost US$5,000 to transport 500 kilometres inland to Malawi.

Amidst this transportation situation, there is a lack of regulatory framework for customs and border crossing in Africa. Intra-African border crossings are known for inefficiencies, delays and corruption due to the long wait and bureaucratic processes at the border. Meanwhile, logistics relies on information systems and coordination of logistics activities which African nations evidently lack. Some logistics companies in Africa still use manual-based inventory to track goods, monitor and manage distribution. All these challenges negatively impact the logistics industry, little wonder that the 2023 Logistics Performance Index ranked African countries low on performance.

Costs related to logistics can increase the price of goods traded within Africa by up to 75 percent. This is quite alarming, especially as the AfCFTA operational phase has just been launched. The AfCFTA offers a unique opportunity to address the challenges facing Africa’s logistics and supply chain, so that when goods, services and people move within the continent, no exorbitant price will be charged to end users.

Through the years, billions of dollars have gone into interconnecting the continent by expanding existing roads, railways, air and waterways while building new ones. Developing the transport system will significantly reduce the cost of importing, exporting and delivering goods. With the AfCFTA, member countries can become more committed and strategic towards developing comprehensive transport infrastructure networks. This includes improving road and rail networks, increasing the number of ports and airports, and reducing transit times for goods.

The construction of the Lekki Deep Sea Port in Nigeria will help address the inadequate seaport infrastructure in the country. Kigali Logistics Platform has also helped to reduce transportation costs and easily connect Rwanda to neighbouring countries such as the Democratic Republic of Congo, Burundi, Uganda, Tanzania and Kenya. As the wave of dry ports progresses in Africa, the AfCFTA can key into it through strategy, partnership and financing.

While the AfCFTA-initiated Pan African Payment Settlement System (PAPSS) can easily help to facilitate cross-border transactions and payments, the logistics industry in Africa still needs to embrace the latest technology to improve efficiency. Technologies such as electronic data interchange, tracking and tracing systems, and warehouse management systems will help reduce the inefficiencies associated with manual processes.

Moreso, business-to-business (B2B) logistics is already a major component of Africa’s logistics economy and is expected to dominate the sector in the short to medium term. African companies spent $2.6 trillion on B2B services in 2015 and are expected to spend another $1 trillion by 2025. The AfCFTA will accelerate opportunities for B2B services with the African Trade Observatory, an online repository of trade information that allows you to monitor the pace of trade in real time. This is an essential tool for Africa’s information systems and coordination of logistics activities.

One of the main goals of AfCFTA is to create a single market for goods and services across Africa. To achieve this, the AfCFTA is aiming to establish a harmonised regulatory framework for customs and border crossing. The AfCFTA’s directorate of customs administration will be working to simplify and harmonise customs laws and procedures, supervision of transhipment, and ensure customs cooperation among others. By implementing these customs procedures, it will become easier for African countries to trade with each other, reducing the need for cumbersome and time-consuming processes at the border and ensuring that delivery of goods to neighbouring countries is easier.

Then, the AfCFTA is championing the use of technology for trade facilitation. One of the phases in AfCFTA’s implementation is a digital trade platform which will be created to automate and streamline customs and border procedures. This platform will focus on the electronic submission and processing of trade documents, reducing the need for physical paper documents and the associated delays and costs. This is a huge potential that Africa’s supply chain can tap into for the coordination of logistics activities and as a central trade database for African traders across several industries.

The supply chain plays a critical role in the competitiveness of businesses and the overall economic growth in which logistics is an integral part of the supply chain structure. The AfCFTA is a game-changer for the continent to achieve economic integration, with the potential to increase intra-African trade, boost industrialization, and improve competitiveness. Before this can happen, there is a need for African leaders and stakeholders to take charge and improve transport network infrastructure and customs procedures across the continent.

Mohammed is a master’s student at the University of East Anglia and a free trade fellow at Ominira Initiative. He can be reached via [email protected]