forwarding in africa - the freight...

FORWARDING IN AFRICA AN EXCLUSIVE WHITEPAPER

MARKET DEVELOPMENTS, CONSUMERISMAND DIVERSITY

MARK MILLAR

THE NEXT BIG OPPORTUNITY

Africargo Meet Exclusive Whitepaper

www.africargomeet.com

MARK MILLAR

MARCH 2014 FORWARDING IN AFRICA - THE NEXT BIG OPPORTUNITYMARKET DEVELOPMENTS, CONSUMERISM AND DIVERSITY

AFRICARGO MEET EXCLUSIVE WHITEPAPER 2

IS AFRICATHE NEXT BIG OPPORTUNITY?

This question is being raised by many

international businesses seeking new

and expanding markets - and is therefore

stimulating plenty of interest from the freight

forwarding and logistics communities.

This 2014 series of industry whitepapers

‘Exploring Africa’ looks at the exciting potential

of the vast African continent, and explores the

challenges and opportunities arising.

This first whitepaper on Africa looks at market

developments, emerging consumerism and

the diversity across the continent for doing

businessand the wide range of logistics

capabilities.

The next African whitepaper will follow

the 2014 Intermodal Africa Conference in

Lagos. Hosted this year by the Nigerian Ports

Authority, Intermodal Africa is the biggest

and most established annual Container Ports,

Shipping and Transport Logistics Exhibition and

Conference event on the African continent,

now in its 12th successful year.

EXCITING ANDEXPANDING AFRICAAfrica comprises 54 countries, together covering

an area larger than China, USA, India and Europe combined, with total population of over 1 billion

During the last decade, Africa’s GDP growth has surpassed worldwide averages, driving increases in economic prosperity and instilling a sense of optimism across much of the continent. Having labelled Africa as the ‘hopeless continent” back in May 2000, the Economist magazine in March 2013 published a new special report on emerging Africa, this time entitled “Africa Rising” – identifying plenty of opportunities and predicting great opportunites and prosperity for the continent, especially Sub Saharan Africa (SSA).

From 2001 to 2010, six of the world’s ten fastest- growing economies were in SubSaharan Africa. That’s partly due to natural resources – for example Angola and Nigeria have both benefitted significantly from oil exports – but there are other factors driving growth and prosperity, including increasing government stability in many African countries.

Africa is the world’s youngest continent - more than half the population is under the age of 20, versus only 28% in China. The age group of 16-24 year olds is expanding rapidly, making this segment very interesting for consumer marketers.

Although there is massive diversity and disparity throughout the various countries, a new consumer class is emerging – consumers with increasing spending power, global awareness and the desire for international products and brands. From USD 680 billion in 2008, Africa’s consumer goods sector is expected to more than double to USD1.4 trillion by2020 - opening up new markets with millions of new customers. Africa’s middle-class spending patterns, lifestyle and wealth expansion are increasingly attractive for global companies.

According to Spire Research, many cities across Africa are racing towards, or have already achieved, middle-income status, creating wealth and improved job prospects for their residents. Forty per cent of the continent’s population now resides in cities, and urbanization is forecast to increase to over 60 per cent by year 2050 - by comparison the 2013 figure for China is 55 per cent.

This urbanization in turn drives increased demandfor healthcare, education, construction, water and sanitation, as well as internet, communication and business hubs – all of which create new business opportunities for international companies.


Although there is massive diversity and disparity throughout the various countries, a new consumer class is emerging – consumers with increasing spending power, global awareness and the desire for international products and brands. From USD 680 billion in 2008, Africa’s consumer goods sector is expected to more than double to USD1.4 trillion by2020 - opening up new markets with millions of new customers. Africa’s middle-class spending patterns, lifestyle and wealth expansion are increasingly attractive for global companies.

According to Spire Research, many cities across Africa are racing towards, or have already achieved, middle-income status, creating wealth and improved job prospects for their residents. Forty per cent of the continent’s population now resides in cities, and urbanization is forecast to increase to over 60 per cent by year 2050 - by comparison the 2013 figure for China is 55 per cent.

This urbanization in turn drives increased demandfor healthcare, education, construction, water and sanitation, as well as internet, communication and business hubs – all of which create new business opportunities for international companies.

With Africa’s abundant population, many international companies are also exploring manufacturing and sourcing opportunities, particularly for labour intensive production. With ever increasing costs of land and labour in its coastal provinces, China’s status as the world’s factory is being seriously challenged. One recent report identified that some Hong Kong manufacturers, seeking to improve margins and increasingly aware of the Africa’s appeal, are considering investments in production facilities in Sub Saharan Africa to capitalise on the abundant and cheap workforce. Vice-chairman of the All-China Federation of Industry & Commerce, Li Yifu, also former chief economist at the World Bank, called for mainland manufacturers to consider moving labour-intensive factories to Africa, saying that the young labour force of the continent’s one billion population was similar to China’s profile in the 1980’s, with average shop floor salaries in Africa around USD 50 per month.The Africa Development Forum at the World Bank also see potentialcomparative advantage for Africa in low-wage, less-skilled labour, particularly as wages in China continue to rise.

From the regulatory perspective, light manufacturers in Sub-Saharan Africa enjoy duty-free and quota-free access to US and EU markets under the African Growth and Opportunity Act (AGOA) and the Cotonou Agreement which is the most comprehensive partnership agreement between the EU and 79 developing countries from Africa, the Caribbean and the Pacific (ACP).

Therefore, in addition to the rapidly developing consumer markets there will also be expanding production activities across Africa, driving exponential increases in flows of materials and goods, particularly imports and exports.


MARK MILLAR AFRICARGO MEET EXCLUSIVE WHITEPAPER 4


The economic intelligence unit at PWC predicted that nine African economies would join the ‘7% growth club’, whilst qualifying that Africa can be a tough place to do business.

Another significant driver of Africa’s economic growth is the surge in Foreign Direct Investment (FDI), which increased by over 16% to USD50 billion in 2012, from USD43 billion the previous year. Prominent investing nations include China, and to a lesser extent India, whilst the USA, Japan and the Netherlands are all investing in Africa’s energy industry.

From the consumer technology perspective, Africa accounts for 7% of the world’s internet subscribers, has 17 million Facebookusers, is the world’s fastest growing mobile phone market and has the second-largest number of mobile phone users at 600 million, trailing behind the Asia-Pacific region’s 2.5 billion users. In Nigeria alone there are 45 million internet users and 71% of adults own a mobile phone.

Across Africa, these technology trends are shifting towards the mobile and internet age, as well as reshaping the retail landscape. Telecommunication companies haveseen rising numbers of mobile users, constituting 90% of all African telephone subscribers. In Sub-Saharan Africa,internet penetration is 25%, with e-commerce on the rise, furtherempowered by mobile payment services that enable cashless transactions, with the result that 51% of Africa’s one billion plus population are now shopping online.

For the transport and logistics sectors, the massive diversity across Africa represents both opportunities and challenges for logistics service providers and freight forwarders.

DIVERSE AND COMPLEX AFRICA

This diversity across Sub Saharan Africa (SSA) is explored and explained using three global studies each providing rankings of multiple economies across numerousdifferent dimensions, portraying the complexity and variety of scenarios across this exciting continent:

• EconomicFreedom• EaseofDoingBusiness• LogisticsPerformanceIndex



ECONOMIC FREEDOMThe Index of Economic Freedom published by the Heritage Foundation takes a broad and comprehensive view of country performance, measuring 10 separate aspects, grouped into four broad categories or pillars of economic freedom:

Some of the aspects evaluated are concerned with a country’s interactionswith the rest of the world - for example Open Markets examinesthe extent of an economy’s openness to global investment or international trade through imports and exports.

Each of the economic freedoms plays a vital role in developing and sustaining personal and national prosperity. All are complementary in their impact - and progress in one area is often likely to reinforce or even inspire progress in another.

Each economic freedom is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms. The rankings are categorised into five bands, ranging from Repressed (score below 50), Mostly Unfree (50-59), Moderately Free (60-69), to Mostly Free (70-79) and Free (above 80). As can be seen from the map, Sub Saharan Africa countries span the spectrum of Economic Freedom rankings, but with the majority of economies at the lower end of the freedom rankings.

a. RuleofLaw(propertyrights,freedomfromcorruption)

b. LimitedGovernment(fiscalfreedom,governmentspending)

c. RegulatoryEfficiency(businessfreedom,laborfreedom,monetaryfreedom)

d. OpenMarkets(tradefreedom,investmentfreedom,financialfreedom).

MARCH 2014 AFRICA - THE NEXT BIG OPPORTUNITYMARKET DEVELOPMENTS, CONSUMERISM AND DIVERSITY

MARK MILLAR



NOTE: Western Sahara is not depicted because its economy is not in the index of Economic Freedom.

SOURCE: Terry Miller, Anthony B. Kim, and Kim R. Holmes, 2014 Index of Economic Freedom (Washington, D.C,: The Heritage Foundation and Dow Jones & Company, Inc., 2014), http://www.heritage.org/index

SUB-SAHARAN AFRICA

Senegal

The Gambia

Republic of Congo

SierraLeone

Guinea-Bissau

Bunundi

ComorosSeychellers

Malawi

Mozambique

MadagascarSwaziland

Lesotho

Mauritius

Rwanda

Djibouti

Eritrea

Togo

Sao Tome& Principe

Equatorial Guinea

Benin

MaliMauritania

Niger

Nigeria

Cameroon

Gabon

Ghana

BurkinaFaso

Coted’lvoire

Guinea

Sudan

SouthSudan

Ethiopia

Ke nyaMali

Tanzania

Zambia

NamibiaBostwana

SouthAfrica

EconomicFreedomScores80-100 Free

70-79.9 Mostly Free

60-69.9 Moderately Free

50-59.9 Mostly Unfree

0-49.9 Repressed

Not Ranked

MARK MILLAR



EASE OFDOING BUSINESS

The Doing Business project run by the International Finance Corporationand The World Bank provides objective measures of business regulations for local firms in 189 economies. TheirEase of Doing Business model measures and tracks changes in theregulations applying to domestic small and medium-size companies, operating in the largest

business city of each economy.

The Doing Business indicators cover 10 areas in the business life cycle: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, en-forcing contracts and resolving insolvency.

REGULATIONS AS MEASURED BY DOING BUSINESS AFFECT FIRMS THROUGHOUT THEIR LIFE CYCLE

AT START-UP

IN DAILY OPERATIONS

IN GETTING FINANCES

IN GETTING A LOCATIONWHEN THINGS GO WRONG

Starting a businessEmploying workers

Paying TaxesTrading Across Borders

Paying TaxesTrading Across Borders

Dealing with construction permitsGetting ElectricityRegistering property

Enforcing ContractsResolving insolvency

The aggregate ranking on the ease of doing business for each economy is based on these indicators. Within Sub-Saharan

Africa, the leading economy for Doing Business is Mauritius – ranked number 20 globally, whilst Chad is ranked the lowest

of all 189 economies covered in the global study, once again reflecting the wide variety of levels of business sophistication

across the continent.



MARK MILLAR



The massive diversity across the African continent is also reflected in the wide range of results reported in the Logistics Performance Index – of particular relevance for providers of logistics and freight forwarding activities.

Compiled by the World Bank, the Logistics Performance Index (LPI) comprises six main component indicators: 1. Infrastructure2. International Shipments 3. Logistics Competence 4. Tracking and Tracing 5. Customs6. Timeliness

The resulting index summarises each country’s performance in these six areas, using standard statistical techniques to aggregate data from interviews with logistics professionals from around the world.

LOGISTICS PERFORMANCE INDEX

LPI results for twenty key economies in Sub Saharan Africa are reported in the table, confirming that South Africa is the continent’s clear leader, ranked 23rd on a global basis - on par with many developed countries. The range of rankings – on the global scale from South Africa at number 23 to Chad at number 152 – confirms how Sub Saharan Africa embraces a wide spectrum of emerging and developing economies, with vast differences in the level of sophistication and maturity in their logistics networks and supply chain ecosystems.

Developing an economy’s logistics capabilities enables and empowers economic growth, but as is typical across emerging markets, such developments are regularly challenged in the three key areas of transportation infrastructure, the regulatory environment and subject-matter expertise.As the African economies continue to expand, we can expect governments to invest further in transportation infrastructure and collaborate with the private sector to upgrade and enhance logistics capabilities, both for domestic distribution and for international freight forwarding of imports and exports.


MARCH 2014 AFRICA - THE NEXT BIG OPPORTUNITYMARKET DEVELOPMENTS, CONSUMERISM AND DIVERSITY

Mark Millar leverages 25 years global business experience to provide value for clients with informed and independent perspectives on their supply chain strategies in Asia. His ‘Asia Supply Chain Insights’ series of presentations, consultations, whitepapers, corporate briefings and seminars help companies navigate the complex landscapes in China and ASEAN,make better informed business decisions and improve the efficiency of their supply chain ecosystems. Acknowledged as an engaging and energetic presenter, clients have engaged Mark as Speaker, Moderator, MC or Conference Chairman at more than 300 events in over 20 countries.

Mark is a Visiting Lecturer at Hong Kong Polytechnic University and has delivered Guest Lectures at Georgia Tech (Atlanta and Hong Kong), RMIT (Ho Chi Minh City) and SP Jain (Singapore & Dubai). His industry contributions have been recognised with a number of accolades, including being named in the “Who’s Who of Power Players in Supply Chain Management in China”, the “Pro’s-to-Know Thought Leaders in Supply Chain” and as “One of the most Progressive People in World Logistics”.

London based business publisher Kogan Page have recently commissioned Mark to write the book entitled “Global Supply Chain Ecosystems”, due for publication in 2015. Africa March 2014: Mark has been engaged as International Guest Speaker at the Intermodal AfricaConference in Lagos during 27-28 March 2014. Hosted by the Nigerian Ports Authority, Intermodal Africa is the biggest and most established annual Container Ports, Shipping and Transport Logistics Exhibition and Conference event on the African continent, now in its 12th successful [email protected]

Mark Millar 马克 MBA, FCILT, FCIM, GAICD

MARK MILLAR



Africargo Meet provides a neutral networking platform to interact with multiple alliances, hundreds of other independent international forwarders, logistics media and solutions providers in one place at the same time.

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