A growing logistics industry in Africa represents opportunities for Middle East investors and experienced developers
The logistics sector is a growing focus for property development in Sub-Saharan Africa, on the back of rising demand for modern warehouse space from retailers and consumer goods manufacturers. This trend is being driven by the growth of the region’s middle classes, the expansion of its consumer markets and the increased prevalence of mobile retailing.
“As Sub-Saharan Africa undergoes a wave of modern commercial property development, the logistics sector is emerging as a focus for activity. Already some leading Middle Eastern developers have targeted the sector; Kuwaiti based Agility has ambitious plans to create a network of logistics hubs across Africa, while Dubai’s DP World has been granted a concession to develop and operate a new logistics centre in Kigali, Rwanda,” says Andrew Marshall, Senior Surveyor in Logistics, at Knight Frank Middle East.
“GCC countries such as the United Arab Emirates and Saudi Arabia have gained global prominence with their world-class infrastructure and transport systems. Combining their strength in developing high-spec warehousing and sophisticated infrastructure, with the growth potential that the African logistics market offers, the opportunities cannot be emphasized enough. We realise however that for this to materialise, efforts need to focus on improving security, increasing transparency and combating corruption, along with establishing robust legal frameworks,” says Dana Salbak, Associate Partner and Head of Research, at Knight Frank Middle East.
Sub-Saharan Africa’s emerging logistics property sector
Modern logistics property is currently scarce across much of the Sub-Saharan region, but there is a growing need for high quality new development.
According to Knight Frank’s Logistics Africa 2016 report, there is rising demand for high quality logistics space from retailers and consumer goods manufacturers seeking to expand their African operations and improve distribution networks and supply chains. Such occupiers demand properties built to high technical specifications that support modern retailing, distribution and manufacturing practices.
Highlights from the report include:
Developers active in the logistics sector include those from the Middle East and China, as well as South African developers seeking to transfer their expertise to the rest of Africa.
Africa’s poor transport infrastructure although a major challenge for logistics operators, presents a real opportunity on the back of the numerous large-scale projects across Africa which aim to improve transport networks.
Drone technology has the potential to help logistics operators overcome transport infrastructure challenges, and several projects are underway exploring the use of drones in Africa.
Future demand for logistics property will be shaped by the rapid growth of online retailing in Sub-Saharan Africa, which is being driven by the increased penetration of smart mobile devices. The African online retail sector is forecast to be worth US$50 billion by 2018, representing a six-fold increase in value in the space of five years.
Around 90% of Africa’s trade happens by sea, making its ports crucial locations in logistics networks. Several major new ports are under construction across the continent and sites near to ports are highly desirable for logistics property development.
Transport infrastructure challenges
Overcoming Africa’s poor transport infrastructure is a major challenge to logistics operators.
Poor transport infrastructure is an inhibitor to the growth of many African logistics markets, with road and rail links between key economic hubs remaining patchy. Although there is a Trans-African Highway network, first conceived by the United Nations Economic Commission for Africa in the 1970s, large parts remain unbuilt and many sections are in poor repair and essentially unusable as trade routes. The cost of moving goods in Africa is, on average, estimated to be two or three times higher than in developed countries and transport costs can represent as much as 50-75% of the retail price of goods. The poor quality of road and rail networks forces logistics companies such as DHL Express to transport the majority of its cargo by air.
There are numerous large-scale transport infrastructure projects currently underway across the continent, which should help to improve transport connectivity within Africa. Current major projects include the East African standard gauge railway which aims to connect Kenya, Uganda, Rwanda and South Sudan, and the West Africa rail loop connecting Côte d’Ivoire, Burkina Faso, Niger, Benin, Togo and Nigeria. However, infrastructure improvements will struggle to keep pace with the astonishing speed at which Africa’s cities and economies are growing.
Innovative solutions have been proposed to overcome Africa’s challenging transport infrastructure. There are, for example, projects underway exploring the use of cargo drones. Foster + Partners has unveiled plans for a droneport in Rwanda, which would be used to transport medical supplies and commercial goods via unmanned flying vehicles. Drones could allow logistics operators to move goods to locations without reliable road networks and may prove to be a “leapfrog” technology for Africa, in the same way that mobile telecommunications have allowed many Africans to skip fixed-line networks and move straight to wireless technology.
Around 90% of Africa’s trade happens by sea, making its ports crucial points in logistics networks.
Despite its reliance on sea transport for international trade, Sub-Saharan Africa’s ports are small by global standards. Durban, the region’s busiest container port, handles approximately 2.7 million twenty-foot equivalent units (TEUs) per year, less than one-thirteenth of the volume handled by the world’s busiest port Shanghai. Over the coming decades, the ports of Sub-Saharan Africa will require substantial expansion and modernisation in order to cope with the greater trade volumes that should accompany its population growth and economic development.
There are currently a large number of port development projects proposed or under construction across Sub-Saharan Africa, involving both the expansion of existing facilities and the creation of entirely new ports. Five of the largest new port schemes are highlighted on the map to the right. A common feature of many of these projects is the involvement of Chinese firms, whether as investors financing the projects or contractors building them. The most ambitious of the new port schemes aim to become the dominant ports within their regions; for example, the new ports at Lamu in Kenya and Bagamoyo in Tanzania are being positioned to compete with existing ports at Mombasa and Dar es Salaam to be the largest in East Africa.
Port locations are important hotspots for logistics operators and property developers in Sub-Saharan Africa. It is logical for firms building distribution networks in African countries to locate their logistics hubs near to ports, especially given the time and cost involved in transporting goods to inland commercial centres.
Online retail and modern supply chains
The growth of online retail markets will influence future demand for logistics property in Africa.
The rise of retail e-commerce, which is currently estimated by the research house eMarketer to be a US$2 trillion global industry, has shaped logistics property markets worldwide over the last decade. International retailers have increasingly demanded properties suited to the efficient fulfilment of online orders. However, online retail is a still a nascent sector in much of Africa; even in South Africa, the most sophisticated retail market in the Sub-Saharan region, online sales are only just expected to reach 1% of the overall retail market in 2016. This is a threshold which was passed more than a decade ago in many developed markets.
While small by global standards, Africa’s online retail sector has started to grow at a fast pace, driven primarily by the increased penetration of smart mobile devices into the continent’s markets. Sub-Saharan Africa is the fastest growing mobile phone market in the world, with GSMA Intelligence estimating that the number of unique mobile subscribers reached 381 million in 2016. Mobile users in Africa are increasingly migrating to smart devices, as these become more affordable. GSMA estimates that smartphone connections represented 23% of total mobile connections in Africa in 2015, but they are forecasted to be the majority by the end of the decade.
Mobile phones are the most prevalent communications technology in Africa, with consumers using them for tasks that might be more commonly performed on laptops or desktop computers elsewhere in the world. Mobile banking has been embraced by African consumers, and many online retailers receive the majority of their orders via mobile phones. The growth of smartphone usage across Africa will support the continued rise of online retail activity; Frost & Sullivan forecasts that e-commerce in Africa will be worth US$50 billion in 2018, up from US$8 billion in 2013.