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Report: Logistics Companies Wary of Entering African Markets

In a region where logistics ranks among the biggest hindrances to doing business, it could be cause for concern that even logistics companies are wary of doing business in Africa’s emerging markets.

The recently released Agility Emerging Markets Logistics Index, which surveys global logistics and supply chain executives to gauge the sector sentiment, found that while logistics companies have seen an uptick in emerging market growth, many are bracing for further turbulence this year.

“It was a volatile year for emerging markets, and you see that in the Index. Eight of the top 10 emerging markets shifted places,” president and CEO of Agility Global Integrated Logistics Essa Al-Saleh, said. “Despite the turbulence, the fundamentals driving growth remain consistent – a rising middle class with spending power, progress in poverty reduction, growing populations. That’s why we are still positive on the outlook for emerging markets and see them driving global growth.”

For the first time, India—instead of China—was pinpointed as the emerging market with the greatest growth potential, though China remained the leader by a sizeable margin. The United Arab Emirates ranked second, followed by India, Malaysia and Saudi Arabia. The remaining markets making the top 10 in terms of potential were Brazil, Indonesia, Mexico, Russia and Turkey.

“The world’s economy is still riven by instability, and emerging markets such as China and Brazil have not been immune,” said John Manners-Bell, chief executive of Ti, which compiled the Index. “However others, such as Mexico, are in a far stronger position and will benefit from the economic growth experienced in the U.S. and Europe.”

Nigeria and Egypt recorded the biggest ranking gains in the survey’s seven-year history, but despite the two countries’—and Sub-Saharan Africa’s—rising relevance, many logistics companies aren’t planning to foray into what many of them still consider a “frontier market.”

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According to Agility, more than half of the 1,100 surveyed are either already operational in Sub-Saharan African markets or planning to be in the fairly near future.

“This would seem to suggest that many have identified Africa and its individual economies and industries as holding potential as future logistics markets,” the report noted. “There is, however, also a strong message that many have a harder time seeing the region’s potential—43.3% have no immediate plans or no intention of entering Africa.”

Respondents called out South Africa, Nigeria and Kenya as Sub-Saharan Africa’s most promising markets. Ethiopia ranked eighth most promising in the list of nine.

But the problems with the region are far from few. The smaller—albeit growing—middle class and resulting small-scale opportunities for consumer goods and retail, electricity production, lacking income equality and the not-so-transparent business environment are among Sub-Saharan Africa’s inhibitors, but poor infrastructure has been the biggest roadblock.

Thirty-three percent of respondents pointed to poor infrastructure as the biggest challenge prohibiting the emergence of a logistics market in Africa, followed by 31.2% who called out corruption.

As Agility explained, linking manufacturing locations to export gateways can be problematic, and where roads are paved, traffic and congestion is often chronic.

“Not only is logistics fundamentally limited by poor infrastructure, wider economic development is hindered by poor connectivity and linkages between economic centers and general inequality,” according to the report. “That just 2.1% of respondents believed the size and scale of the continent to be fundamentally holding back growth suggests a lack of coordinated action to overcome infrastructure challenges is behind the problem.”

Africa’s middle class is no doubt growing, as is its relevance as a manufacturing player, but as Agility concluded, without efforts to reduce those barriers to entry, Sub-Saharan Africa’s growth goals may be slow to come to fruition.

“It may well be that Africa’s logistics market may remain in its seemingly perpetual state of being a medium-term opportunity until it can overcome some of these more fundamental challenges,” the report noted.