The enormity of Africa’s infrastructure challenge is well established.
Few factors put such a break on growth and development on the continent as the lack of access to core infrastructure like transport and power. According to the most recent estimates the annual financing shortfall for critical infrastructure in sub-Saharan Africa stands at $100bn, 10% of the total funding gap globally.
A staggering 600m African do not have access to power today, while the road access rate across the continent is just 34%, compared to 50% in other developing regions. The region’s economies are paying a heavy price for this, with an estimated 2.1% of GDP shaved off growth in sub-Saharan Africa annually.
Geoffrey White, CEO for Africa at Kuwait-based logistics giant Agility has no illusions about the severity of the challenge. “An awful lot needs fixing. Africa needs new railways, roads, airports, seaports, warehouses and other infrastructure to do business from,” he says.
Fixing these things is beyond the scope of any company, and White concedes that “we don’t see it as our role to develop all of those,” but argues that the right kind of infrastructure, in the right context, can catalyse growth, investment and development.
For Agility this means building a pan-African network of international standard commercial warehouses – a strategy it has started rolling out in Ghana. Its first facility is in the port town of Tema. “It was full within three weeks of being released. That was a strong proof of concept,” he says.
It is the kind of investment that rarely catches media headlines, but according to White, the impact is both immediate and, in the long-term, profound. “One of the first companies to move in in Ghana was a Danish dairy company with €9bn in revenue,” says White. “They came into our facility because it provided the sort of infrastructure they were looking for in the market.” The bigger picture, White argues, is that, supplying international standard infrastructure makes a multinational’s decision to invest on the continent significantly easier.
“Multinationals now understand the African market and the African opportunities much better than they did five years ago. The constraint on them in moving into the market is the lack of quality infrastructure to operate from.”
But Agility is not just interested in helping multi-billion dollar multinationals. Another of its customers in Ghana is a local agribusiness firm. The company decided to move into the warehouse, White says, as an alternative to borrowing from local banks.
“They had been offered $3m to build their own facility, but they were offered this at 29% interest in local currency. From a commercial perspective that is obviously incredibly challenging.” Being housed in a world-class facility has been a game changer for the company, he adds.
“They now have a queue of global retailers basically saying we’d love to deal with you and we’ll buy anything you produce.” As its warehouse network grows White also sees the potential for the company to help drive much needed intra-African trade.
“Our customers want the same warehouses available on a regional basis. They want to be able to manufacture in Nigeria and move to warehousing in Ghana, Côte d’Ivoire and Senegal for example. If you can do that all with one warehouse management system across the whole of ECOWAS [the Economic Community of West African States], that is a big upside for supporting the growth of commerce.”
These examples are clear illustrations of the sheer enabling potential of quality infrastructure. If commerce is the lifeblood of the modern economy, infrastructure constitutes the veins and arteries that allow it to flow.
Agility is betting big that this strategy will allow it to not only build a successful commercial strategy but also to have the kind of catalytic impact demonstrated by their experience in Ghana. The company has identified 50 sites across Africa, and is currently developing projects in Nigeria, Côte d’Ivoire, Tanzania, Mozambique and Senegal, White says.
Agility is pursuing this ambitious expansion plan at a time of subdued growth across Africa on the back of the commodities slump. The IMF is forecasting growth of 2.6% for sub-Saharan Africa this year, a slight rebound from a 20-year low of 1.6% in 2017, but still well short of an average of more than 5% in recent years.
The slowdown has raised some concerns it may point to deeper problems with the African growth narrative. White argues such fears are misplaced: “The statistics are skewed with the challenges in South Africa and the major oil and gas producers – the Nigerias and Angolas of this world – managing their way through the collapse in the oil price.”
While resource dependent economies have been hit exceptionally hard during the downturn, “if you take those out of the mix the rest of Africa has some very strong success stories,” argues White, citing the likes of Senegal, Côte d’Ivoire, Tanzania and Ghana as examples of economies that have not only weathered the commodities slump, but continue to move forwards. “If you understand the continent and look at each country as individual markets there are some really attractive investment opportunities out there.”
Filling in the puzzle
This nuanced approach reflects Agility’s long-term approach to doing business in Africa. Developing its network of warehouses is just one piece of the puzzle, says White.
“The warehouse we see very much as a platform that enables SMEs, enables multinationals to come into the market at a lower investment cost. Once we’ve created the foundations for these businesses to start operating then you can start filling in the other bits.”