Africa’s ports improve as focus turns to hinterlands

At the end of March, a delinquent ship blocking a crucial artery in global trade showed how dependent the world is on functioning transport networks. Some 400 ships were held up when the container ship Ever Given was grounded for six days in the Suez canal. The cost to the world economy has been estimated at around $10bn a day.

If Africa is to develop a coherent internal market, improved logistics will be vital. Alongside wages and the cost of power, logistics determine the competitiveness of Africa’s goods. The success of the African Continental Free Trade Agreement (AfCFTA), which came into effect at the start of this year, is dependent on the efficient and cheap movement of goods, and requires huge investments to ensure functioning infrastructure. 

A lack of natural deep-sea harbours, long navigable river systems and the presence of dense vegetation have been natural obstacles to trade flows and have historically isolated Africa’s populations from one another. But fast-growing populations and economies, a more integrated global economy, and insatiable resource demand from Asia are once again changing Africa’s economic dynamics, and there is a renewed scramble to develop ports, transport and logistics. 

Creating investor appetite

Traditionally there has been an underwhelming appetite from investors and banks in developing African logistics infrastructure due to scepticism around the profitability of capital intensive investments requiring long-term commitments. 

Consequently, the entire supply chain of the continent has been affected by the lack of adequate transport assets such as roads, depots, ports and airports, a deficit which has constrained intra-African trade. Insufficient supply chain infrastructure and congestion drives up the cost of goods across national borders, meaning it is often cheaper and quicker to import goods from outside the continent, something that Jan Christoph Kalbath, head of Middle East and Africa at Louis Dreyfus Company, one of the world’s largest trading companies could not help noticing. 

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But things are improving, particularly in ports capacity. A turning point was reached when private investors began to take part in modernisation programmes to increase capacities at African ports, says Stanislas de Saint Louvent, deputy CEO of Bolloré Ports. The modernisation work means that most of the ports on the Atlantic coast meet the highest international standards, he explains.

The main challenge now is located outside ports, stemming from traffic congestion. Bolloré Ports is focusing on improving hinterland connectivity by building efficient dry ports, developing railways, and supporting digital solutions to facilitate trade.

“We are developing our corridor strategy and multimodal approach to connect regions and promote intra-African trade that will bolster the socio-economic development of the continent,” says Saint Louvent. 

Danish shipping giant Maersk is also involved in financing and developing logistic assets. It has a strategy to invest in assets that will facilitate the trade of its customers and manage their supply chains efficiently, explains Marnus Kotze, the company’s head of logistics and services for Africa. The group has invested in a warehouse in the city of San Pedro, Côte d’Ivoire, to support its trading clients. 

The importance of finance

But Kotze says that several conditions need to be satisfied to realise large-scale network infrastructure projects beyond port developments. 

Logistic projects can generate substantial operating cash flows providing that revenues related to cargoes and freight movements are harnessed and captured properly, but debt repayments must be affordable and stretched to long tenures for the projects to be viable on a standalone basis. 

Shashank Krishna, partner at law firm Baker Botts, says infrastructure providers require deeper support from multilateral lenders, including in the form of direct financing or by attracting participation from other global investors in pooled facilities. 

“One of the major problems today when investing in Africa is the cost of financing, as interest rates remain extremely high. This calls for an improvement in international financing solutions bringing large companies access to better rates,” Krishna says. That view is also shared by Saint Louvent. 

Investors, they argue, also require long-term commitments from governments, which can take the form of equity contributions or concessions under a public-private partnership (PPP). 

According to Kotze, a new type of logistic service provider is emerging, and these new entrants are growing fast. These companies operate in the digital sphere and enable the virtual marketplace to connect cargo owners with asset owners and operators (like shipping lines, truck and warehouse operators), creating a competitive environment for the freight industry. 

For Mathieu Peller, chief operations officer of Meridian Africa, both an investor in and developer of infrastructure project on the continent, it’s important to take the long-term view, and the metrics – population growth, growth in regional trade, GDP growth – all point in the right direction, hence the rising interest in the ports and logistics space.

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Integrated solutions

Given the substantial requirement to develop transport assets in Africa, the involvement of any kind of investors is welcome. A new African player has emerged operating across ports and logistics, infrastructure and industrial parks: Arise.

Arise came about initially from a joint-venture between Singapore-based trading firm Olam and the government of Gabon, through the Gabon Special Economic Zone (GSEZ). Having developed a successful working relationship and trust, the Gabon government then asked this entity to develop the country’s port infrastructure and the road from the GSEZ to the port. 

As its remit grew, GSEZ sought out investment capital, initially through the Nigeria-based Africa Financial Corporation (AFC), which took an equity stake in the project. In January 2020 it split its activities into three entities: Arise Ports & Logistics (Arise P&L), Arise Integrated Industrial Platforms (Arise IIP) and ARISE Infrastructure Services (Arise IS). Maersk acquired a 43% stake in Arise P&L, with the remaining equity being held by Olam and AFC, with 31% and 26% respectively.

The Arise verticals have identified many opportunities for economic growth in Africa that are hampered by the lack of appropriate connected infrastructure, says Alain Saraka, head of strategy for Arise IIP. 

The model is inspired by the success of the GSEZ, which plays host to a local industry where wood is transformed into veneer that is then exported via the port facility. Gabon has become the largest producer of veneer in Africa and since 2018 it has been the world’s second largest exporter of the commodity.

Arise IIP focuses on developing “plug and play” industrial zones with a strong ecosystem of local facilities and public administrative support to attract businesses. It adopts a two-pronged strategy to successfully develop industrial zones in various African countries. 

Firstly, it identifies the key natural resources and competitive advantage of the host country and how an added-value solution can be implemented. For instance, it focuses on commodities such as cotton, soya, corn and the manufacturing of local drugs. Secondly, it creates a strong partnership with host governments to successfully attract investors towards industrial zones projects. 

The involvement of a government can be under a PPP agreement framework, for example, or as a co-investor. This level of commitment from a government helps mobilise potential businesses with the knowledge that they will get sufficient government support to carry their operations on a long-term basis.

Following its work in Gabon, Arise IIP is expanding the model to projects in Côte d’Ivoire, Benin, Togo, Mauritania and Gabon. The market size for the construction of industrial zones in Africa is thought to be worth over $1bn. 

Meanwhile, related company Arise IS focuses on the development of logistics infrastructure that facilitates the movement of goods and people, including roads, airports, haulage services and rolling stock. Arise IS and Meridian have joined forces in the joint venture Société Autoroutière du Gabon (SAG) to develop a 780km east-west road. The asset will operate on a toll basis with heavy transports of goods a large source of revenues. Arise IS is also involved in the capacity expansion of Libreville International Airport.

A model for the continent

To develop the infrastructure will in many cases require partnerships. The construction and operation of the New Owendo International port of Gabon is being carried out by Arise P&L jointly with AFC, AP Moller and STOA. In Nouakchott, Mauritania, it is developing the container terminal alongside Meridian. 

The model is to identify a strong financial partner, such as the AFC, work with a country to help identify an industry with a comparative advantage, and integrate ports, hinterland infrastructure and transport projects with government approval and support. If successful, it is a model which could well be extended beyond the Atlantic seaboard.