Africa Needs to Tackle Port Congestion

Africa needs to take advantage of the economic potential of its ports if it is to realize its growth ambitions, and investment is not always about building new ports or terminals. That’s one of the key findings in an analysis of port development in sub-Saharan Africa issued by PwC this month. The report Strengthening Africa’s gateways to trade was developed in response to the challenges facing the ports in attracting external investment.

Dr. Andrew Shaw, PwC Africa Transport and Logistics Leader, says: “The global transportation and logistics industry can no longer afford to ignore developments in Africa. Logistics service providers and ports in particular will continue to play a key facilitator role in trade competitiveness and thus facilitate trade and sustained economic growth across the region.”

Globally, ports are gateways for 80 percent of merchandise trade by volume and 70 percent by value. Investment in ports and their related transport infrastructure to advance trade and promote overall economic development and growth is therefore vital – particularly in emerging economies that are currently under-served by modern transportation facilities.

However, port investment must be channeled appropriately to ensure financial sustainability and economic growth. Investment spent on infrastructure without cognisance of the efficiency and effectiveness of the performance of the port may not produce the desired results.

Why ports matter

As an emerging market region endowed with vast resources and a growing population, sub-Saharan Africa must accelerate its market access and trade across the region and with the rest of the world. PwC analysis shows that a 25 percent improvement in port performance could increase GDP by two percent, demonstrating the close relationship between port effectiveness and trade competitiveness.

With growing congestion in many African ports, Africa runs the risk of sacrificing further growth through lack of investment in port terminal infrastructure. Despite the high volumes of goods that require transport, the development and integration of ports in Africa’s wider logistic chains remains uneven. Some ports are important generators of benefit and serve large hinterland areas, often extending beyond national borders. Others lag in terms of available facilities, reliability and efficiency in the handling of freight, which increase supply-chain costs. The disparities in performance between different ports impacts on Africa transport logistic chains and makes African countries less competitive than they could be.

Kuria Muchiru, Partner, Government & Public Sector PwC Kenya, says efficient port operations in Mombasa and Dar es Salaam are critical to increased throughput. Investments in rail are seen as a major step towards contributing to improved performance. “In the long run East Africa is expected to a be a major transhipment hub on the East Coast of Africa, which will reduce freight costs in addition to contributing to the Belt and Road.”

The case for shifting focus

Historically, many governments have focused on the revenues that can be extracted from ports as opposed to recognizing them as facilitators of trade and growth. Africa needs to shift its understanding of the role ports can play and step up investment in them to achieve its economic development goals. In particular, there should be more awareness of the greater economic benefits that effective and efficient ports can play, says PwC.

In sub-Saharan Africa, the business case for port expansion is often only defined once capacity is already constrained, and thus many ports operate under severe pressure while investment decisions are being made. This continual lag, which often lasts years, reduces competitiveness and takes no account of the resulting reduced trade impact on African economies. In contrast, China’s approach to port investment is instructive. China considers port investments on the benefits it receives from trade and thus regards ports as highly strategic investments in the national interest.

High port logistics costs, poor reliability and low economies of scale in trade volumes have a negative impact on trade growth in Africa. According to PwC estimates, $2.2 billion per annum could be saved in logistics costs if the average throughput at the major ports in sub-Saharan Africa doubled. In other parts of the world, such a focus on volume and efficiency has led to a stronger emphasis on hub and feeder ports for containers and enhancing scale for commodity bulk terminals.

Although individual countries in Africa have tended to push for developing their own hub ports (ports with the greatest volume potential), it is likely that some ports eventually emerge as major hubs. PwC’s analysis shows that, based on the degree of shipping liner connectivity, amount of trade passing through a port and the size of the hinterland, Durban (South Africa), Abidjan (Côte d’Ivoire) and Mombasa (Kenya) are most likely to emerge as the major hubs in Southern Africa, West Africa and East Africa, respectively.

Sub-Saharan Africa’s merchandise trade has increased by about 300 percent over the past 30 years, yet the region contributed less than one percent to the value of world trade growth during this period. The value of exports has declined since the end of the resources boom, while imports have continued to grow. As demand for commodities begins to increase once more, PwC expects to see prices and volumes rise again.

The fact that most African countries have an imbalance in trade focused on commodity exports and manufactured imports poses major cost challenges. Sub-Saharan Africa’s imports are predominated by containerized cargo, while exports are mostly handled as bulk freight. The trade imbalance between imports and exports means that many containers return empty, thereby absorbing valuable port capacity and resulting in higher logistics costs for inbound traffic to offset the cost of an empty return leg. Improving Africa’s trade potential to export manufactured, semi-processed or agricultural goods would significantly improve the imbalance in containerized trade.

Future drivers of investment

The report assesses current investment in sub-Saharan Africa’s ports and reveals a number of trends:

•   Ownership and service models are gravitating towards greater private-sector involvement;
•   Increasing competition between ports is driving investment decisions;
•   Shipping lines and port operators are increasingly driving port investment;
•   Externally-funded commodities and consumer goods are driving investment;
•   Appetite for large greenfield investment is waning;
•   Focus on intermodal facilities and dry ports is increasing; and
•   Greater awareness of infrastructure inter-dependencies.

Shaw comments: “Sub-Saharan African ports are under increasing pressure to respond to the needs of shipping lines, logistic providers and multinational traders, as they seek to drive efficiencies throughout the value chain. There remains a strong case for sub-Saharan Africa to focus on investment in ports. Developing port infrastructure ahead of demand, focusing on the ports with the greatest potential (the hub ports of the future) and improving the overall functioning of these ports so that through productivity gains they are increasingly attractive as destinations for global trade are key imperatives.”

By MarEx 2018-04-26