The Future of Shipping in East Africa
The emerging markets of East Africa offer companies boundless possibilities, as technology, agriculture and natural resources fuel economic growth, in what will be one of the most prevalent emerging markets in a new phase of Globalisation. Africa will have six of the world’s ten fastest growing economies this year, according to the World Bank.
All of this potential does not mean that trade is then presented on a silver platter to shippers and manufacturers.
For every opportunity, some hurdles need to be passed to facilitate a finely tuned supply chain.
Africa, can be a challenging place to do business. The size and complexity of the market alone make the first steps difficult ones. To imagine the scale of your challenge, you only need to consider that you could fit the United States (including Alaska), China, India and all of Europe comfortably within the borders of the African continent.
Imagine running your logistics network across all of the countries mentioned above in a seamless fashion. If you have been in the logistics industry for any length of time, you could already conceive the challenges that this would present to you on a daily basis. Add to this, under-developed infrastructure and political instability in many areas, and you have a formula for potential chaos that is not for the faint of heart.
The Chinese philosopher Lao Tzu once said: “A journey of a thousand miles starts with a single step.” - To tackle this behemoth your approach to Africa needs to be in the same fashion.
Over the past decade, East Africa has been the fastest-growing region in Africa - Buoyed by several of the fastest growing economies in the world from Ethiopia to Kenya and Tanzania. Ethiopia is the world’s fastest growing economy with significant innovations in agriculture driving growth, while Kenya is considered the economic, financial and transport hub of East Africa. With the discovery of oil and other natural resources, technological innovations and agriculture, the region can expect continued growth for the foreseeable future.
Both Kenya and Tanzania are forecasted to continue at a growth rate of 8% (est.) per year, making these growing economies prime areas of interest for companies looking to expand their business.
With a growing economy comes higher wages and additional spending power for the general population, leading to increased trade demand and naturally more container throughput.
As consumer growth slows in the developed world, it is these emerging markets where retailers and manufacturers will see large scale opportunity. This growth, fostered by technology could also be a driver for more trade in the region.
E-commerce growth in Africa as a whole is around 10% higher than the Global average (25% vs. 16%). Innovations such as M-Pesa, a money-transfer app that has redefined the way people share and send money, are changing the face of doing business.
With platforms like Masoko, an online platform in Kenya connecting consumers, merchants and vendors, digital entrepreneurship will continue to grow with more people now having access to platforms for trade and payments.
In addition to this, venture capital investments in Africa are also growing at a faster rate than in Silicon Valley, you start to get a picture of the revolution that is taking place on the continent.
All of this growth is hardly surprising when you consider the efforts of the EAC (Easter African Community) - an intergovernmental organisation formed in 2000. The EAC put a strong focus on infrastructure development - a necessity to facilitate trade on the continent particularly for the landlocked countries like Rwanda, South Sudan, and Uganda.
Trade growth shows little sign of slowing down. With what many see as the next phase of Globalisation comes China’s “Belt and Road Initiative.” North and East Africa already stands to benefit from the new initiative, with the media already dubbing it “The New Silk Road.” The project will impact close to 60% of the world’s population - a scale that has never been seen before.
The Belt and Road initiative will bring significant opportunity and infrastructural expansion projects needed in the region. Work has already started on a $4 Billion national railway in Kenya. A project that will eventually link Mombasa with landlocked countries in other major African cities such as Kampala in Uganda.
Additionally, China is supporting a $60 Billion “economic corridor” project through Pakistan which could potentially foster more trade with East Africa. India already counts itself as one of the largest trade partners with Eastern Africa and increased trade in Pakistan would only come as a benefit to all involved.
With all of this additional growth it will be essential for businesses to concentrate on three pillars of success when doing business in East Africa:
1. Connectivity and accessibility - growth in Africa is not only in the port areas. While inland connections to the landlocked countries can be challenging, economic growth in these hinterland countries like Uganda, South Sudan, Rwanda, and Burundi makes trade more attractive and will offer you more opportunity to expand your strategy. The future potentially is bright with new rail connections coming online in the coming years, making access to these fast-growing economies in the land-locked parts of the region more accessible and potentially reducing costs.
2. Planning and reliability – when planning supply chains and logistics, one always needs to think pragmatically. In logistics, you always need to be prepared for the unpredictable. Your planning needs to account for this when you know that your cargo is being transported into challenging geographical areas. Having a reliable shipping partner will help smoothen the process as it removes a lot of the worry on where, when and if your cargo will arrive safely at its destination. McKinsey even recommends thinking service and reliability first to foster customer loyalty. This way of thinking means choosing a reliable partner is of utmost importance to ensure the effectiveness and reliability of your supply chain.
3. Digital Solutions - doing business in East Africa means that you may need to adjust your strategy to account for differing user behaviours. This is a region that has grown up on “mobile first”, with the vast majority of the internet generation skipping traditional PC internet connections and preferring smartphones. Technology is already engrained in the young population that will expect businesses to adjust to their needs. Being able to utilise and offer digital solutions will become critical to your future endeavours.
Looking for a way to implement these three pillars? Read more about our new East Africa Service.
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