President Barack Obama’s trip to Africa in early July had many media outlets lamenting about the U.S. being late in recognizing the trade potential with Africa, and that the States had ceded the trade supremacy to China. Perhaps these are premature obituaries, but there is no doubt that the China-Africa trade is a significant phenomenon to reckon with and will have global economic implications in the years to come.
A brief look at the China-Africa trade suggests that while Chinese imports from Africa are focused on resource-rich countries (such as South Africa, Nigeria, Egypt, Sudan, Algeria and Liberia), Chinese exports, in the form of cheap manufactured goods are more widespread across the continent, with machinery making up the biggest chunk at roughly 30 percent. The trade imbalance this causes is an interesting case study for the economists no doubt, but what about the transportation and logistics that will be needed to sustain this trade over the coming years? Any impartial observer will agree that the logistics infrastructure needed to capitalize on this increased trade does not exist. So what are the issues?
Firstly, an imbalance in demand results from an imbalance in trade: more goods flow from China into Africa than the other way around, and this is only going to get compounded going forward. This results in empty planes and containers returning to China from Africa even if they were full on their way in, resulting in inefficient transportation corridors.
Logistics planners would readily tell you that this is not a surprise; such imbalances are a reality in the cargo industry. But the impact of these ‘empty moves’ can be mitigated with smart supply chain planning disciplines. For instance, main ports in Africa – such as Kenya, South Africa or Nigeria – can be identified as the primary points for embarkation and disembarkation. Then road feeder services supported by strategically chosen or built distribution centers, warehouses and regional air freight from these main ports to other destinations can be planned. In other words, providers need to have a network view of pan-African logistics, invest in relentless planning and adopt proven supply chain optimization and transportation planning practices focused on risk mitigation; especially because of the following challenges.
Secondly, logistics infrastructure in Africa is terribly inefficient. It is very costly and difficult to get transport flowing within African countries, not to mention across the borders. Poor infrastructure and lack of funds to develop modern transportation systems hinders efforts at creating efficient supply chains to seamlessly flow goods in and out.
Clearly, addressing this issue is in the hands of the African governments. Economic empowerment comes from increased trade in this era of globalization, and infrastructure plays a key role – if not the most important part. Governments of the larger economies, such as South Africa, Egypt (current political turmoil notwithstanding), and Nigeria should lay down long-term plans for enhancing and building infrastructure through public-private partnerships or by attracting foreign investment in infrastructure, building on the Chinese experience. They should partner with logistics providers in building warehouses and distribution centers to ensure a smooth supply chain.
And finally, good governance and political stability are the cornerstones of any successful economy and are a must-have to achieve what has been articulated above. And everyone knows this is a big challenge in Africa. Corruption is only too well known and the Egyptian economy is in a free fall due to political instability. Stories of customs officials not clearing goods unless they receive their bribes, truck hijacking, and unsafe roads and bridges are often heard of. And if a country is in political free fall or its institutions cannot be trusted, then why would any logistics provider invest significant sums of money to build a logistics infrastructure? Countries such as South Africa, Egypt and Nigeria can lead the way by tackling corruption and introducing faith in their institutions. Organizations such as International Monetary Fund and World Bank can help significantly by requiring structural changes, including privatization, as conditions for receiving developmental loans. In addition, African countries can make trading easier in the continent by easing cross-border trading rules, simplifying the bureaucracy, increasing transparency and guaranteeing security.
While tackling the issues outlined above should be at the top of the African agenda, nothing can be more important than ensuring the African population feels that their own conditions are improving through these investments and increased trade. There are already murmurs of China being the real beneficiary of the China-Africa trade and without the backing of its citizens the future of African trade will be in jeopardy. It is imperative for Africa as a whole to make sure that there is balance in the relationship with any country they do business with. Such a balance is only possible if Africa comes to the table as an equal partner. Economically that may not be possible today, but surely if they had an excellent logistics infrastructure, political stability and trustworthy institutions, in addition to the significant resources they have, they would have a significant negotiating power. Global trade with Africa is bound to pay rich dividends to Africans, provided African leaders invest in their people, in their own economies, and in good governance. This will require political willpower and the ability to look beyond the immediate future or short-term gain, before many more logistics providers will want to join the handful of logistics providers currently investing in pan-African logistics networks.