Logistic Issues in Africa and relevant country groupings

 

Salient issues

 

Logistic issues play a pivotal role in economic development and have become critical in the global economy we live in.  The relatively underdeveloped logistic sector in Africa poses a significant barrier to social and economic development on the continent. This problem is compounded by inadequate use made of the current infrastructure.  This note reviews indicators relating to the sector. In the survey by UNCTAD, titled World Investment Report, businesses cited the state of physical infrastructure as the most important factor affecting foreign direct investment flows. In a recent interview of Sir Anerood Jugnaut, Chairman of COMESA, the free trade African group of countries, by The Courier magazine, he emphasized the need for countries within that trade organisation to upgrade their road and rail networks and improve telecommunications and facilities for efficient transportation of goods.  The Mauritian Chairman was no doubt reflecting on the relatively well-developed logistic infrastructure in Mauritius, which has played a significant role in attracting foreign direct investment to that country.   The logistic infrastructure was also highlighted by President Wade of Senegal as a priority sector in a recent meeting of the Francophone group.  There are some positive trends on the continent, with privatisation, a move to industry consolidation and cross border management structures, significant investment and good business prospects in the logistic sector.  Finally African countries have yet to utilise the immense potential of established grids for communication and multi-utility products.  This note looks at country groupings based on income levels and to a limited extent, reviews the situation in individual countries (refer to appendix for indicators for individual countries).  Virtually all of Sub-Saharan Africa falls within the Low and Middle Income grouping.

 

   

Table 1 Road, rail and air infrastructure in relevant country groupings

 

 

Road networks     

 

Table 1 presents the road, rail and air traffic infrastructure for low and middle-income countries as well as the average for high-income countries.    Sub-Sahara has the lowest proportion of paved roads out of all the groups although it has a much higher vehicle density than South Asia and the same level as that in East Asia & Pacific countries.  These other two groupings have seen a much more dramatic increase in the number of vehicles per person over the period 1980 to 1998.  The low proportion of paved roads has important implication for speed of transportation, the wear and tear of vehicles and the frequency of roads being blocked during unfavourable weather.   In Appendix 1 the relatively low motor vehicles per kilometre of road in most African countries suggests that there existing road network should be accompanied by much higher vehicle numbers to justify investment in road programmes. 

 

Top countries in terms of percentage of total road network paved

 

            Mauritius                                 96%

            Gabon                                      82%

            Tunisia                                      78.9%

            Egypt                                       78.1%

            Algeria                                     68.9%

 

Rail networks  

 

Among African countries the use of rail for travelling is significant in Egypt, Congo Republic and Tanzania.  For freight the top three countries in the use of railways are all in Southern Africa, South Africa, Zimbabwe and Namibia. 

 

Top countries for rail passenger traffic and goods by rail (1998)

 

                                                            Rail passenger km/ppp Million GDP

 

            Egypt                                       306,406

            Congo Republic                       93,827

            Mali                                         29,433

            Zambia                         57,858

            Morocco                                17,268

           

 

 

                                                            Rail goods by rail ton km/$ Million GDP

 

            South Africa                           283,262

            Zimbabwe                                140,231

            Namibia                                  129,941

            Tanzania                                  71,671

            Gabon                                      67,137

 

Source: UNCTAD

 

Air traffic

 

Aircraft departures in Table 1 in Sub-Saharan countries were marginally higher than in the South Asia region, the number of passengers carried was substantially higher in the later.  This suggests the use of much larger planes or a higher load factor, in either case implying relatively high cost per departure in Sub-Saharan Africa. South Africa, Egypt and Mauritius lead in terms of airfreight. South Africa, Egypt and Algeria are the top countries in terms of passenger traffic. 

 

Top countries for air passengers and airfreight (1998)

 

                                                            Air passengers carried ‘000

 

            South Africa                           6,480

            Egypt                                       3,895

            Algeria                                     3,382

            Morocco                                3,012

            Tunisia                                      1,859

 

                                                            Airfreight - Million ton-km

 

            South Africa                           301

            Egypt                                       255

            Mauritius                                 167

            Zimbabwe                                140

            Ethiopia                                  127

 

 

 

 

Voice and Data Communication Infrastructure

 

As Table 2 shows ownership of mobile and main line phones in the Sub-Saharan region is rather low, waiting times long and PC per person and internet hosts per person are relatively low on the continent. Although other groupings, notably, South Asia have similarly underdeveloped communication infrastructure, the relatively high rate of growth in that region in the last two years is likely to have changed the indicators significantly since the survey was carried out.  Looking at individual countries in Africa, market penetration for mobile phones was highest, by far, in South Africa and Mauritius.  A similar situation was the case for mainline telephones although the Mauritian level of penetration was almost double that of South Africa.  Waiting lists for main line phones were significant for all countries, four months or more.  In ten countries the waiting times were in excess of ten years.  Fax machines, the ubiquitous but increasingly outmoded office equipment is still in limited use, with all countries with the exception of Mauritius reporting less than 5 per thousand people.    Market penetration for Personal computers is highest in Mauritius, South Africa and Botswana.   Internet hosting is largely concentrated in South Africa. 

 

Table 2 Communication Infrastructures

 

 

 

Major markets for phones

 

Mobile phones have been viewed by some commentators as the panacea for the phone starved African consumer faced with horrendously long waiting time.    To a certain extent this is happening and although main line phones are by far the main medium.  The current difficult market conditions facing telecom operators worldwide should make Africa a relatively more attractive market, particularly given the high revenue currently accruing to operators on the continent.  In terms of market volumes a recent survey gave the size of the leading markets for mobile phone as follows:

 

Major markets for mobile and main lines

 

Mobile phones in Africa June 2000 (Millions)

 

South Africa               6.2

Morocco                    1.4

Egypt                     1.35

Cote d’Ivoire                .342

Zimbabwe                    .249

Uganda                      .142

Reunion                      .180

Mauritius                     .134

Tunisia                   .124

Ghana                   .111                   

 

Source: Opportunity Africa

 

                                                            Main line phones per 1000 people (1998)

 

            Mauritius                                             214

            South Africa                                       115

            Egypt                                                   78

            Namibia                                              69

            Botswana                                             65

 

Source: UNCTAD

 

Policy issues leading to the current situation

 

The policies and environment, which have given cause to the current state of the logistic infrastructure across continent, have been extensively documented.  Inadequate investment by the public sector and lack of foreign direct investment to augment the limited public budget is largely the cause.  When investment is made it is sometimes done for political reasons, for example roads being build not to open up productive agricultural regions but because they lead to regions which are important for politicians, pork barrel politics that the continent can ill afford.  There has not been any significant rail development for the last few decades.  Perhaps the biggest obstacle to the development and maintenance of the logistic infrastructure relate to ownership and control, namely state control.  This ownership structure has resulted in inefficiencies that could not be sustained in the private sector.  Many state companies and employees have on the whole yet to accept their primary role as providers of a service and for some operators the concept of consumer power is alien.  State ownership has deterred private investment from abroad except for short-term contractual projects.  Foreign aid has sometimes tended to the grandiose, with political rather than strict economic and financial criteria.  There has been a tendency of one-off capital investment programmes with little attention paid to maintenance implications, in particular, whether enterprises, which take ownership, possess the financial resources and management structure to maintain the infrastructure.  Other inhibiting factors relate to civil strife and in some cases the collapse of the state machinery to deliver tangible services.  Civil strife in all regions of the continent has destroyed the infrastructure, prevented maintenance and stifled regional solutions to logistic issues.  

 

 

 

 

Table 3 Revenue per line and cost of telephone calls

 

 

Source: UNCTAD

 

The effect of the current situation on logistic solutions

 

The effect of the policies mentioned above has manifested themselves in the quality and cost of delivering logistic solutions.  In this issue we highlight the cost to the telecommunications sub-sector.  Subsequent issues will look at other logistic sub sectors.   African and Latin American and Caribbean countries face the highest charges for local calls, at US$0.09 per three minutes.  The two regions also report the highest revenue per mainline among the group of low and middle income countries.  The higher revenue per line observed in high-income countries is a reflection of the intense use made of telephones in those countries because of the relatively (compared to income levels) low rate of calls. Perversely, the high revenues reported in the two grouping are because of the relatively high charges state monopoly operators can command which results in low intensity of use in those countries.  Lower charges could result in lower income per line but overall profitability for phone operators could rise because of more intensive use being made of this medium.  Among African countries The Gambia toped the list for local call charges at $0.32 per three minutes.  The Nigerian telephone operator made the highest revenue per mainline, which at $3,904 per line was nearly twenty times the revenue level made by operators in low and middle income countries in Europe and Central Asia. International calls are prohibitively high, with a three-minute call to the US in Chad, the country that reported the highest rate, costing $14.07.  The high cost of international calls is a particular cause for concern because not only does it impose a block on the very nascent Internet sector, with many African countries relying on foreign hosting of their sites, but also relating to access to information which this medium allows.  Furthermore telecom charges are becoming extremely important in the efficient movement and tracking of goods around the world.   The table below on waiting lists can provide a rough idea of the size of the largest markets   Algeria with the longest waiting list also has low revenue per line, which suggests that the telephone operator may be charging too low a rate. The other countries should be more attractive to investors because revenues are significantly higher than those charged in other regions of the world at a similar level of development.

 

Longest mainline waiting list and revenue per line (1998)

 

                                                Main line waiting list ‘000                       Rev per line $

           

Algeria                                           730                                          157

Sudan                                             340                                          634

Ethiopia                                          230.2                                       542

South Africa                           116                                          1177

Zimbabwe                                      109                                          641

 

Source: UNCTAD

 

Future prospect

 

The scenario for the continent has got some bright sparks.  Commercial services imports into Africa are significant, worth US $26 Billions in 1998 and although not growing as fast as the levels in some other similar country groupings, it has not witnessed the contraction seen in the Middle East and North Africa group over the period 1980-1998.  Transport and travel make up 71.9% of all commercial service imports.  This trade is likely to grow given certain positive changes taking place around the continent.  Chief among the positive trends is the move away from state monopolies.  Governments across the continent are discussing, planning and implementing privatisation policies, transferring state companies involved in logistics to local and foreign investors.   Pressure will continue to pile on Governments internally and externally by Western Countries who are all firm believers in the efficacy of the private sector.  Privatisation of airlines, shipping lines, ports and airports, telecommunication and other sub-sectors in the logistic chain could see considerable gains for consumers and the countries where this process is taking place.  To a large extent, the final effect may relate to the size of the market, some African countries may lack the critical size to justify foreign investment and effective competition simultaneously, a crucial proviso for privatisation to result in efficiency gains.  In such cases efforts should be made to set up regional markets; when regional solutions are sought, they should be divorced from political abuse, otherwise there will be a repeat of the current Air Afrique problems.  However, as we can see from the example of revenue per mainline in African countries, relative to the cost of delivering service, as given by the low cost country groupings, there is opportunity for operators to provide decent services and make reasonable profit.   There has been move to regional consolidation as well as and management and joint venture activities in several African countries.  South African, Mauritian, Ethiopian, Kenyan, Zimbabwean, Moroccan and European operators of ports, airports, shipping lines, airlines couriers have been engaged in cross border deals.  Technological developments and changes in the regulatory environment have seen utilities in high-income countries moving into telecommunications and vice versa, resulting in positive effects in terms of the quality and price of services.  This process is as yet underdeveloped in Africa although the potential is there to use existing grids.  High telecom charges on the continent will make this a viable prospect. 

 

 

 

Table 4 Structure of service imports

 

Source: UNCTAD

 

Democratic breakthroughs

 

Although there is a lot of news coverage in the West given to civil strife on the continent, there have been significant developments towards civil order, open and free government and transparency.  Pressure from Western and multinational organisations are pushing many governments towards this path, one that will lead to improved investment climate for foreign companies wishing to move to the logistic sector.   Similarly, there is pressure on African Governments to deliver tangible services from Western Donor agencies, private Citizens, the press and new opposition parties, emboldened by the freedoms provided in the democratic climate that is taking shape in some African countries.  This will ensure more open debate on the type of logistic infrastructure that is built and its maintenance. 

 

Investment opportunities

 

On the whole the business environment is improving and as Stephen Williams of Control Risk Group stated in an interview with African Business magazine “basically if you look at sub-Sahara Africa overall, you see that there is a gradual and continuing political and economic development and reform going on at the moment. There is a broadly accepted free-market ideology and governments are making attempts to make progress.”  Mr Williams cited that Mozambique, Tanzania and Zambia are the most optimistic in terms of overall investment.  In Table 5 we have identified countries, which exhibited considerable investment in the period 1996-98, and countries that have been identified as having the best investment opportunities in Africa.  Botswana tops the league, with considerable investment in the period 1996-1998 and best investment opportunities for the period 2000-2003 in motor vehicles, telecommunications, transport and storage and tourism.  Since the report was published the political turmoil in Zimbabwe has made that country less attractive to investment overall and it is highly unlikely that the sectors identified as providing best investment opportunities would still be classified as such.  The columns for security and political risks also show that most countries listed are classified as low to medium risks.  

 

Table 5 Foreign Direct Investment Inflows and investment opportunities in Africa

 

CI = Considerable investment 1996-98

BI = Best investment opportunities 2000-2003

 

 

Source: UNCTAD, Africa Business Magazine

 

Appendix 1 Road, rail and air infrastructure in African countries 1998

 

 

Source: UNCTAD

 

Appendix 2 Communication Infrastructure 1998 (For Internet Hosts 1999)

 

 

 

Source: UNCTAD

 

Appendix 3 Main line waiting lists, revenue per line and cost of telephone calls 1998

 

 

Source: UNCTAD

 

Appendix 4 Structure of service imports 1998

 

 

Source: UNCTAD