The African Continental Free Trade Agreement (AfCFTA) promises to usher in a new era of economic prosperity in Africa. Coming into force in May, the historic agreement will create the world’s largest free trade area since the WTO.
However, the transformative potential of the AfCFTA will depend on the free flow of goods across borders — which only the logistics sector can help unlock.
Local entrepreneurs and multinationals alike have long lamented the broken nature of logistics and supply chains across the continent.
Although AfCFTA will bring some relief to companies doing business across the continent by slashing border tariffs, the continent’s $130-170 billion infrastructure gap remains a stubborn impediment to reducing logistics costs.
- Yet, thorny challenges reveal immense opportunities; hundreds of African companies are tackling the region’s logistics problems.
According to a recent Briter Bridges survey of logistics tech companies across the continent, 3 trends will shape the future of logistics in African markets: closing the urban-rural divide, the digitization of logistics, and the continued rise of B2B logistics companies.
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African logistics companies are going beyond megacities and are looking to connect Africa’s rural communities to regional supply chains.
While megacities attracting millions of young Africans are growing across the country, Africa’s population remains predominantly rural.
A sparse population and lack of adequate road infrastructure in rural areas leave a substantial portion of the population disconnected from supply chains. Closing this urban-rural divide is one of the next frontiers of African logistics.
Two firms that are actively developing services for rural communities include Twiga Foods in Kenya and InspiraFarms which operates in Kenya, Rwanda, and South Africa.
- Twiga Foods is connecting produce supply from rural economies to urban consumers by linking farmers directly with vendors on an easy to access platform.
- InspiraFarms approaches the challenge of rural logistics from a different angle. It uses offgrid solar solutions to provide cold storage for farmers. The flexibility provided by on-site cold storage increases opportunities for farmers to participate in regional supply chains.
Solutions like the ones provided by these firms will continue to integrate the rural and city markets making regional logistics more efficient.
The most innovative logistics companies in African markets are developing digital platforms to deliver efficient and cost-effective logistics capabilities.
These companies do not have to completely reinvent how logistics work in African countries– goods are still transported by motorcycles, cars, trucks, and boats.
The innovation lies in the development of digital platforms that match supply to demand, whether it be courier apps that deliver groceries or platforms that coordinate freight delivery.
- Firms like Trella in Egypt and Kobo360 in Nigeria, which recently closed a $20 million fundraising round led by Goldman Sachs, found success by matching existing trucking capacity with demand by using digital platforms.
Growing internet penetration across the continent is increasing market connectivity by putting more customers online and allowing businesses to use cloud services.
These trends will continue to drive innovation in the logistics sector as African startups find ways to cut out intermediaries, remove burdensome operational processes, and optimize supply chains.
Business-to-business (B2B) focused startups will continue to drive the growth of African logistics sectors. While consumer-facing logistics players are seeing promising growth due to rapid urbanization and rising ecommerce penetration, enterprise-focused companies are expected to dominate Africa’s logistics sector in the short to medium term.
In a recent survey of top African logistics companies, 87% of respondents ran businesses focused on B2B solutions compared to 5% who only targeted B2C (business to consumer) services.
Two trends influencing the growth of the number of B2B logistics companies are the low demand for consumer goods due to low purchasing power in many African markets and the lack of reliable addresses for last-mile delivery. As a result, the most viable option for logistics startups will continue to meet the needs of businesses.
- Sokowatch, a Nairobi-based B2B startup, has embraced this opportunity by focusing on supply chains for retailers in the informal sector of African markets. Its founder, Daniel Yu, describes the company’s decision to focus on B2B as a choice between “developing effective…logistics…for 10,000 small shops instead of the one million individual consumers who buy from those shops.”
- Sokowatch’s decision to focus on the B2B market is understandable considering that African companies spent $2.6 trillion on B2B services in 2015. This figure is expected to grow by another trillion dollars by 2025. B2B logistics firms will continue to develop the solutions needed for African markets to efficiently grow.
African countries’ struggles with logistics are certainly not behind them. While closing the physical infrastructure gap that plagues the continent will continue to require billions of dollars in investment, tech-enabled logistics companies are improving supply chains and optimizing existing infrastructure in African markets.
These companies bring improved efficiency that is key to the future promise of intra-African trade.
Samakab Hashi is Principal at Lateral Capital, a venture firm investing in early and growth stage opportunities in sub-Saharan Africa.
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