Although Africa has become a hotbed for investors looking to expand enterprise and penetrate new markets, many logistics problems in the West African subregion remain. West Africa comprises seventeen countries that historically have lagged behind other African regions in terms of infrastructure and political stability. Despite setbacks, many nations, such as Nigeria, Côte d’Ivoire, and Benin, are emerging as Africa’s leaders in trade. According to Agility’s Emerging Markets Index report, Nigeria is ranked tenth in the world for domestic logistics and growth in intraregional trade. A few of the reasons why West Africa has attracted so much foreign interest include its natural resources, its growing middle class, and the recent adoption of the African Continental Free Trade Area. Moreover, the United Nations Department of Economic and Social Affairs predicts that Africa’s sub-Saharan regional GDP will grow by 3.4 percent in 2021—even despite the impact of COVID-19. Manufacturers and businesses hoping to take advantage of West Africa’s projected economic development, however, must examine the unique challenges and conditions they face in supply chain management before making the move abroad.
Common logistics challenges with West African e-commerce
In 2020, e-commerce experienced unprecedented growth. Global e-commerce traffic hit 22 billion visits in June. For many retailers and manufacturers, e-commerce has become a primary method of conducting business. However, Africa trails the rest of the world in e-commerce. Lack of widespread broadband access, cybercrime, underdeveloped postal systems and other challenges confront businesses trying to sell online. Widespread cybercrime Cybersecurity remains a primary concern for e-commerce in Africa. In 2017, cybercrime cost Africa an estimated 0.20 percent of its annual GDP, according to a report published by the World Trade Organization. Nigeria and Ghana experience some of the highest rates of cybercrime in the world. According to a recent article by Deloitte, Nigeria saw a 20 percent increase in phishing scams in 2020 compared to 2019. An increase in use of digital platforms spurred by the COVID-19 pandemic is likely to blame. Since these countries see some of the highest rates of cybercrime in the world, West African consumers generally avoid sharing their personal information over the internet and distrust online shopping. Moreover, many African countries do not have legislation in place to protect consumers from online fraud, which further exacerbates consumer hesitancy toward e-commerce. Underdeveloped postal services Historically, street addresses in Africa were established in populous city centers, and few if any address networks were extended to outlying areas or rural areas. Since the creation of the West African Postal Conference in 2012, the region has moved toward a more integrated postal system across developing countries. However, postal services are slow to incorporate the use of information and communications technology (ICT) into their daily operations, which slows down the efficiency of this process and others. Africa’s land mass is larger than China, Europe, and the United States combined. Africa is home to more than one billion residents, yet the efficiency and reach of its postal systems fall drastically behind those of the rest of the world. Africa had nearly 3,300 outsourced postal offices and 8,300 owner-operated post offices in 2018. In comparison, the Asia-Pacific region had nearly 100,000 outsourced offices and 227,000 owner-operated ones in the same year. Because of underdeveloped postal services, e-commerce can be especially challenging in West Africa. Tracking the flow of goods and reverse logistics is difficult, and some remote areas remain without street addresses. Lacking ICT infrastructure In general, West Africa has severe gaps in ICT infrastructure. The majority of Africa’s developing countries experience barriers in internet usage, such as bandwidth constraints, unreliable connections and frequent power cuts. Building ICT infrastructure is costly and requires skilled workers, and several West African countries are among the poorest in the world. On top of that, the cost of internet access is much higher in West Africa than in other regions. The lack of ICT knowledge and ICT infrastructure results in a digital divide that affects e-commerce. Africa’s digital divide stifles the rise of online communities—a necessary factor for full participation in the second wave of e-commerce.
Factors affecting industrial logistics in West Africa
Recently, many foreign countries, such as the United States and China, have invested in infrastructure projects with the hopes of helping Africa realize its full potential within the global economy. Although West Africa is developing rapidly, its countries still score relatively low on the World Bank’s Logistics Performance Index. Sierra Leone, for example, ranks 164th out of 167 countries. Identifying ways to optimize costs and operational efficiency can be exceedingly difficult in West Africa’s fragmented markets. The logistics problems in West Africa that manufacturers must overcome include issues with the transport of goods and an overreliance on raw materials. Issues with the transport of goods According to the International Road Federation, sub-Saharan Africa—a region that includes most of West Africa—accounts for 6 percent of global road networks despite representing 17 percent of global land mass. Comparatively, the North American continent accounts for 21 percent of the world’s road networks. This creates major challenges in the transportation of goods and intraregional trade for the African continent. For example, intra-African trade accounted for just 19 percent of Nigeria’s exports and 8 percent of its imports between 2019 and 2020, according to Africa’s Trade Law Centre. Large sections between Côte d’Ivoire and Senegal lack modern, connecting highways. Rural areas in many African nations are cut off from the supply chain completely. Moreover, the lack of road infrastructure can cause difficulties in sourcing raw materials and fulfilling domestic orders. On the other hand, the high costs of ocean and air freight in West Africa impact inbound and outbound logistics. Recently, construction of African airports has been on the rise, but the vast majority of trade is done by boat. Key ports in West Africa include Abidjan, Côte d’Ivoire, and Lagos, Nigeria. Even with recent expansion, there still isn’t enough port capacity to meet demand and bolster the West African economy. Reliance on raw materials Although West Africa is steadily developing, most of its countries’ economies are still resource- based. This is also true for other African regions, such as Central Africa and North Africa. West Africa’s biggest industries include agriculture, mining, and oil. Outside of cities, many of West Africa’s rural inhabitants rely on employment in unskilled labor. Less than 30 percent of Burkina Faso’s population was living in urban areas as of 2019. Africa is rapidly urbanizing, and consumer demand and incomes are closely tied to the rate of urbanization. Although some West African countries have a growing middle class, other parts of the region still have high poverty rates. In several West African countries, more than 30 percent of the population live on less than $1.90 a day, according to Oxfam International. Reducing that percentage will be the key to unlocking stronger consumer demand. Inactivation of the labor market With some of the highest fertility rates in the world, West Africa has the potential for a substantial workforce. By 2040, Africa is expected to have a larger working population than India and China combined. However, there are many systemic challenges to sourcing skilled, experienced workers for the logistics industry. According to the World Bank, sub-Saharan literacy rates sit at 65 percent, which falls behind the global literacy rate of 86 percent. Mali has a literacy rate of 35 percent, making it one of the lowest in the world. High levels of illiteracy have to do with ineffective education systems. Furthermore, when looking at education attainment by gender, severe inequalities emerge between African men and women. Moreover, unemployment rates among Africa’s youth (ages fifteen to twenty-four) are significantly higher than those of other demographics. As of 2018, Burkina Faso’s and the Gambia’s youth unemployment rates sat at 49.1 percent and 53.5 percent, respectively. All of these factors combine to create problems with sourcing talent for production, leaving SMEs at risk.
Solutions to mitigate logistics problems in West Africa
Despite the many challenges in the logistics, retail, and manufacturing sectors, Africa’s future is promising. The establishment of the Economic Community of West African States has led government leaders to take a unified approach to policy changes. These changes are expected to facilitate the harmonization of West African countries and in turn lead to economic growth. In the meantime, SMEs are finding innovative ways to mitigate logistics problems. To reap the most benefits from its untapped markets, many logistics companies have begun to open the gates to mobile commerce (m-commerce) and adopt alternative forms of transport. Regardless of the approach, logistics companies must be flexible and dynamic to foster sustainable growth and optimize their supply chains. The boom in m-commerce Although e-commerce is in its early stages in West Africa, m-commerce is on the rise. Many local SMEs have penetrated new markets with this form of transacting. M-commerce has been widely adapted in West African countries for two reasons: first, the growing youth population has been quick to adapt this technology; and second, mobile data costs less than the costs associated with internet infrastructure and usage. In fact, m-commerce may be the key for retailing and identifying consumer demands. According to the 2019 Mobile Economy West Africa report, 70 percent of total telecommunications connections will be via smartphone by 2025, up from 38 percent in 2018. The report also finds that the mobile industry will contribute an estimated $68 billion to GDP in 2023, which is nearly 10 percent of the total estimated GDP. SMEs should invest in mobile formats for marketing their products and cultivating new customers. Furthermore, the use of GPS and tracing technologies may help curb the challenges associated with the postal systems in West African countries. Alternative forms of transport Despite West Africa’s fragmented road networks, African SMEs are outfitting their own supply chains with non-traditional forms of transportation. Many local businesses have invested in motorcycles, referred to locally as boda bodas, to deliver goods domestically. Motorcycles are better suited to handle different terrain and navigate traffic jams than delivery trucks. The COVID-19 pandemic has also prompted the use of drones to deliver vaccines to remote areas of West Africa. Applying this technology to the supply chain can benefit SMEs greatly. With drone technology, SMEs can avoid exorbitant fees for shipping freight by air while increasing flexibility in order fulfillment. Drones may even play a role in sourcing materials for production in the future.
Benefits of working with a company that specializes in supply chain and warehouse logistics in West Africa
One of the biggest challenges logistics companies must overcome is an overall lack of infrastructure. However, building infrastructure needed for end-to-end supply chain management can be uneconomical. Logistics costs, even in more urbanized areas, can add up. For example, total logistics costs in Nigeria amounted to $71.9 billion in 2019, which made up 5 percent of the continent’s total logistics costs. As a result, many start-ups and SMEs can benefit from using a third-party logistics company that is already well established within the region. When considering expansion into West Africa, businesses should identify their core competencies and focus on them. As for the remaining gaps in the supply chain, logistics infrastructure providers such as Agility offer facilities that act as platforms for growth in the region. Logistics parks de-risk market entry and expansion, allowing companies to conserve working capital by storing, distributing, assembling and processing their goods at secure, connected, international-standard facilities funded, built and run by professionals. To discover how Agility is solving logistics problems in West Africa for companies both large and small, check out these case studies.