Connecting Africa the Old Way
November 11, 2008
Most often when we hear the term “connectivity” we think about the Internet and the World Wide Web. In days of yore, it was the road or the sea that defined connectivity. In geographical areas which have been defined as the Gap by my colleague Tom Barnett, connectivity of all sorts is often missing — including roads. Africa is poster child for an area lacking connectivity; but, according to an article in The Economist that may change [“Network effects,” 18 October 2008 print edition]. The article begins by describing the current (and sad) state of affairs in Africa.
“Aside from a few niche industries such as cut flowers, which are air-freighted from Kenya and Ethiopia to auctions in the Netherlands, African trade has not changed much since the end of the colonial era. Unprocessed raw materials go out; finished goods come in. The trade imbalance is vividly illustrated by the ships sent from Asia to pick up empty containers left at African ports. Within Africa, moreover, it is difficult and costly to move goods. The continent has only a few broken-down railways. It has nothing resembling a transcontinental motorway. Even the British colonial dream of a road connecting Cape Town with Cairo failed. Today, getting a container to the heart of Africa—from Douala in Cameroon to Bangassou in the Central African Republic, say—still means a wait of up to three weeks at the port on arrival; roadblocks, bribes, pot-holes and mud-drifts on the road along the way; malarial fevers, prostitutes and monkey-meat stews in the lorry cabin; hyenas and soldiers on the road at night. The costs of fuel and repairs make even the few arterial routes (beyond southern Africa) uneconomic. A study by America’s trade department found that it cost more to ship a ton of wheat from Mombasa in Kenya to Kampala in Uganda than it did to ship it from Chicago to Mombasa.”
Before learning why the article believes that the situation might be changing, I want to make sure that we don’t gloss over the profound connections the article links to transportation challenges in Africa. In my discussions about Development-in-a-Box™, I try to stress the importance of taking a holistic approach to development. It doesn’t do any good to talk about investing in infrastructure if you don’t also discuss corruption, health, security, education, and so forth. The article rushes onward to describe efforts now being planned to improve African infrastructure, but, hopefully, these plans will be made in concert with other development efforts. If they aren’t, they will likely bless the lives of the fortunate rich but not the desperately poor. On to the plans:
“Several companies are trying to make the best of Africa’s creaking infrastructure to construct transcontinental logistics networks. Among them are DHL, Maersk, Dubai World and Chinese companies supplying oil and mining projects in Angola and the Democratic Republic of Congo (DRC). The clear leader so far is Bolloré Africa Logistics, a division of Bolloré, a French industrial conglomerate. Bolloré’s African adventure started in the 1980s when Vincent Bolloré, the omnivorous billionaire who heads the family firm, began to buy up ancient transport infrastructure in west Africa. Growth since has been rapid and mostly profitable. As a port operator, stevedore, warehouser and freight forwarder, Bolloré handles 80% of west Africa’s exports (excluding oil) and 25% of east Africa’s—in short, nearly all of Africa’s cotton and cocoa, as well as much of its coffee, rubber, and timber. With offices in 42 African countries and 20,000 of his 31,000 employees based in Africa, Mr Bolloré is bullish on the continent’s prospects. Bolloré Africa Logistics accounts for $2 billion of the group’s $10 billion annual revenues. Its head, Dominique Lafont, predicts 12-17% annual growth for the division for the next five years. He believes better logistics are vital to reduce poverty in Africa. A new warehouse for perishable goods, or a new garage for repairing overland lorries, he reckons, create more lasting benefits to Africans than most aid projects do.”
A prediction of 12-17% growth rates amidst a possible global recession gives you some idea why businessmen are looking for opportunities in emerging market countries. That prediction, especially for the logistics business, depends on helping create internal African markets. Reading between the lines of Lafont’s statement that “better logistics are vital to reduce poverty in Africa,” one finds underlying assumptions that jobs will be created, workforce training will be conducted, healthcare concerns will be addressed, and demand for goods will rise. Lafont is correct that any growing business that creates jobs is good for poverty reduction. One of the great things about the logistics sector is the variety of jobs that it helps create. Lafont mentions only two (warehousing and automotive repair). With little imagination one can think of many other jobs that could be created: road construction and repair crews, law enforcement, food provision, markets for new goods, advertising, dock workers, truck drivers, and so forth. Many of these jobs require skilled workers and every job requires healthy workers. With jobs come income and with income comes spending. That is a virtuous cycle created by connectivity — even the old kind connectivity.
“Bolloré’s aim is to exploit the massive unrealised potential for trade between African countries by being the first to link the economies of the Francophone and English-speaking parts of Africa. It wants to do this by establishing a 26,000km (16,000 mile) pan-African network of ‘vital corridors’, making use of whatever infrastructure is available, with long sections of transit by barge down the Niger, Congo, and Nile rivers deep into the interior. Ports and ‘dry ports’ (depots with customs-bonded warehouses) are probably the easiest part of Africa’s logistics network to fix. Bolloré was among 100 firms, ’15 of them serious’, says Mr Lafont, to tender for the right to operate a new port outside Lagos in Nigeria. It already runs several other west African ports, hopes to be reconsidered for the Dar es Salaam port in Tanzania, and wants to compete with Dubai World’s Djibouti port, which has a monopoly in the Horn of Africa, by developing the port of Berbera in former British Somaliland. Bolloré’s biggest bet was on Abidjan port in Côte d’Ivoire, where it invested heavily despite a prolonged civil war, reducing the handling time of containers in the port from eight days to two.”
In a post entitled Developments in Africa, I wrote that “high oil prices are likely to keep Africa from moving up the chain of commodity exports because supply lines are shortening due to transportation costs. Regionalization is emerging within globalization. That means that the best hope for sustainable African development involves a strategy that develops a stronger regional economy in Africa that is better able to connect to the larger global economy.” That is exactly what Bolloré is trying to achieve. Bolloré is big enough that it can make big bets and take big risks. Few companies involved in trade are willing to make large investments in wartorn countries — Bolloré is an exception.
“Ivorian officials say Bolloré’s investment, which allowed cocoa exports to continue during the fighting, helped keep the country from collapse. For its part, Bolloré brazenly uses Abidjan as part of its sales pitch of Afro-optimism and to illustrate its policy of never pulling out of any country. The firm claims to have continued operations through the Rwanda genocide, wars in Sudan and Congo, and during this year’s election crisis in Kenya.”
Bolloré is counting on African economic growth and, more importantly, an emerging middle class that demands more variety in the products they buy.
“As African economies grow and demand for consumer goods increases, Bolloré expects to make more of its money from supply-chain contracts. In Kenya, for example, it has a contract with British American Tobacco to transport tobacco from farm to factory and then as finished cigarettes to smokers across east Africa. Bolloré expects to lose money on serving the remote ends of its ‘vital corridors’, but believes maintaining the network will put it in a better position to bid for supplying lucrative projects such as iron ore mines in DRC, oil fields in Sudan, gold fields in Tanzania and gas pipelines in Nigeria.”
Perhaps the trade in tobacco products wasn’t the best example that could have been provided. Tobacco use is a negative multiplier when it comes to development. The health effects reduce productivity and increase workforce costs due to health problems. The long-term negative effects on a country’s economy are also significant. For more on that topic, see my post Smoking and Development.
As noted above, dealing with corruption is one of the most important things that can be done to help an economy get on the right path. The article believes that improved logistics will help decrease corruption. It also underscores the importance of one of the central features of Development-in-a-Box — the adoption of best practices and international standards.
“The biggest impact of improved logistics in Africa may be on good governance. Prompt payment of customs dues by logistics companies on behalf of their clients and paperless transit have increased tax revenues and reduced government corruption. It is harder for a customs official to hold out for a bribe when the system is computerised and tracked by a logistics company’s bar code—although not impossible: in grubbier ports, officials sometimes hold cargo to ransom by refusing to press the return key on the keyboard. But if the logisticians are to make headway, African governments must also do their part. They need to reduce banditry, keep roads and bridges in better shape and regulate Africa’s informal trucking business, run by cowboy operators who overload old lorries and pay bribes instead of taxes. Above all, Africa needs to smooth passage along its roads. Landlocked Rwanda recently identified 47 checkpoints and weighbridges between Mombasa and Kigali. Getting rid of roadblocks would cut the cost of shipments by 20%—and clear the way for broader economic growth.”
With the rest of the world slumping, this is a good time for Africa to do a little introspection and make plans to strengthen its regional economy. Business as usual won’t cut the mustard. Corruption must be controlled and investments in infrastructure and human capital must be made. There is no shortage of organizations trying to help Africa, but Africa needs to help itself by doing all within its power to make the continent a good place to do business. Conflict and corruption still plague too many regions and artificial borders isolate too many impoverished groups. That isolation can be reduced through connectivity but ending conflict and corruption requires both moral and political courage.