Geographies in Depth

The forgotten heroes of the economy: why better warehouses will be key to Africa's growth  

Workers sit on bags of cocoa inside an Ivory Coast warehouse.

Workers sit on bags of cocoa inside an Ivory Coast warehouse. Image: REUTERS/Thierry Gouegnon

Geoffrey White
CEO, Agility Africa
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This article is part of: World Economic Forum on Africa

Africa contains many of the world’s fastest growing economies, but an acute infrastructure gap is constraining growth. The African Development Bank estimates that investment of $130-170 billion per year is needed to tackle the continent’s lack of quality roads, warehouses, power and other infrastructure.

Warehouses tend to be one of the most ignored elements of infrastructure and logistics, but they are a fundamental part of the supply chain, critical for economic development and growth. High-quality warehousing is not only needed for storage and distribution, but also for the packing, processing, assembling and light manufacturing of goods, the foundations of any economy.

Industrial real estate demand is estimated at over 15 million m² in Africa’s highest-potential markets. This shortage of quality warehousing is increasing the price of goods and stifling business growth.

To reach its true potential, Africa needs a fundamental warehousing transformation. African countries need to transition from low-quality “godowns” – makeshift warehouses that tend to lack basic security and safety features – to facilities that meet international standards with consistent, reliable IT connectivity and power. The ongoing transformation of warehousing in markets such as Asia demonstrates how a country can leverage improved facilities to stimulate trade, with a knock-on positive impact on economic development, jobs and prosperity.

In the African market, flexibility is key. Local companies looking to scale up and export, and international companies keen to establish a presence in the region are seeking high-quality warehousing without the need to raise or invest large amounts of capital – which could potentially delay the start of trading by several years.

A warehousing transformation in Africa can make a difference in five key areas:

1. Providing a platform for African manufacturing and the Fourth Industrial Revolution (4IR)

Many multinationals are hesitant to invest in African facilities because of the perceived risks. A warehouse park that is ready to move into, with de-risked land acquisition, reduces the capital required for companies to enter the African market, and helps businesses get to market faster. Multinationals can easily lease space for light manufacturing and added value storage and distribution.

With the 4IR under way, tech innovations like 3D printing and real-time connectivity are stimulating local manufacturing, increasing the need for secure, environmentally responsible warehousing platforms. These need to be international-standard facilities with data connectivity and internet of things technology, which improves supply chain visibility by making it possible to track and trace all goods.

2. Enhancing agricultural value chains and reducing food losses

According to the UN’s Food and Agriculture Organization (FAO), roughly one-third of food produced for human consumption gets lost or wasted globally. In Africa, wastage is particularly high at the agricultural production and post-harvest handling and storage stages.

Modern warehouses with security and pest and temperature control could radically reduce this loss. Consolidated warehousing for commodities and agriculture – allowing for local processing and packaging to take place under the same roof as storage – reduces wastage, and allows far more value to be captured in-country.

3. Enabling the growth of African SMEs

Seventy-five percent of growth in Africa will come from small and medium-sized enterprises, according to McKinsey. Many African SMEs struggle to get access to finance for infrastructure. Flexible warehousing models that allow for lower upfront payments give SMEs easy entry to quality warehouses that meet the standards required by international customers.

For example, a Ghanaian entrepreneur was struggling to expand her food processing business to supply the formal sector because the loan costs to set up a processing and packaging facility were prohibitively high. By leasing warehouse space in Agility’s Ghana park, she could use her capital to grow her business instead of having to buy land and build a facility.

4. Accelerating e-commerce

African e-commerce is booming, with projected annual sales of $75 billion by 2025. In April, African e-commerce company Jumia listed on the New York Stock Exchange. Shares soared 75% on the first day of trading, valuing the company at more than $1.9 billion.

E-commerce fulfilment requires four times the warehouse capacity in the destination market compared to the traditional logistics model. The expansion of e-commerce relies on the availability of international standard warehousing fulfillment centers, allowing for the automation and racking that international e-commerce companies use in both developed and emerging markets.

5. Driving economic growth, regional trade and skilled job creation

Large-scale warehouse parks allow for logistics and manufacturing clusters to form across Africa as an interconnected network, enabling more intra-regional trade. Currently, intra-regional trade accounts for just 17% of Africa’s exports, compared to 59% in Asia and 69% in Europe. The AfCFTA will create the world’s largest single market, of 1.2 billion people.

International standard warehousing will also allow the development of warehouse management skills, including materials management, racking and efficiency improvement, adding to the continent’s competitiveness as it develops its export potential for global markets.

Have you read?

Building the right infrastructure in the right places can catalyse Africa’s growth, driving investment and underpinning development. The availability of international standard warehousing will encourage multinationals to invest in Africa and provide small local businesses the facilities they need to scale up and reach regional and international markets. With support from governments and investment by the private sector, a warehousing transformation can revolutionize African supply chains, helping the continent fulfil its immense potential.

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Related topics:
Geographies in DepthTrade and InvestmentSupply Chains and Transportation
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