More strategic investments in Africa’s ports can accelerate growth, trade – PwC

Africa needs to take advantage of the economic potential of its ports and shipping sector if it is to realise its growth ambitions. Globally, ports are gateways for 80 per cent of merchandise trade by volume and 70 per cent by value. Investment in ports and their related transport infrastructure to advance trade and promote overall economic development and growth is therefore vital-particularly in emerging economies that are currently underserved by modern transportation facilities. However, port investment must be channelled appropriately to ensure financial sustainability and economic growth.
Investment is not always about building new ports or terminals–investment spent on infrastructure without cognisance of the efficiency and effectiveness of the performance of the port may not produce the desired results. According to PriceWaterhouseCoopers [PwC] in the report, ‘Strengthening Africa’s gateways to trade’ in Sub Saharan Africa (SSA), port performance must be seen in the context of not only port infrastructure shortfalls, but also the fact that port performance has a direct impact on the efficiency and reliability of the entire transport network in which the port is just a mode for the transfer of goods.
Why ports matter As an emerging market region endowed with vast resources and a growing population, SSA must accelerate its market access and trade across the region and with the rest of the world. Analysis by the rating agency showed that a 25 per cent improvement in port performance could increase GDP by two per cent, demonstrating the close relationship between port effectiveness and trade competitiveness.
With growing congestion in many African ports, the continent runs the risk of sacrificing further growth through lack of investment in port terminal infrastructure. Access to effective ports, interconnecting infrastructure and efficient operations to cope with current demand and future growth, will lead to reduced costs and improved overall freight logistics efficiency and reliability–all of which are fundamental to the region’s future success. Despite the high volumes of goods that require transport, the development and integration of ports in Africa’s wider logistic chains remains uneven.
Some ports are important generators of benefit and serve large hinterland areas, often extending beyond national borders. Others lag in terms of available facilities, reliability and efficiency in the handling of freight, which increase supply-chain costs. The disparities in performance between different ports impacts on Africa’s transport logistic chains, and makes African countries less competitive than they could be. Dr. Andrew Shaw, PwC Africa Transport and Logistics Leader, says: “Ports are a vital part of the supply chain in Africa, with many ports having a far-reaching hinterland often spanning a number of countries, which makes them a natural focus for regional development.”
“ Trade competitiveness requires governments and key stakeholders to see ports as facilitators of trade and integrators in the logistics supply chain. Efficient ports can make countries and regions more competitive and thus improve their growth prospects. The reliability and efficiency of each port terminal, including minimising delay to shippers, is critical to enhancing future trade facilitation.” For Partner PwC Nigeria, Ian Arufor, “International trade is a primary vehicle for the international movement of capital to developing nations, which ultimately drives economic development.”
“As the larger West African economies embark upon, or seek to accelerate, the implementation of their economic development drives, new and or expanded port access and capabilities are increasingly recognised as key tenets of these programmes. This is exemplified by the number of active port development and expansion projects in Nigeria and Ghana.” The case for shifting focus Historically, many governments have focused on the revenues that can be extracted from ports as opposed to recognising them as facilitators of trade and growth.
Africa needs to shift its understanding of the role ports can play and step up investment in them to achieve its economic development goals. In particular, there should be more awareness of the greater economic benefits that effective and efficient ports can play. High port logistics costs, poor reliability and low economies of scale in trade volumes have a negative impact on trade growth in Africa. According to PwC estimates, $2.2 billion per annum could be saved in logistics costs if the average throughput at the major ports in SSA doubled
. In other parts of the world, such a focus on volume and efficiency has led to a stronger emphasis on hub and feeder ports for containers and enhancing scale for commodity bulk terminals. Although individual countries in Africa have tended to push for developing their own hub ports (ports with the greatest volume potential), it is likely that we will see some ports eventually emerge as major hubs.
PwC’s analysis shows that, based on the degree of shipping liner connectivity, amount of trade passing through a port, and the size of the hinterland, Durban (South Africa), Abidjan (Côte d’Ivoire) and Mombasa (Kenya) are most likely to emerge as the major hubs in Southern Africa, West Africa and East Africa, respectively. It is notable that SSA merchandise trade has increased by about 300 per cent over the past 30 years, yet the region contributed less than 1 per cent to the value of world trade growth during this period.
The value of SSA exports has declined since the end of the resources boom, while imports have continued to grow. As demand for commodities begins to increase once more, we expect to see prices and volumes will rise again. SSA imports are predominated by containerised cargo, while exports are mostly handled as bulk freight. This trade imbalance between imports and exports means that many containers return empty, thereby absorbing valuable port capacity and resulting in higher logistics costs for inbound traffic to offset the cost of an empty return leg. Most SSA ports are public sector owned and managed, which makes the raising of capital in a constrained economic environment difficult. Governments’ role in the port sector also affects investment returns because of the manner in which they regulate and operate ports. Greater clarity and transparency about government involvement and regulation of port activity is important.
Performance of ports in SSA A range of physical, organisational, technological and institutional elements play a role in determining port capacity and efficiency. Accordingly, PwC’s report noted that There is a lag in investment in port infrastructure, which tends to perpetuate bottlenecks at key African ports. The investment lag is largely driven by reluctance to invest ahead of demand and when investment decisions are made, it frequently takes a number of years before new equipment is supplied or infrastructure constructed.
African ports tend to operate at higher densities than their global counterparts due to land constraints. Terminal capacity utilisation is often constrained by vessel sizes, vessel utilisation and call frequency. Road network around ports are often not sufficient to sustain port volumes. Many of the handling inefficiencies and long container dwell times are not the result of port infrastructure shortfalls at all. Rather, they are a consequence of poor port management, customs and associated container clearing processes, as well as inadequate landside connections which prevent containers leaving ports without delay. Future drivers of investment
The report assesses current investment in SSA’s ports and reveals a number of trends to include ownership and service models are gravitating towards greater private-sector involvement; Increasing competition between ports is driving investment decisions; Shipping lines and port operators are increasingly driving port investment; Externally-funded commodities and consumer goods are driving investment; Appetite for large greenfield investment is waning; Focus on intermodal facilities and dry ports is increasing; and greater awareness of infrastructure interdependencies.