AFRICAN BUSINESS MAGAZINE
8 June 2018
According to the recent PwC report Strengthening Africa’s Gateways to Trade it is 1.5 to 3.5 times more expensive to ship a container from Africa than it is on comparable routes between other continents.
Small shipment sizes are one reason why. Dwell times (the time goods spend at a port without moving) are another. Some of these inefficiencies are due to inadequate infrastructural and human capacity; well-run African ports outside of South Africa tend to be those run by foreign-owned concessions.
Were African ports to become more efficient, the cost of African goods exports and imports could be cut by more than half, research shows. Higher volumes per port could be a solution. Economies of scale via regional hub ports with shipping volumes of more than 2m 20-foot equivalent units (TEUs) per annum would reduce transport costs and make African goods more competitive. That is the thinking of PwC, at least.
Shipments to West Africa, say, would go to one hub port, from where smaller ships and/or inland road and rail infrastructure would be used to transfer the containers to neighbouring countries. PwC believes these regional hub container ports are likely to be those in Durban (South Africa), Abidjan (Côte d’Ivoire) and Mombasa (Kenya). Currently, only the port of Durban, which handles more than 2.5m TEUs, qualifies as one. There would eventually be other regional hub port contenders, though.
The Chinese factor
There has been increased investment in African ports lately, amounting to about 10% of the global total according to PwC. Most are to improve existing port facilities in addition to better managing them via concessions. There are also a few planned greenfield investments. Considering the continent’s contribution to global trade growth has been below 1% over the past three decades, the increased interest seems a little counterintuitive. But that would hardly change if what are mostly inefficient African ports are not revamped.
African governments certainly now see the need to so. Not that they failed to before, but with so many demands on the public purse, supposedly self-funding ports were not a priority. So what changed? “There are a combination of factors at work,” suggests John Ashbourne, Africa economist at London-based Capital Economics, “but a key one is the large pool of Chinese capital that is targeting infrastructure programmes abroad. While France remains a dominant player in West Africa, a lot of the big schemes elsewhere (in Kenya, for example) are only possible due to Chinese involvement.” China, which is now the continent’s biggest trading partner, clearly sees how mutually beneficial it would be to help out.
In late March, Nigeria’s vice president, Yemi Osinbajo, presided over the launch ceremony for the construction of the Lekki Deep Sea Port in Lagos. When completed, it will be able to handle 1.5m TEU annually, eventually growing to 4.7m TEU, eclipsing the existing 650,000 TEU Tincan Island Port with its channel draught of 13.5 metres. With an expected post-dredging draught of 16.5 metres, the Lekki port’s channel will be the deepest in the country. If all goes according to plan, it will eventually rival the port at Abidjan, which is already doubling its capacity to 3m TEU from 1.2m currently. The $962m-worth of upgrades to the port of Abidjan by a Chinese construction firm, which began in October 2015, includes a second container terminal and a widening of the port’s main channel.
And in East Africa, the Dar es Salaam and Doraleh ports, in Tanzania and Djibouti respectively, are already taking traffic away from Mombasa, with goods bound for Uganda and Rwanda increasingly transiting via Dar es Salaam and Ethiopian ones almost exclusively moved via Doraleh. The capacity of the port at Dar es Salaam is also being doubled and it should be able to handle 28m tonnes of cargo a year by 2020, when new capacity in Abidjan and Lagos are expected to come on stream.
Chinese firms are carrying out the construction. They are also doing the deepening and expansion of the port at Walvis Bay in Namibia, which should be completed in 2019 according to President Hage Geingob in his April state-of-the-nation address.
Other greenfield projects are being embarked on. In March, Sudan and Qatar agreed a $4bn concession to develop the Red Sea port of Suakin in Sudan; though this could potentially be in conflict with an earlier deal with Turkey for the same port in addition to building a naval dock. Similarly in March, about a month after losing its Doraleh container terminal port concession in Djibouti, DP World, a Dubai-headquartered ports operator, won a 30-year joint venture management and development concession for a new port at Banana Creek in the Bas-Congo province of the Democratic Republic of Congo (DRC) that is expected to cost at least $1bn to construct. The rationale is the same as the Lekki Deep Port. The DRC’s current main port is too shallow to handle bigger vessels.
The new investments are providing African port operators with new opportunities. For example, South Africa’s Transnet aims to operate three berths at the new port being constructed in Lamu in Kenya and is also looking at a deal with ports authorities in Benin in West Africa. At least $2bn-worth of port investments are planned in Côte d’Ivoire, Mozambique and Tanzania, some of which would be accompanied by new railways and roads.
More ports, more trade?
Is there a risk of overcapacity? After all, some ports are already taking each other’s traffic. It would be shortsighted to think so. According to the IMF in its April World Economic Outlook report, China is expected to grow at about 6% over the next half a decade, and thus remain the main driver of global growth, estimated at about 4% in the period. In the same vein, Africa’s projected economic growth of about 4% over the next five years is expected to remain driven in part by international trade, increasingly with China.
In its most recent update, the IMF notes a strong recovery in global trade, which grew by an estimated 4.9% in 2017. A potential trade war between America and China is cause for concern, and could potentially dampen the resurgent optimism. However, recent developments – such as the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership by a group of 11 countries that account for 15% of global trade and the African Continental Free Trade Area (CFTA) agreement – point to higher trade growth in the future.
So, better-run African ports, with greater capacity, and indeed new ones, will potentially position the continent to be a more active participant in global trade. In its report, PwC explains the logic in this way: “Increased volumes of trade and more productive and attractive ports will accelerate changes in global shipping routes serving Africa… [and] will lead to increased integration with global shipping and trade routes… reducing transit times and reducing the unit cost of transport to and from the continent.”
But is it that simple? Not entirely. Capital Economics’ Ashbourne assesses the matter this way: “Improved infrastructure will help to boost trade [but] the real problem is often ‘last mile’ links. [So] it doesn’t matter if the port functions perfectly if the rural roads that lead to the inland areas don’t work properly.” Infrastructure for trade, whether in the form of ports, roads or railways, has to be integrated to make a difference.