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Live aid Africa poised for sound trade growth, but needs investment in people, not just roads and ports, carrier executive says.

By Eric Johnson

   The longtime narrative about Africa's supply chain difficulties usually goes like this: poor infrastructure holds back the massive continent from reaching its potential.
   Not so, said Jonathan Horn, Africa regional executive for container line Safmarine.
   'The assumption ' that port, inland infrastructure and political conflict ' are the key inhibitors of growth is one which is shared by many,' Horn said in an interview with American Shipper in March. 'However, lack of employment-creating investment and thus unemployment in Africa is one of the largest obstacles facing African economies, affecting almost every country in Africa.'

Horn

   Horn believes investment is needed in people as much as Africa's roads and ports.
   'If more investment is attracted into people-intensive industries, this would lead to greater economic growth,' he said. 'Employment growth will result in the faster growth of the middle class and consequently increased levels of consumption in these economies ' which will have a very positive impact on trade and growth in Africa.'
   Safmarine is well positioned to espouse on the African container shipping industry. The wholly owned but independently operated subsidiary of A.P. Moller – Maersk focuses primarily on trades to and from Africa, having had its origins in South Africa.
   The line, along with sister carrier Maersk Line, operates a plethora of services linking Africa to the world and has representation in 45 African nations.
   Horn, in a wide-ranging discussion, said investment in infrastructure can't be ignored ' it just needs to be linked with initiatives that empower Africans to increase their station in life.
   'Of course, investment in infrastructure also needs to happen to support economic growth,' he said. 'Investment in supply chain infrastructure, particularly in landside access to ports, and in secure warehousing facilities in addition to ports, is important and needs to happen ahead of the demand curve, wherever possible.
   'Better inland infrastructure will also help improve efficiencies and reduce costs. Businesses need a reliable supply chain into and out of a country. The less predictable the supply chain, the greater the buffers built into processes and consequently the higher the cost of doing business.'
   Horn said a key hurdle for outsiders is the negative perceptions associated with Africa.
   'The risks of doing business in Africa, while clearly there, are often exaggerated,' he said. 'Much of the time one is confronted with negative perceptions ' the risks and the scams ' and not about the success stories, of which there are many.
   'We've already seen in several countries how investment in Africa, coupled with employment growth and higher personal economies, have fueled domestic demand for a variety of goods such as automotive and associated industries, retail, electronics, white goods, food and beverages. This has been particularly evident in West Africa where investment in the oil and gas and mining sectors has resulted in the general economic uplifting of the region and increased consumer demand for goods and services.'
   An oft-discussed aspect of African trade is a geographic shift from Europe to Asia, and particularly China's investment drive in Africa.
   'China's presence in Africa is significant, continues to grow and there is clearly a long-term commitment to trade potential between the two regions,' Horn said. 'Safmarine's Africa/Asia trade is in fact the fastest growing trade for Safmarine in Africa. China alone now represents some 25 percent of Africa imports and exports, from a position of some 15 percent five years ago.
   'We have also seen how Asia has overtaken Europe as Africa's main trading partner. While trade between Africa's traditional trading partners in Europe has shown moderate growth, this has over the past several years been outstripped by trade with Asia. The manufacturing shift to the east (both for local consumption in Asia and export) has been a major driver of this.'
   China's interest isn't merely to tap into Africa's long sought natural resources, Horn said.
   'Not only is China investing heavily in both infrastructure-type projects and mining in Africa, but the country has taken a long-term view on its investment in Africa,' he said. 'It sees Africa as not only a source for raw materials, but also an important market for Chinese goods. Trade between China and the oil and mineral-rich countries, such as Angola, Nigeria, Ghana, and to major East African countries such as Kenya and Tanzania, is particularly strong.'
   It helps to think of Africa in four distinct geographical regions:
   ' Northern Africa and the Horn of Africa, which are most often aligned with the Mediterranean and Middle East regions, respectively.
   ' Southern Africa, of which South Africa's nearly first world economy dominates.
   ' East Africa, the most accessible from Asia.
   ' West Africa, the fastest growing region of them all.
   'West Africa is a region of high potential,' Horn said. 'This region continues to attract significant investment in the oil and gas and mining sectors. As such, several multinational companies have established a presence in West Africa, and this investment is contributing significantly to the growth of the region. Higher growth in West Africa typically aligns with the oil and mineral-rich countries, such as Angola, Ghana and Nigeria.'
   An interesting development in the container-shipping industry is the so-called Wafmax vessels, Maersk Line's new series of 22 containerships designed to increase capacity into the shallow-draft ports of West Africa. The introduction of the 4,500-TEU ships will benefit Safmarine, which partners with sister line Maersk on a number of services.
   As for East Africa, Horn said it holds 'significant potential' as well.
   'Although not as large as West Africa from a trade perspective, discovery of oil and gas in this region, assuming commercially viable, is likely to be a significant driver of growth,' he said. 'We expect volumes into and out of these two regions to continue to show double-digit growth, as they did in 2010.'
   South Africa and its neighboring nations are in a different position.
   'While its economy is not growing at the same rate as West and East Africa, the size of this economy is much larger and the volumes into and out of South Africa remain significant,' Horn said. 'South African volumes account for more than one-third of Safmarine's total Africa volumes.
   'South Africa's economy is also very different from the economies of the rest of Africa ' it is more closely aligned to first world economies and it tends to follow what is happening in other developed world economies. This was particularly evident during the 2009 global economic crisis, when the economies of East and West Africa showed some, but limited, impact as a result of the crisis, whereas the economy of South Africa, as with many first world economies, declined.'
   Horn said Africa's outbound trade is overwhelmingly commodity-based while inbound trade is predominantly finished goods. Competition for commodities from fast-growing economies in Asia, as well as internal demand within Africa, bodes well for trade growth. And inbound consumption will increase as outbound trade and affluence rises.
   As for Africa's trade with more developed economies, Horn said key cargo sectors from Africa to Europe are foodstuffs, including fruit, nuts and meat, and agricultural commodities, like cocoa, coffee, tea, and seeds, as well as cotton, paper, plastics, rubber and autos. From Africa to North America key commodities are textiles, foodstuffs (mostly fruits and nuts), plastics, rubber and autos.
   'In terms of growth potential, both Europe and America represent a moderately growing market for African agricultural produce. But growth potential is linked to competition from other competing supply economies of the world,' Horn said. 'Several U.S. and European companies are active in oil and gas investments in West Africa, and we anticipate cargo needed to supply these industries, from both U.S. and also Europe, will grow as the oil and gas activities in West and East Africa grow.'
   China's increasing interest in Africa could have a positive knock-on effect for North America and Europe, he suggested.
   'The benefit to North America and Europe from this investment will come through increased demand for products, as the African consumer becomes more affluent and economically empowered,' he said. 'Similar to India, the emergence of a bigger, stronger middle class in Africa is likely to result in demand for a broader range of goods and more sophisticated consumption and buying patterns, and this could benefit the U.S. and Europe. From an industry point of view, there is also potential for U.S. and European countries in supplying machinery and other goods to the growing number of oil, gas, mining and infrastructural projects.'
   It's led to a bullish perspective on trade from a region that endured decades of bearish forecasts.
   'Africa does hold many opportunities and several companies have realized that Africa is an attractive option,' Horn said. 'Many of these companies, at the moment, seem to be from the Far East and the Indian Subcontinent. Sure, there are risks and these need to be managed, but there are many experienced service providers who can guide potential investors or traders in successfully navigating this.
   'Overall business confidence within Africa seems to be increasing and sentiment is generally positive.'