South Africa looks to private sector to upgrade ageing logistics infrastructure

DP World's $890m acquisition of Imperial Logistics is expected to bring down transport costs in Africa

Lorries and cargo vessels at the Port of Durban in South Africa that was forced to close in July because of riots. AFP

Moving goods around Africa is notoriously difficult. Potholed roads, shakedowns at paramilitary checkpoints and weeks spent at border posts are only some of the challenges freight companies face.

For those willing to brave the conditions, however, returns can be lucrative. The continent imported around $560 billion in goods in 2019, according to the United Nations Conference on Trade and Development, the global trade and development body. African countries also bought $69bn worth of goods from each other in the same year.

The planned acquisition of South African freight company Imperial Logistics by the UAE's DP World, announced in July, is a logical tie-up between two specialist operators. DP World specialises in global port operations, trade parks and maritime services. Imperial, on the other hand, has moved from global logistics operations to near-exclusive focus on moving goods around Africa.

“The combination is complimentary,” Imperial chief executive Mohammed Akoojee says of the $890 million deal. “It will certainly bring down the cost of logistics in Africa, which is very much needed.”

Road transport costs in Africa are almost twice that of South-East Asia, according to the London-based International Growth Centre. For the 16 landlocked African countries it is even worse, as freight costs are three to four times higher than in developed countries.

In the case of Ethiopia, the cost per kilometre to move a container is around 3.5 times more expensive relative to the US, while in Nigeria, it is 5.3 times higher, the IGC estimates.

Combining DP World’s expertise with global port and rail infrastructure with Imperial’s downstream road freight expertise would support smoother and cheaper logistics, says Mr Akoojee.

“It will certainly increase the flow of goods, make it more efficient and allow people to get products they need at a lower price.”

Cost is not the only factor in diversifying Africa’s logistics chain. Shippers are also beginning to appreciate the need to diversify away from their over-reliance on South Africa, the gateway to much of the continent south of the Equator.

Catastrophic riots in July resulted in hundreds of warehouses being destroyed in KwaZulu Natal province and also led to the closure of the country’s largest port in Durban. Meanwhile, as many as 200 lorries are burnt and looted each year along highways by outlaws.

Durban itself serves 60 per cent of regional trade, from as far as the Democratic Republic of Congo 3,000 kilometres away, but is plagued by ageing equipment, frequent strikes and other blockages that slow cargo. As a result, shippers are now looking for alternatives, says the Road Freight Association, the largest mover of goods through Africa.

“Over the past 10 years, our neighbouring countries have been quietly putting money into ports,” says Gavin Kelly, chief executive of the RFA.

South Africa’s container ports were ranked at the bottom of a World Bank global index of 351 container ports. Durban is among the worst-performing container ports in the world in terms of efficiency, according to the Washington-based lender.

“The Chinese have spent a fair amount of money in Maputo, Mozambique. Kenya has Mombasa, Tanzania has Dar es Salaam. Those used to be nightmare ports 20 years ago, but are now very efficient,” Mr Kelly says.

However, South Africa seems to be getting the message. In June, President Cyril Ramaphosa announced the partial privatisation of harbour infrastructure. And in late August, the government said it would embark on a 100 billion rand ($6.55bn) investment drive, together with foreign partners.

With South Africa's credit rating being downgraded to junk status by Moody's last year, borrowing to finance new infrastructure investment is very difficult, making it highly unlikely that the country can continue without private sector partners.

“We want to bring the best of business to South Africa, to bring the technology that is required, but also the kind of cash that is required,” Pravin Gordhan, South Africa's Minister of Public Enterprises, said during a press briefing this week.

Durban would have a “super terminal” to nearly double its capacity, enabling it to take advantage of surging demand for the country’s mineral and agricultural products. While no partners have been named, local media has speculated Gulf logistics companies such as DP World and Kuwait's Agility could be among likely candidates.

“The 100bn rand in port infrastructure is only the start of private sector investment into state-owned businesses,” says Wayne McCurrie, portfolio manager at Ashburton Investment in Johannesburg. “Politicians are stating that this is not privatisation but this does not matter. The government just doesn’t have the capital and their infrastructure is old.”