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PWC: greater investment in Africa’s ports could accelerate growth and development

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Dry Bulk,


According to the latest report by PWC, Strengthening Africa’s gateways to trade’, Africa needs to take advantage of the economic potential of its ports and shipping sector if it is to realise its growth ambitions. This report was developed in response to the challenges facing SAA’s ports in attracting external investment and highlighting the regional economic and growth benefits thereof.

The report notes that ports are gateways for 80% of merchandise trade by volume and 70% by value on a global scale. 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 under-served by modern transportation facilities.

However, it notes that 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.

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 transport logistic chains, and makes African countries less competitive than they could be.

 

PwC Africa Transport and Logistics Leader, Dr. Andrew Shaw, said: “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.”

“In this report, we show that the global transportation and logistics industry can no longer afford to ignore developments in Africa. Logistics service providers and ports in particular will continue to play a key facilitator role in trade competitiveness and thus facilitate trade and sustained economic growth across the region.

Kuria Muchiru, Partner, Government & Public Sector, PwC Kenya, added: “Efficient port operations in Mombasa and Dar es Salaam are critical to increased throughput and evacuation of cargo. Investments in rail are seen as a major step towards contributing to improved performance. Developments in multimodal operations and master planning of the ports to keep up to date with increasing throughput, which in turn fuels economic growth are critical to efficiency. In the long run, East Africa is expected to a be a major transhipment hub on the East Coast of Africa, which will reduce freight costs in addition to contributing to the Belt and Road.”

 

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, US$2.2 billion/yr 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.

It is notable that SSA merchandise trade has increased by about 300% over the past 30 years, yet the region contributed less than 1% 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.

Improving Africa’s trade potential to export manufactured, semi-processed or agricultural goods would significantly improve the imbalance in containerised trade. This rebalancing of containerised trade offers a unique opportunity for African countries to beneficiate and expand trade in higher-value exports.

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. Almost all investors we spoke to during our research highlighted governance as the main risk consideration in their investment decision to support increased port investment. This is in an environment in which 67% of port terminal operators interviewed in southern Africa felt that they needed to expand their port facilities.

Read the article online at: https://www.drybulkmagazine.com/ports-terminals/12042018/pwc-greater-investment-in-africas-ports-could-accelerate-growth-and-development/

 

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