By Alex Irwin-Hunt From fDi Intelligence

Coordination and scale are needed to develop transcontinental integrated infrastructure

Business leaders are calling for more effective partnerships to develop the African transportation infrastructure and services needed to fulfil the growth potential of intra-continental trade.

Mansur Ahmed, a group executive director at Dangote Group, Africa’s largest conglomerate, said in a panel at the Annual Investment Meeting (AIM) held in Dubai on March 29-31 that he believes efforts to bolster regional trade and investment must focus on creating an ecosystem that empowers private investors across Africa’s 54 countries to collaborate. 

“Economic integration will only happen when the [transport service] operators and the private sector as a whole begin to come together to integrate. Unfortunately, this has not been happening in Africa to a large extent,” he said. 

Foreign direct investment (FDI) in Africa has failed to recover from the pandemic shock as quickly other global regions. In 2021, greenfield FDI projects worth an estimated $39bn were announced across Africa, which is about 45% lower than the total recorded in 2019, according to investment tracker fDi Markets.

“When we try to attract foreign investors it is usually government public sector officers shuttling to and fro to China, Europe and US looking for foreign investors … The first thing [governments should do] is to strengthen and empower your domestic investors, so they will attract counterparts and partnerships, therefore bringing the foreign investment,” said Mr Ahmed.

Regional corridors

The African Continental Free Trade Area (AfCFTA), which began operating at the beginning of 2021, is expected to increase intra-regional trade, with experts saying that the development of regional corridors through roads and railways will be crucial. 

Unctad data shows intra-African trade in 2019 stood at just 14.4% of total African exports, but this figure is expected to double by 2035. 

“With the opening of the [continental] market we have the ability to create opportunities for private capital to deploy into African infrastructure,” said Eva Warigia, the CEO of the East Africa Venture Capital Association, which represents more than 100 private firms in east Africa.

Ms Warigia points out that alternative finance structures are crucial to mobilise foreign capital into roads, ports and other transport related infrastructure projects. 

“Commercial banks in Africa do not necessarily have the balance sheet to hold public projects by themselves, at least not without syndication,” she said, highlighting the success of recent projects that blend private and public funding.

In October 2021, the UK’s development arm CDC Group announced a long-term partnership with Dubai-based ports operator DP World to invest at least $1.7bn into African ports and logistics. The partnership will initially focus on modernising and expanding three existing ports operated by DP World in the Senegalese capital Dakar, Ain Sokhna on Egypt’s Red Sea coast and Berbera in Somaliland.

“There is a massive need for further capacity of trade,” Holger Rothenbusch, a managing director at CDC, previously told fDi. “If you take a long term view, Africa is full of potential to be unlocked.”

Get trucking

The UN’s Economic Commission for Africa (ECA) expects that intra-African trade in transport services will increase by nearly 50% by 2030, creating an opportunity for manufacturers of vehicles and other transport-related goods.

According to ECA research, the expected boost to trade from AfCFTA will require 1,844,000 trucks for bulk cargo and 248,000 trucks for container cargo by 2030. Dangote’s Mr Ahmed says that despite the potential for small and medium-sized enterprises (SMEs) to drive growth in Africa, larger scale operators will be needed to serve this need for transportation.

“SMEs are the engine of growth … [But we] will need large scale operations, because that is where you are able to get the efficiencies you need to become competitive … If you are going to assume that 2m trucks will be produced by 1000s of small scale operators, you’re not going to get there, because those trucks will not be competitive,” said Mr Ahmed.

“Growing large enterprises creates opportunities downstream for SMEs to feed into. In my view that is how you properly address the issues of integration, growth, and to a large extent investment.” 

For more on this story go to: fDi Intelligence