Companies in manufacturing, FMCG, pharmaceuticals, import and export, automobile, retail and e-commerce sectors, require distribution networks that are large and sophisticated enough. Logistics and property investment companies are taking initiatives to combat the crunch for grade A warehousing in Africa, Nahida Jafferi reports.
Of the top ten fastest growing countries in the world, six are in Africa. According to the Economist Intelligence Unit, the largest 18 cities in Africa could have a combined spending power of $1.3 trillion by 2030. And a McKinsey report pointed out that the continent's consumer-facing industries are expected to grow by $400 billion, representing its single-largest business opportunity, by 2020.
Since consumerism is increasing in the continent with a billion plus population, manufacturers want to hold their distribution centres close to their customers to improve service levels. The warehousing and logistics sector grew by 24 percent over the past 10 years in Africa, as per Knight Frank's 2016 report.
A strategically located warehousing and distribution network ensures cost-efficiency. As per Bain & Company, one food and beverage maker streamlined its network by reducing the number of distribution facilities to 9 from 14 and total square footage by 50 percent, while ensuring its remaining centers were in the best locations. Alternatively, it backed the network with digital tools and advanced automation to improve efficiency. That reduced costs by more than 20 percent, and increased same-day shipment for e-commerce to more than 95 percent.
With the cost of moving goods in Africa being three times higher than in developed countries, accounting for as much as 75 percent of retail prices, African nations are in dire need for adequate warehousing facilities.
East Africa's industrial space demand
As per JLL, a global real estate firm, East Africa will lead in the demand for industrial space, which is set to grow at six per cent annually in Ethiopia, and at 5.1 percent and 3.6 percent in Uganda and Kenya, respectively. In response to the growing demand for warehousing, Africa Logistics Properties (ALP), in the next five years intends to invest in building warehouses in Uganda, Ethiopia, Nigeria, Morocco, Egypt and Cote d'Ivoire.
Most warehouses in Kenya are established for the export market, and many are created for air shipment. Kenya has an established floriculture business and follows best international practices for exporting fresh cut flowers. Kenya Airways Cargo, the cargo division of the Kenyan flag-carrier, is expanding its cool chain facility to deal with the extra perishables demand during peak season, in addition to expanding its warehouse.
According to recent research by Tilisi Developments, around 62 per cent of companies experienced warehouse shortages in Kenya. This affected companies operating in manufacturing, FMCG, pharmaceuticals, logistics, import and export, retail and e-commerce sectors.
Retail distribution networks require sophisticated and huge warehouses and there is a lack of it in the market. To combat this challenge, ALP is the first group to develop A-grade warehouse in Kenya, demand for which currently exceeds supply.
ALP North worth $60 million was inaugurated in September 2018 with a pre-let occupancy of 75 percent owing to the quality of warehousing it provides. Note that the occupancy rate for new retail centres is between 60 percent and 75 percent, as per the Knight Frank's Kenya Market Update Report for 2018. In the US, the pre-lease rate is 43 percent, as per CBRE.
Toby Selman, CEO, Africa Logistics properties, said, "The near-complete uptake of ALP North prior to launch speaks about the scale of the warehousing shortage in Kenya and also demonstrates that real estate requires developers to concentrate on the genuine areas of market need."
Twice as large as ALP North is its second project, ALP West at Tilisi Industrial Park, along with the Nairobi Southern Bypass, the construction of which is underway and users will be able to rent space from 2020 onwards.
The warehouse units have been designed in such a way that it enables pallet stacking of up to 8 metres high, reducing the cost per pallet by 30 percent to 40 percent. The site also incorporates laser-levelled floors with an anti-scratch coating that bear up to 10 tonnes. These allow the incorporation of automation systems, such as dock levellers, mechanized loading conveyors, and fork-lift-mechanized loading, cranes and loading platforms, which together improve turn-around time and cut labour by up to 76 percent.
The location and quality of warehouse determine the costs incurred. ALP's parks are strategically located close to Jomo Kenyatta International Airport that is Kenya's largest airport in Nairobi, and the country's main cargo route from Mombasa port to Western Kenya, Uganda and Rwanda. ALP is in discussions with a number of companies that are currently located on Mombasa Road that want to consolidate and move their operations to our parks," said Selman.
Few months after the launch of ALP's warehouse in Tatu city, Ruiru, news of the biggest warehouse development in Kenya came forward.
Bwala Africa, a last-mile logistics firm, is set to invest 100 million Kenyan Shillings in a new warehouse spread across 5000 acres of land in Kitengela, Kajiado County, Kenya, that will be ready by August 2019. Kennedy Nyabwala, Chief Executive, Bwala Africa, said, "As Kenya growing to be Africa's economic hub, demand for storage is expected to rise in tandem. The 100,000 square-metre facility will be the biggest single unit warehouse in Kenya."
Bwala is looking to expand into Uganda to diversify services across the East African region, in addition to Zambia, Ghana, Zimbabwe and South Africa in the continent.
Interestingly, Ethiopia is the key driver of the growth in East Africa mostly due to the country's industrial production potential and its population of over 100 million, as per Africa Prime Industrial Report 2017. Ethiopian Airlines, the largest cargo operator in Africa, inaugurated a $150 million state-of-the-art cargo terminal at Addis Ababa international airport, which reflects the commitment of the carrier in supporting the exponentially growing imports and exports of the country in particular.
South Africa: THE MOST MUTURE MARKET
Approximately 90 percent of South Africa's international trade is moved by sea through Transnet ports. Air freight accounts for a very small percentage of South Africa's total freight transportation.
As per JLL, South Africa will remain a key destination for investments in industrial space. However, delivery time is a concern for manufacturers. It takes around three weeks to deliver Huawei's stock from China to South African retail stores. To fasten the process, Huawei Technologies, the world's third-largest smartphone maker, will build its first dedicated warehouse for Africa in the free trade zone of O R Tambo International Airport in Johannesburg. With the new warehouse, the process is expected to be shortened to three days.
Zhao Likun, vice-president, Huawei Consumer Business Group South Africa, said, "Huawei is seeing rapid and continued growth in South Africa, with its smartphone market share now reaching almost 10 percent." Smartphone purchase in South Africa has increased by 16 percent, in the third quarter of 2018.
E-commerce: the key enabler
Statista estimates forecasts revenue of $29 billion by 2022 for the e-commerce sector in Africa, which generated $16.5 billion in revenue in 2017. According to a study by US logistics real estate and supply chain logistics firm Prologis, e-commerce requires three times the logistics space, or more, as compared with brick-and-mortar. Africa needs more warehouse space to store e-commerce merchandise.
Copia Global, the fast-growing e-commerce FMCG distributor that specialises in supplying to rural Kenya, has leased 4500 sqm of ALP North Warehousing Complex, allowing Copia to run thousands of deliveries a day from this new central distribution centre to its agent network across the regions.
African online retail websites such as Nigeria's market leaders Jumia and Konga operate their own central distribution warehouses in Lagos. Jumia also has 18 delivery hubs in other major Nigerian cities and has also expanded into 10 other African markets.
Air freight is an essential component in handling e-commerce shipments. Jerome Petit, CEO for Bollor Logistics in Africa, said "To improve our services for catering to the significantly growing volumes of e-commerce and temperature-controlled goods, Bollor Logistics continues investing in its air freight set-up across Africa. For example, we have launched the construction of a new 16,000 sqm air freight and logistics hub next to the airport in Abidjan, the capital city of Ivory Coast."
In addition, Bollor has a 10,000 sqm warehouse in Abidjan dedicated to cocoa exports as Ivory Coast is the world's leading producer of the commodity.
Last year, Bollor began construction on a warehouse in Nairobi, Kenya, dedicated to consumer goods, which will also be equipped with refrigerated facilities,
Due to the rise of e-commerce in Africa, there is an increasing need for a sophisticated range of logistics properties, and importers are seen tying up with logistics solutions providers to meet the demand.