Speedbumps galore slowdown Nigeria’s logistics journey
Several economic, systemic, and infrastructural challenges have been disrupting Nigeria’s logistics sector from blooming to its full potential in recent years. What are these hiccups and will green shoots like a newly elected government, a sizable air cargo and retail opportunity, alongwith initiatives like AfCFTA, help the nation change its fortunes?
Nigeria, which is Africa’s most populous country and one of the largest economies has recently been treading in troubled waters after facing a crisis on multiple fronts. Lack of critical infrastructure, high inflation coupled with a slowdown in the economy, petrol crisis, the Naira swap crisis, volatility of the forex, and wary investors are some serious problems staring at the world’s sixth largest democracy.
Being extremely dependent on the oil industry and lack of diversity in its non-oil exports is also detrimental to its economy. Lack of reliable energy supply, road infrastructure, and a high number of taxes and fees has been systemically destroying local production.
A dash of hope has come in the form of politician Bola Tinubu who was recently elected as Nigeria’s new President after a raucous general election in February.
However, the new government may well want to watch out for the flailing logistics index where Nigeria ranked 110 out of 160 countries on the global logistics performance index (LPI) surveyed by the World Bank, behind several other smaller African nations like Cote D’ Ivoire and Rwanda. The value for the LPI, where (1=low to 5=high) for Nigeria was 2.53 in 2018, whereas it was 2.81 in 2014.
Hiccups in the logistics sector
Nigeria is facing acute Forex scarcity limitations recently owing to the fluctuations in oil prices and other factors leading to difficulties for businesses that rely on imports, including in the logistics sector.
Antoine Tanappa, Regional Director Cargo at Air France KLM Martinair Cargo told Logistics Update Africa, “We are also facing tremendous difficulties to exchange the Naira into Forex due to restrictions set by the entire banking system. This is preventing us from developing local exports as well as local sales of flight tickets.”
The Naira has depreciated in the parallel market owing to increasing forex demand, while Nigeria also operates a multiple exchange rates system which is not conducive for investments.
Vishal Haria, Group Chief Logistics Officer at Jumia said, “The government has implemented several measures to address these limitations, such as increasing restrictions on certain imports and implementing a multiple exchange rate system. However, these measures have been criticised for their negative impact on businesses and the economy as a whole. Finding a more sustainable solution to Forex limitations, such as diversifying the economy and promoting exports, would benefit the logistics sector and the overall business environment in Nigeria.”
Challenging road logistics
Highlighting some of the biggest pain points when it comes to the logistics and e-commerce industry, Haria underscores high variability in costs and lead times for the same routes, reliable service providers with the ability to provide quality support, full transparency into where the cargo is at all times, increasing compliance regulations imposed by federal, state and local authorities as important factors.
“That’s why we partner with multiple local service providers who know and can overcome these challenges, and also mitigate concentration risks for us,” he added.
Lack of standardisation
A lack of standardisation and negative export trends from Nigeria has led to higher import costs. This can lead to a decline in foreign exchange earnings for the country, contributing to a weaker currency and higher import costs, thereby making imports more expensive and less competitive compared to locally produced goods.
“The Nigerian government has introduced several initiatives aimed at promoting non-oil exports, including the Export Expansion Grant (EEG) and the One State One Product (OSOP) initiative. These initiatives aim to boost non-oil exports and promote standardisation and quality control in the production process. Overall, there is still much work to be done to improve standardisation and promote non-oil exports in Nigeria, but the country is taking steps in the right direction,” Haria points out.
Haria pointed out that Nigeria has seen significant FDI in recent years, particularly in the technology and consumer goods sectors. However, the logistics sector has not yet seen the same level of investment when offering tax incentives to investors. Therefore streamlining the regulatory environment, and promoting Nigeria’s potential as a logistics hub for West Africa can work wonders for the nation.
He adds, “Nigeria has historically not ranked highly on ease of doing business indices, which can make it difficult for foreign investors to enter the market. However, the government has made efforts to improve the business environment, such as launching an online registration portal for businesses and implementing reforms to simplify tax processes. Continued efforts to improve the ease of doing business, including reducing bureaucracy and improving transparency, would make Nigeria a more attractive destination for foreign investment and support the growth of the logistics sector.”
Speaking to the publication, Oluwajimi Jimmy Adebakin, MD & CEO of FOB Global Logistics Limited, a logistics company in Nigeria said, "We are an import-dependent nation which is why our currency has devalued. There is nothing wrong with importing finished products like technology, but when we are importing toothpicks, and tomato paste for a nation of 200 million people, this situation needs to be reversed. We were previously the number 1 in cocoa and palm oil exports and today the countries we exported to like Malaysia (for palm oil) have taken over those spots, so it's all about going back to basics."
He added, “There is a lot of double taxation that is making Nigerian airports and seaports not competitive, and the customs tariff is also too high on imports and exports. The government needs to bring down the trade barriers to ensure freedom of entry, have fewer restrictions, less paperwork and human interface, and digitalize the process.”
More recently the nation is beset with port shutdowns after labour unions in the maritime industry issued a 14-day strike notice to the federal government and several oil companies this month, over several grievances.
The Maritime Workers Union of Nigeria (MWUN) had issued a two-week ultimatum to the federal government for the payment of all monthly payments of seafarers or face shutdown of the maritime sector. The demands included payment of pensions to aged seafarers, a minimum standard condition of service for workers, issuing of identity documents to seafarers, non-dredging of Calabar, Warri, and Port Harcourt ports, and confusion over the expired contract of terminal operators among others.
The retail opportunity
Even with Nigeria’s many challenges, the nation not only boasts of a large and growing population but also increasing internet penetration, rising smartphone usage, growing demand for convenience, and some conducive government policies compared to other African nations. These factors have compelled many big retailers and e-commerce companies to choose to start their African foray in Nigeria.
Jumia is the leading e-commerce platform in Nigeria and has had a significant presence in the country since it launched in 2012.
The company encountered the Nigerian economy’s many roadblocks starting with a lack of consumer trust by doubling down on aiding vendor growth, strengthening the logistics and delivery aspect of the business, investing in technology, and implementing strict security measures to protect consumer data and prevent fraud.
Haria shares, “We had to work hard to adapt to the local market and build trust with our consumers through a number of initiatives like ‘Payment on Delivery’, official brand stores, easy refund & return policy and giving excellent customer service and support. We have helped vendors digitise their businesses, educated them on the benefits of organised e-commerce, and brought credit facilities to help them scale their businesses. We had to invest heavily in our own logistics network and also partnered with third-party logistics service providers to ensure the timely and efficient delivery of products to consumers. This helped us to expand to Tier 2,3 cities across the country.”
The air cargo opportunity
Despite the designation of 13 airports as cargo airports by the government, most of the cargo airports are currently without cargo and currently, some state cargo airports are under construction without concrete plans and sources of sustainable cargo traffic.
Antoine Tanappa, Regional Director Cargo at Air France KLM Martinair Cargo told the publication that there is also a necessity to professionalise the air cargo industry overall and to fight against fraud.
Tanappa said, “Currently there are too many intermediates between exporters and airlines which only artificially make the cost of air transport more expensive than it should be for the real shipper. Nigeria has become an IATA CASS country since 2018, but very few local forwarders have adhered to the programme and maybe the government should make it mandatory for all forwarders to be IATA licensed to operate.”
Haria surmised that the bottlenecks to developing cargo airports in Nigeria may include inadequate funding, insufficient infrastructure, complex regulatory environment, and limited cargo traffic.
While both the government and private investors need to work together and create a conducive environment for investment in the aviation sector and address these bottlenecks, Haria also outlined some steps that can be taken in this direction.
“The government and private investors can conduct feasibility studies to identify the potential cargo traffic and demand for cargo airports in different regions of Nigeria. The government and private investors can build the necessary infrastructure, such as cargo terminals, warehouses, and handling equipment, to support cargo operations at the airports. This can attract cargo airlines and logistics companies to use the airports. The government can promote regional integration by enhancing connectivity with neighbouring countries and facilitating cross-border trade. This can attract international cargo traffic and enhance the competitiveness of Nigerian cargo airports. The government can foster public-private partnerships to finance and operate cargo airports,” he added.
Nigeria also happens to be one of the major air cargo hubs for AirFrance KLM in the West Africa region. The company operates with both airlines A330 passenger aircraft to and from Lagos Airport (LOS) with daily flights on KLM and six to seven frequencies on Air France(AF) which should become a daily as well from 29th May 23. Besides, the carrier flies four times per week AF operations to and from the capital Abuja.
Speaking to the publication, Tanappa added, “Air cargo will fly where demand is. Lagos International cargo terminal is currently handling 4/5 of the total air freight volume and it is already too congested with not enough space to expand for handlers and for forwarders. If we look at other major airports like Port Harcourt, since 2019 it has seen the volume of air freight collapsing by almost 75% mainly due to the slowdown of the oil and gas industry and lack of passenger business. The first air cargo capacity comes from the belly capacity of passenger flights.”
Tanappa shares that the Nigerian Air freight industry is mostly import driven with almost three fourth of the total volume transported. “AFKL is transporting close to 6000 tonnes per year and in 2022 imported 4000 tonnes. Since Covid, export has grown sharply from Lagos, especially which is the main gateway where almost all international carriers are operating. The main segment transported are electronic goods, spare parts, perishables, and pharma, especially during Covid time from Asia and Europe. In the past two years, we noticed a major growth in local foodstuff export due to diaspora heavy demand in the UK and North America. The oil & gas industry has on the contrary faced major slow down and stations such as Port Harcourt, which used to be very active, have become offline for us for the past 3 years,” he said.
Looking to break into the European and North American markets with Nigerian produce, Jimmy Adebakin shared, “We are negotiating with charter operators directly to see how they can create a sustainable platform for us to begin the journey of exporting local produce out of Nigeria. Our target initially is 100 tonnes of cargo weekly of perishables. There is demand from the diaspora including African Americans who constitute 20 million people, and Africans in Europe constitute 10 million. They would like to eat something authentic out of Africa and that is a gap and a space we are hoping to fill. "
He added, “We want to start growing our charter market and have started with the Boeing 737 for the US West Coast and East African operations. We are looking at signing up for a 737 and a Boeing 757, so we can increase our range and fly 6 hours across Africa. We also want to begin on the trade journey envisaged under the African Continental Free Trade Area (AfCFTA)."
The Nigerian Automotive Industry Development Plan (NAIDP) is meant to boost the development of the country’s automotive industry, the Agricultural Transformation Agenda is aimed at boosting agricultural productivity, and the Anchor Borrowers Programme which provides low-interest loans to smallholder farmers are all steps in the right direction to boost local production and ultimately its exports.
Nigeria has also signed the revolutionary African Continental Free Trade Agreement (AfCTA) that is aimed at creating the world’s largest free trade area and ushering in economic growth in July 2019, which has perhaps given it another hopeful start.