Seeds of Opportunity: The African Growth Series
December 2021 | Issue 3
In this week's issue, you will learn more about:
- South Africa's Temperature Controlled Logistics Industry
- Africa's continued electrification struggle
- Africa's largest 3D Printed Housing Project
An overview of South Africa’s Temperature Controlled Logistics Industry
A look at drivers, restraints, and hot trends in the cold space
Maintaining cold chain is an important factor in the food and pharmaceutical industries as it ensures product quality and reduces wastage in the supply chain. However, this is not the standard being upheld across the African continent. Due to a lack of established cold chain systems, Africa battles with high post-harvest losses of agricultural products, which effectively affects the export potential of the sector. High product losses are less prevalent in the pharmaceutical sector, largely due to the stricter regulations and better enforcement of cold chain standards.
At least four demand hubs exist in South Africa’s temperature-controlled logistics (TCL) industry; Kwa-Zulu Natal, Gauteng, Western Cape, and Eastern Cape. Key market players in the industry (integrated 3PL or standalone) are present in at least two of these hubs due to their strategic location i.e. centred around ports and export designated areas, good transportation networks, and high urban population. The demand cities ranked by size are specifically Durban, Johannesburg, Cape Town, Port Elizabeth including Port of Ngqura. From these, Durban handles about 64% of South Africa’s container traffic, while City Deep in Johannesburg handles 30% of South Africa’s exports. This picture is unlikely to change as South Africa’s population is forecasted to reach a population of 63.8 million by 2026, with key growth expected around metropolitan areas.
The growth in TCL in these hubs and other regions is driven by factors such as population growth, increased demand for high quality and fresh products, expansions of supermarket chains, key investments into critical infrastructure, as well as a well-regulated policy environment. Furthermore, regulations against dumping are pushing the overall growth of local production i.e., poultry, which will increase the need for TCL in the local industry. This growth potential is, however, threatened by port inefficiencies due to Transnet’s poor management, rising utility prices, politics, and continued load shedding and power cuts. The latter has resulted in increases in operational expenditure due to the additional costs associated with backup generators. The most recent threat to the sector was the July riot period which saw the destruction of several cold warehouses around two of the largest demand hubs in the country: Johannesburg, and Durban. Owing to investments geared at regaining lost capacity (i.e. > 40,000 pallets spaces in Durban), the sector is stabilising and is also adjusting to the new norm caused by the Covid-19 pandemic.
South Africa’s TCL sector has the potential to continue its growth trajectory if the current market restraints can be overcome. The expected growth is already visible in the market through several expansions of facilities by key service providers over the last few years. As the competition is increasing (both in warehousing and transportation), facility technology and automation, service quality, and value-added services will be some key growth areas where market players will have to workaround. However, benefits in full automation of warehouses are not yet realised in South Africa, as these technologies are foreign-based (manufactured in Europe with limited local offices). Flexibility, as shown by the Covid-19 pandemic, is a key attribute that cannot be ignored if both service providers and end-users are to further strengthen South Africa’s TCL industry.
In conclusion, South Africa’s TCL industry has shown resilience despite challenges posed by the pandemic and riots. The presence of a well-defined industry structure comprising of established service providers (integrated 3PL or standalone providers), end-user industries, and other key stakeholders (i.e., government regulatory bodies, port authorities, etc.) is one of the distinguishing factors of South Africa’s TCL when compared to its sub–Saharan African counterparts. Furthermore, the industry is well regulated across the end-user segments with governing bodies like DAFF (Department of Agriculture, Forestry and Fisheries), PPECB (Perishable Products Export Control Board), and NRCS (National Regulator for Compulsory Specifications). Due to stricter regulation enforcement by DAFF in recent years, several smaller facilities that were non-compliant were shut down (e.g. Western Cape), which has helped reduce the fragmentation in the TCL industry. With the overall recovery of South Africa’s economy, healthy export, import, and local production figures there are several hot opportunities for innovative and ambitious market players in the cold space. However, the full realisation of these will require work to be done on the highlighted challenges.
Africa's Continued Electrification Struggle
Access to electrification continues to be a major issue in Africa, especially in the less developed sub-Saharan African region. North Africa has achieved nearly complete electrification in countries such as Morocco, Libya and Egypt while some of its southern neighbours heavily rely on biomass for cooking and heating. The Central African region has the lowest electrification rate of all regions with a mere electrification rate of 39%. The region struggles to raise private investment, primarily because of poorly outlined legislation, political conflict and the low renewable electrification as the majority of private financing is funnelled nowadays into renewables. Because low electrification rate is directly linked to low economic development of a country, these countries are more likely to receive less funding for energy projects than the global average. It can be universally agreed that increasing the electricity access in these undeveloped countries will have a knock-on effect in terms of bringing about economic growth and overall well-being. Sub-Saharan Africa is full of opportunity in terms of renewable energy generation and is especially well suited to act as a producer and exporter of green hydrogen to the developed world.
Africa's Largest 3D-Printed Housing Project
The growth of several cities in Africa brings with it the growing need for more housing developments. As more than 40,000 people are estimated to be relocating daily to cities across the continent, several cities are faced with a housing shortfall as traditional building methods cannot keep up with these demand rates for housing. Nigeria alone recorded an estimated shortfall of 17 million housing units; a problem commonly resulting in the rising numbers of homelessness seen across other African cities. This issue, however, is ushering in a new era and promoting the growth of alternative, sustainable, affordable, and innovative solutions like 3D-printed homes. In Kenya and Malawi, 14Trees, a joint venture between Holcim AG and the CDC Group is paving the way. The company recently announced the Mvule Gardens project (the largest 3D-printed housing project in Africa) as its newest venture in Kilifi Kenya. The project entails the construction of 52 3D-printed home units that will accommodate both small and large families alike, in a residential complex with gardens, outdoor spaces, and pedestrian pathways. This sustainable design contributes to resource-efficiency, zero-carbon buildings and perfectly compliments the Green Heart of Kenya model for inclusive and climate-resilient cities.
To find out more about opportunities in Africa, please contact Lynne Martin.
