The winning formula for success in logistics and warehousing
The Covid-19 pandemic has left many industries struggling in its wake, but for players in logistics and warehousing the outlook for growth in Sub-Saharan Africa (SSA) looks promising.
As countries across SSA locked down to halt the spread of coronavirus, consumer behaviour shifted to online shopping, fuelling an already increasing surge in ecommerce and demand for new warehouses, clearing centres and distribution centres in key markets. What does this mean for multinationals who want to capitalise on this opportunity?
Simon Herd, Mace’s director for SSA, explains what is driving growth in this sector and why local know-how and global best practice is the key to successful expansion.
A boom in retail, warehousing and logistics
The Covid-19 pandemic has had a significant impact on the global manufacturing sector. One of the sub-sectors that stand to make significant gains is retail logistics and distribution.
Online retail has been on the upswing in SSA for several years. Although ecommerce is still at a budding stage of evolution on the African continent, urbanisation and the uptake in smart phone usage among a rapidly growing population, was predicted to drive exponential growth in this sector even prior to the Covid-19 crisis. According to pre-pandemic figures by the Economist Intelligence Unit (EIC), retail sales in Africa was expected to increase by 3.2% in 2020 due to ecommerce. The coronavirus outbreak and subsequent lockdown encouraged existing retailers to roll out online deliveries and to capitalise further on heaving consumer demand.
The potential for multinational players to make significant gains in this space is clear. Trade on the African continent is not without complications, but the wheels are in motion for improved cross-border commerce. The African Continental Free Trade Agreement (AfCFTA), which came into force in May 2019, could provide the largest free customs union in the world when implemented.
Meanwhile, the Southern African Development Community (SADC) Free Trade Agreement (FTA) has significantly increased trade among its members since it was established in 2008. Other organisations like TradeMark East Africa (TMEA) aim to increase inter-regional trade by working closely with East African Community (EAC) institutions, governments, private sector and civil society organisations.
On the back of a promising outlook and increased demand for ecommerce, grocery retailers such as the French hypermarket chain Carrefour are looking to continue its expansion in eastern and southern Africa with an online offering. Logistics and ecommerce providers including DHL and Amazon are also poised to grow their presence in the continent.
This trend is fuelling a need for high quality grade A warehousing and logistics parks that will store, sort, transport and distribute goods to consumers across SSA. Investors will be attracted to the opportunity to develop these logistics parks and rent them out to international and local tenants, which in turn will provide much needed infrastructure to support inter-regional trade.
The key to success
The importance of capital delivery in this space is the mobility that drives the logistics and the cost around it.
For multinational developers looking to seize the opportunity in this market, relying on cost consultants with local know-how, who can draw on global best practice and adapt a business model to a region, is crucial for expansion. Expensive pitfalls can only be avoided with local expertise and guidance on budget and cost. It is a journey that starts with identifying the optimal site for the warehouse through trusted relationships with land owners and ends with finding tenants for the warehouse when completed.
Early engagement and site studies that provide informed decisions regarding land purchase leads to significant cost savings as challenges pertaining to the location can be avoided. Building a grade A warehouse in Kenya is going to be different from building one outside of Johannesburg in South Africa, and certainly very different from building one in the plains of the US Midwest or South of France. Location and transit must be considered alongside technicalities around construction cost.
International players looking to establish themselves in SSA will expect the same quality in warehousing as they have in other locations. Developers need feasibility studies, business plans, in-depth research and on-going support with costing and quantity surveying that will deliver the scheme on time and to budget. The quality expectations are high and logistics parks need to meet top standards as well as adhere to local legal requirements.
Many developers will have a central design house with a group-wide framework in places like Europe. Thus, the design process must be localised for the African market. This calls for a combination of technical skills, project delivery excellence and commercial expertise that will identify clear and realistic alternatives to a park’s design, which reduces cost and increases efficiency. Local expertise means choosing the right type of material, for example, maybe using blocks instead of steel, and relying on a local labour force.
When developed correctly, high quality warehousing in SSA will attract international retailers and logistics providers to the region, which in turn will create jobs for the local community. The value-to-society in these projects is just as significant as the financial rewards realised by meeting demand.
As the African continent continues to adapt to a new normal, characterised by restrictions on movement and soaring ecommerce, the potential for growth in logistics and warehousing is clear. With a winning formula of localisation and global best practice, success can be achieved - and the time to act is now.