Expanding in Africa

October 25th, 2015 - Creating the right supply chain is vital for supporting growth

Recently, an international engineering group and an SDV client wanted to grow its business in Africa.

The group had an ambitious goal; to double its sales on the African continent and to increase the number of countries where it operated to 14 from six.

As this company quickly found, however, gaining access to Africa's rapid economic growth requires more than just a good business strategy.

"Companies must master the often complex logistics of getting their goods to African countries in a timely and cost-effective way," says Jean-Yves Gras, head of the supply chain and logistics for SDV in Paris. "They need to consider key issues including taxes, customs duties, security and the quality of the infrastructure."

The engineering group's experience provides insight into the challenges facing many companies hoping to grow in new markets. It wanted to expand in eight countries including Nigeria, Angola, Ghana, Kenya and Tanzania.

"Companies must examine local practices to see what is really feasible," says Gras.

SDV provided local expertise and advice on how to develop the client's logistics network in Africa.

For example, SDV examined the possibility of using Nigeria as a hub for transporting goods to other countries such as Ghana but found that local regulations in Nigeria were focused on domestic consumption.

"Road links between Lagos in Nigeria and Ghana are not easy and customs procedures between the two countries are very complex," Gras warns. It would take at least 44 days to transport goods by sea from Singapore to Ghana via Nigeria compared to 40 days by sea from Singapore directly to Accra in Ghana.

"It looked possible on paper to use Nigeria as a hub but in practice it was impossible," says Gras. "We found that it would be better for our client to establish a warehouse in Ghana and treat Nigeria separately."

Ghana, meanwhile, could serve as a regional hub for countries such as Burkina Faso, Mali and Niger because of its political stability, favourable customs regulations and good maritime access. It takes 13 days to reach Ghana by sea from Spain, for example, while it takes 40 days from Singapore.

Companies must also decide whether to establish warehouses in free trade zones or whether to use bonded warehouses where goods can be stored without paying duties. This helps delay the payment of duties and allows companies to change the destination of the goods, Gras adds.

Many companies shipping goods to Africa would also benefit from end-to-end supply chain visibility, Gras says. This allows for better management of any disruptions, so reducing costs from delays.

"All companies making the strategic choice to expand in new markets should look at the supply chain carefully and this is especially true in Africa," says Gras. "You need strong local knowledge to come up with routes that work."

Key Figures
  • 20%

    More fuel-efficient for the Boeing 787 and the Airbus A350

  • 70%

    of Urbanisation is expected by 2050

  • 27

    mega-cities are expected by 2050, with at least 10 million people, compared to 1...

  • +18,4%

    of growth for E-commerce retail market in Europe in 2015

  • 82%

    of goods are moved by road

  • 1 billion

    Population in Africa

  • 60%

    of Africa’s population will be urbanized by 2050

  • 7,5%

    of growth for Indian GDP in 2014

  • 4,9%

    of growth for African GDP in 2016

  • 6,1%

    of growth for East Asian GDP in 2015, the world’s fastest-growing region

  • 19 224 teus

    transported by the MSC Oscar, the largest container ship in the world

  • 396 m

    is the size of the MSC Oscar ship

  • 120 h

    is the Non-Stop Flight Record done by Solar Impulse

  • 4,5%

    of growth in 2015 for Global Airfreight demand