Transport and logistics infrastructure a key to sustaining Africa's growth

www.pwc.com/transport

Dr Andrew Shaw

5th December 2014

PwC

This report aims to give interested investors insight into the key economic

regions and countries in Africa

Africa gearing up

Africa is the next place-to-be for doing business The lions follow the tigers:

• 6 of the top ten fastest growing economies 2001-10 were in Africa

• Between 2010 and 2016 it will be another 6

• Africa is home to 1 billion people

• By 2035, Africa’s labour force will be larger than China’s

Growing demand offers huge potential for T&L companies

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10 Countries in profile

10 most relevant economies for T&L due to:

• Significantly high GDP

• Strong growth expectations

• Rich in natural resources

• Natural exit to land-locked adjoining countries high transit traffic volumes

• Potential gateways to the region

• Rapidly improving transport infrastructure

Coverage of all major regions:

• North Africa

• Sub-Saharan Africa (east, west and southern regions)

DRC

Angola

South Africa

Mozam-bique

Tanzania

Kenya

EgyptAlgeria

Nigeria

Ghana

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‘Sizing up’ the growth potential

The size of the bubbles represents the size of the economy (GDP 2012)

Sources: World Bank, International Monetary Fund

AlgeriaUS$ 209bn

AngolaUS$ 115bn

DRCUS$ 17bn

EgyptUS$ 257bn

GhanaUS$ 40bn

KenyaUS$ 41bn

MozambiqueUS$ 14bn

NigeriaUS$ 270bn

South AfricaUS$ 384bn

TanzaniaUS$ 28bn

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GDP annual growth estimates for the period 2012-2017 shown as a % for each country

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Namibia US$ 16.8

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Basis of the study

Use of leading independent economic consultants: Econometrix

The 5 –Pillar approach

1. Demographics & resources

2. Economics

3. Business environment

4. Trade & logistics

5. Transport infrastructure

Interviews with executives operating in Africa & industry specialists

Investment potential assessments

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lAttractive

lAverage

lUnattractive

Strong Improvement Expected

Some Improvement Expected Stagnation / marginal change expected

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Current state

Demographic

& Resources

Economics Business

Environment

Trade &

Logistics

Transport

Infrastructure

Algeria

Angola

DRC

Egypt

Ghana

Kenya

Mozambique

Nigeria

South Africa

Tanzania

l l lAttractive Average Unattractive

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l l ll l

l l l l

l

l l ll

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5 Years forward

Demographic

& Resources

Economics Business

Environment

Trade &

Logistics

Transport

InfrastructureExpected

Growth(GDP 2012-2017)

Algeria 3,6%

Angola 5,7%

DRC 8,6%

Egypt 3,4%

Ghana 5,9%

Kenya 6,2%

Mozambique 8,0%

Nigeria 6,8%

South Africa 3,0%

Tanzania 7,0%

Strong Improvement Expected

Stagnation / marginal change expected

l l lAttractive Average Unattractive

7Some Improvement Expected

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Business Environment

• 3rd largest African economy. Oil accounts for 98% of revenue and a current account surplus,

• Business environment rated weakest in SADC,

Trade and Logistics

• Improvement in customs, although logistics performance remains weak,

• Waiting times at Port of Luanda average 144 hours, and traffic frequently diverted to Walvis Bay. There are however considerable port expansion plans,

Infrastructure

• Rail rehabilitation has been ongoing since 2005, reconstructing 2,700 km of railway at a total cost of US$ 3.3 Bill.

• Road infrastructure dilapidated in the east, yet one of Africa’s largest investors in road infrastructure,

Country Highlights - Angola

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Business Environment

• 3rd poorest country in the world,

• Limited by bribery, corruption and red tape,

• Government decision making takes long.

Trade and Logistics

• Represents a natural entry point for its landlocked neighbors to the west but is frequently by-passed,

• Narrow export base dominated by aluminum.

Infrastructure

• Transport infrastructure investment of US$17 planned, mostly connecting mining and agricultural clusters to export ports. Projects hampered by implementation delays,

• Significant need to upgrade and improve the rail network and connected ports.

• Maputo development corridor a success case.

Country Highlights – Mozambique

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Business Environment

• Considered to have the largest endowments of minerals in Africa,

• Weak business environment and characterised by political turmoil.

Trade and Logistics

• Logistics potential limited by lack of infrastructure,

• Regulations and corruption in customs negatively impact trade and result in considerable delay,

Infrastructure

• Port infrastructure is poor and goods often diverted to Point Noire in Congo.

• Due to poor transport infrastructure country is poorly connected with much of the south focused on linkages to Zambia,

• Road network and inland waterway improvements would have a profound economic impact.

Country Highlights – Democratic Republic of Congo (DRC)

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Nigeria, Nigeria, Nigeria…..10 out of 16 executives interviewed rate Nigeria

50% of population urbanised –attractive for retail/consumer sectors

Ranks world’s 4th fastest growing economy - oil exports & government stability

Already diversifying into agriculture(42% of GDP)

Ambitious plans by gov’t to expand infrastructure:

• Roads carry more than 90% of passengers & freight

• New deep sea port at Lekki planned to ease congestion

• $2bn Rail rehabilitation to reconstruct 2000km

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Africa gearing up

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Ghana – the rising star of AfricaThe safe gateway to West Africa?

Investor attractiveness buoyed by political stability

Strong economic outlook in broader economy (GDP to grow by 6% pa over the next 5 years)

Ghana to become a net oil exporter by 2019

Gold is the top export earner

Expected big increase in per capita GDP will result in opportunities in retail & consumer market

Agriculture an important sector in a diversified economy (accounts for half of employment)

Strong cocoa and forestry industry

Manufacturing accounts for only 7% of GDP

Government focus on transforming Ghana into an industry and service-based economy

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Kenya - Preferred entry point to East AfricaRising consumption and oil discoveries increase demand

Entry point to East African Community:

• Port of Mombasa faces congestions due to high demand

• Port of Lamu is one of the largest African port projects

Diversified economy:

• Large agricultural sector – largest tea producer in Africa, largest exporter of flowers

• Significant opportunity for growth in light manufacturing

• Developed oil fields will change Kenya from a net oil importer to a net exporter

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Africa gearing up

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Business Environment

• 7% average annual growth rate over last decade,

• Initiatives to improve trade integration,

• Corruption remains a concern.

Trade and Logistics

• Diverse natural resource basis for attracting investment,

• Logistics Performance Index shows significant improvement over last few years,

• Port of Dar es Salaam remains a bottleneck,

Infrastructure

• Infrastructure performs better than other African country’s but rail requires significant investment,

• Transport infrastructure investment of US$19 planned, some funded by China and focused on export corridors to Dar es Salaam and Mombasa in Kenya.

Country Highlights - Tanzania

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Port and Airport – Gateways to the Continent

Ports

African ports are constrained by lack of capacity and low inefficiency. Congestion and poor linkages to hinterland markets constrain efficient logistics.

Airports

Clear airport hubs have yet to emerge in the East and West African market. Air freight efficiency is constrained by overly complex administration and lack of supporting cold chains.

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Road

Roads carry almost all freight, even although many roads are still unpaved and many paved roads are in poor condition. Where roads are currently adequate, road maintenance is looming as a potential problem as truck traffic is growing rapidly and is often moving heavy bulk goods more suited to rail transport.

Rail

Africa’s rail networks are generally in worse shape than its roads. In many countries, rail is in poor repair and out of date. Rail investments are set to increase in the coming years, but only South Africa has implemented a comprehensive rail investment strategy.

Getting Around Africa’s Markets

Regional integration with new rail lines … has started in southern and eastern Africa. South Africa is collaborating with Swaziland. In the East, Tanzania is working with neighbours Rwanda and Burundi on plans to link the gateway city of Dar esSalaam with Kigali in Rwanda and Musongati in Burundi. And Kenya is already connected to neighbouring Uganda via rail. But rail integration in the west is nearly nonexistent.

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The intra-Africa trade lagOnly 11% of Africa’s trade is with African trading partners

Compared to Asia where ½ is between countries

Ports by far the most important entry point

Viable corridors being developed:

• Lagos-Abidjan highway through West Africa

• Beira-Lobito corridor – major upgrade required

• South Africa & Swaziland rail collaboration

• Tanzania connecting with Rwanda & Burundi

• Kenya already linked by rail to Uganda

Rail integration in the West non-existent

Land-locked country restraints

Trade agreements an imperative – African Free Trade Zone & removal of tariff barriers key

Africa’s trans-continental

highway networks look

better on paper than on the

ground. It’s a real constraint

for T&L companies

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Lions & dragons: The China factor

China lacks hydrocarbons & some raw materials –secured by building massive infrastructure in return:

• Angola’s ‘infrastructure for oil’ agreement

• DRC’s state copper company signed contract worth more than state budget

• Kenya’s $5bn rail agreement linking Port of Mombasa with Uganda

• Similar infrastructure projects in South Africa, Tanzania, Ghana & Mozambique

Comparative advantage in Africa as wages rise in China

By 2035 Africa’s labour force will be bigger than China’s

South Africa scores better in roads, ports & air, except for rail

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Threats to the African business environment

• Bribery & corruption remains one of the biggest threats to Africa investment and growth

• Industrial strike action in South Africa across, mining & transport sectors

• Arab spring

• Piracy on the west and east coasts of Africa (Horn of Africa & Gulf of Guinea)

• Floods in Angola & Mozambique

• Lack of political will for collaboration

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The way Africa rollsFuture growth & development will rely on quality & efficiency of its transport networks

Mining, oil & gas

Retail & Consumer

Agriculture

Manufacture

Improvement in rail and port infrastructure

Efficient, secure logistics & improvement in road, ports and air infrastructure and cold storage

Efficient low-cost logistics supporting fresh produce and rapid export

Efficient low-cost cross-border logistics aligned to growth in broader African economy

Logistics Requirements

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Conclusion

Improving entrepreneurship is key to success

There will be no sustainable entrepreneurship without adequate

infrastructure

While infrastructure is a requirement it is not key to success without:

• skilled people

• sustainable regulation

• decrease of bribery and corruption

• increase of security

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Questions...

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