En Route to Investment

December 15, 2020

By Alison Buckholtz

Where does a freight truck go after it delivers its cargo?

In much of the world, logistics companies use technology to match available vehicles with shippers that need to move goods, ensuring that every mile is paid for.  But automating freight management has been difficult in Africa, where drivers are typically solo operators scheduling their own jobs.  The process regularly results in “empty runs”—trucks with no cargo for the return route, forcing drivers to idle for days.

That’s part of what makes logistics costs in Africa almost double that of North America, according to data from supply chain firm Armstrong & Associates.  The high price holds back trade and raises costs for consumers, making basic necessities like diapers, soap, and food unaffordable for many.

“Everyone from local business owners to multinationals knows that Africa’s supply chain is broken,” said Samakab Hashi, a Nairobi-based partner at Lateral Capital, which invests in early-stage and growth ventures in sub-Saharan Africa.

But technology created by African e-logistics companies is beginning to patch the supply chain gaps. Industry observers like Hashi say that e- logistics companies are becoming well positioned to meet a projected increase in intra-regional trade when the African Continental Free Trade Area opens next month.

Digital platforms from start-ups such as Kobo360 and Trukker aggregate and then connect truck owners and drivers with enterprise clients who would have previously not have access to each other. By navigating scheduling, customs requirements, and payment via phone apps, these firms appear to be lowering the cost of doing business.

Tech-enabled freight and delivery services are attracting attention from investors.
Tech-enabled freight and delivery services are attracting attention from investors. Photo by Tom Saater/IFC

Analysts have observed more investor interest in African e-logistics companies, according to Adedoyin Amosun, a Nigeria-based Business and Industry analyst at PwC.  Private investment in transport and logistics start-ups signals “a significant shift from investing in financial services and digitally-focused start-ups and may point to the opportunity to solve the problems bedeviling the [African] logistics sector,” she said.

A Bigger Pie”

Tech-enabled freight and delivery services in developing economies are attracting global attention. IFC reported last year that “E-logistics is the most promising area for immediate investment opportunities that involve AI [artificial intelligence] applications in emerging markets.”  This is especially true for Africa, where logistics start-ups had a “record-breaking” year in 2019, according to the African Tech Startups Funding Report.  Total annual funding in this sector has jumped 6,746 percent since 2016, the report said.

Trukker expanded from the UAE and Saudi Arabia to Egypt in early 2020.
Trukker expanded from the UAE and Saudi Arabia to Egypt in early 2020. Photo by Amr Ossama/TruKKer

Companies are demonstrating that they can make logistics cheaper, said Obi Ozor, CEO and cofounder of African digital logistics platform Kobo360.  He estimates that digitization matching trucks and shippers saved customers about 7.1 percent on logistics costs in 2019 and helped drivers earn 27 percent more through optimization and increased utilization of their vehicles.

Widely adopted automation after the pandemic will lower the cost of logistics even further, Ozor believes.  This echoes IFC research on the impact of COVID-19 on logistics.  “Companies with robust digital capabilities that allow them to provide cargo visibility/traceability and do business online are at an advantage” during lockdowns and their aftermath, a recent report stated.

Technology customized for Africa is important because the continent’s logistics sector is fragmented, with standards, requirements, and costs that vary country by country.  The World Bank’s Logistics Performance Index has for several years ranked many African countries low on indicators such as cross-border clearance processes, quality of trade, infrastructure, inconsistent tax regimes, and consignments’ track and trace mechanisms

Enactment of the Africa free trade agreement aims to confront these challenges by creating a single market for goods and services, laying a foundation for the establishment of a continental customs union.  The trade agreement aims to reduce tariffs on 90 percent of all goods and facilitate free movement of goods, services, capital, and people. It promises to unite a market of 1.3 billion people and a combined GDP of $2.6 trillion, according to a joint study by IFC and Google.

Click on the infographic to download it.

A large number of African companies can benefit from the combination of tech-enabled logistics and a continent-wide, streamlined trade process, according to Hashi, from Lateral Capital. “The new zone will make the pie bigger for everybody,” he said.

Digitizing delivery

Unlocking intra-regional trade is central to African economic growth because low levels of intra-regional trade limit trade diversification—a situation with far-reaching implications. Intra-African trade, defined as the average of intra-African exports and imports, was around 2 percent during the period 2015–2017, while comparative figures for America, Asia, Europe, and the East Asia and Pacific region were, respectively, 47 percent, 61 percent, 67 percent and 7 percent, according to the United Nations Conference on Trade and Development (UNCTAD).

AfCFTA’s approach to intra-regional trade “will be a great boon to logistics,” said Gaurav Biswas, CEO and cofounder of Trukker, an intercity and long-haul e-logistics company that expanded from the UAE and Saudi Arabia to Egypt in early 2020.

Biswas has seen firsthand the potential of technology to transform the logistics and road freight sector, where little has changed for decades.  “In an era of blockchain, there are still companies that are still faxing a gate pass,” he said.  “But you can now digitize transactions via a smart phone…If you can standardize and digitize document processing, you build immense commercial advantage based on improved asset utilization and improved working conditions [for drivers].”

Kobo360 cofounder and CEO Obi Ozor.
Kobo360 cofounder and CEO Obi Ozor. Photo by Dominic Chavez/IFC

Both Ozor and Biswas have said that that boosting their drivers’ quality of life and career opportunities is essential to the companies’ success.  Automating the logistics process can protect the drivers, Biswas said. E-invoicing assures that they will be paid on time, digital signatures limit their exposure to COVID-19, and other technology helps drivers with insurance, fuel cards, vehicle maintenance, and saving money to eventually purchase their own trucks instead of leasing them.

“After all, they’re entrepreneurs, just like we are,” Biswas said.

To learn more about how a new wave of African start-ups is solving the decades-long challenge of moving goods around Africa, click here.

Published in December 2020