Investors are increasingly focused on developing Africa’s ports sector, particularly amid growing global interest in the continent’s huge potential as an exporter of battery metals. However, investment in land-based logistics infrastructure should not be overlooked. It needs to be significantly improved to drive down the costs of shipping cargo to global markets.
Inefficiencies and bottlenecks in mine-to-port transport networks threaten to undermine the competitiveness of Africa’s vast reserves of battery metals, which could play a key role in international efforts to achieve carbon emission targets. Logistical obstacles could also frustrate the ability of SA to realise its agro-export ambitions. As such, investors in Africa’s ports should consider an integrated investment approach, giving them a degree of control and influence over export logistics corridors across the region.
At the same time, the fragmentary nature of land-based logistics means investors must determine whether hinterland supply chains offer the quickest routes to the ports they plan to invest in.
Potential for commodities
Strong growth in demand is expected for battery metals for use in low-carbon energy technologies, like those behind electric vehicles, which are increasingly being adopted globally. Africa is home to many of these potentially transformative metals.
Similarly, African agriculture is seen by some observers as having the potential to become a net exporter of food. SA, the continent’s leading maize producer, looks set to become a significant supplier of the grain to Chinese markets, as Beijing bids to strengthen food security.
To capitalise on growing international demand for these raw materials, land-based logistics must be addressed. The shortcomings mean, for instance, that getting copper cargo from southern DRC to the port of Dar es Salaam in Tanzania and the inefficiencies on the way are the main costs of export to China.
As a result of similar issues, irrational thinking frequently prevails with a large volume of consignments travelling 1,000 km further to the port of Durban. The reason is logistics involved in travelling south, as opposed to east, have tended to be slightly more efficient particularly at the port side. In rational terms, cargo should normally travel the shortest distance to the largest seaport. But this will only happen if corridor-specific bottlenecks are resolved.
Investors exploring investment in African ports with an eye on the returns from battery metal and agricultural exports must be cautious about engaging with portside projects that ignore the fundamental challenges of trucking and railing across borders.
Some regional governments plan new ports or expand existing ones with little regard to their hinterland connectivity, resulting in underutilisation. Others press ahead with prestige cross-country railway lines, which may be hard to fully amortise due to lack of demand, when they might be better off improving or building transport infrastructure linking areas with high-value commodities to their ports. Lack of strategic planning by political actors ignoring commercial dynamics in favour of scale in part explains why logistics related to mineral and agricultural flows are often fragmentary.
Investors must interrogate the overall transport links from the raw material sources right the way through to the ports, making sure these corridors are robust. They should then focus on how to improve their efficiency, for example investing in projects that get more cargo onto rail, reduce delays and congestions at border posts and tackle empty-leg transportation — essentially ensuring that carriers of product to ports do not return empty. In the mining context, this means matching exported ores with in-bound cargo the mines need, such as sulphur used in the refinement of ores.
At the same time, it is critical to right-size these investments. At the outset, it is perhaps better to focus on modest enhancements to corridors, with further expansions over time, so that investment moves in lockstep with demand. Otherwise, there is a risk of corridors being underutilised and the ports operating well below capacity.
Regulatory oversight of ports
There is intense competition in West African port markets. That’s not the case in Southern and East Africa. Here, with the exception of Maputo, which is a private port, one sees a mix of models often involving state-owned port authorities both collaborating and sometimes competing with private sector actors. That makes investment challenging as there is no level playing field, with the state tending to favour its own operators. Investors may be better placed to consider small investments until they are afforded greater protection and clarity.
But this rather restrictive environment is changing as capacity deficits and inefficiencies increase the urgency for private sector support. In SA, there are moves to separate out the respective roles of the state, so that the port authority becomes a separate, independent entity while in a number of regional markets it is clear that private sector actors are increasingly being welcomed across container, multipurpose and bulk terminal operations.
The reform is being brought about by underperformance. African terminals suffer from high average dwell times: 20 days compared to the international norms of three to four days. Governments in effect are acknowledging that partnerships are needed to deal with these issues. Notably, the Durban port authority’s recent decision to partner with a private terminal operator was driven by operational concerns — the facility was ranked among the three worst-performing ports in the world in a World Bank report.
Critically for investors, the liberalisation that we are beginning to see in the port environments of eastern and southern African is also extending to other elements of the logistics chains. So, for instance, governments are now selling slots on railway networks to allow companies to run their own trains to the ports. This all bodes well for the adoption of a more integrated investment approach, with investors able to exercise a degree of influence and control over the various elements of their logistics chain, even if the port investment is of most interest to them.
Regulatory reform will also enable investors to build up a multicountry, diverse portfolio of port assets, given that experience has shown that exposure to a single port can expose investors to corridor-specific risks, which are more easily managed within a broader portfolio. A government might implement measures prejudicial to the use of a port, such as tariff, tax or customs changes that undermine its competitiveness, leading to shifts in cargo volumes to other regional ports.
SA looks set to gain sizeable economic benefit from the export of battery metals and agricultural produce. Investors have recognised the potential and are alert to the returns that investment in the exporting ports could deliver. But unless they also invest in hinterland logistics in an economically viable manner, they may not achieve the financial gains they expect.
• Stumpf is investment director at African Infrastructure Investment Managers (AIIM), a division of Old Mutual Alternative Investments.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.