For many African economies, promoting trade is a top priority. Rightfully so, considering its potential snowball effect on the economy.
When trade flourishes, it sets off a virtuous circle, a country’s goods enjoy ready market, producers and the entire value chain benefit and growth spreads out.
However, turning this vision into a reality still remains a challenge. Trade remains depressed below optimum levels. This despite sustained investment in smoothening movement of goods.
Over the years, billions of dollars have gone into interconnecting the continent by expanding existing roads, railways, air and waterways while building new ones.
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The rollout of infrastructure has been backed by sustained diplomatic efforts under the auspices of regional trade blocs to ease movement of goods and people, as well as free trade protocols, such as the East African Community common market.
These recently climaxed with the proposed African Continental Free Trade Area (ACFTA) that is currently being ratified by African countries and is expected to be a game changer in unlocking intra-African trade.
All these notwithstanding, the higher cost of goods made in Africa has still rendered them uncompetitive on the global marketplace.
This has largely been driven by logistical costs, due to systemic inefficiencies. It is estimated that the cost of logistics accounts for up to 40-60 per cent of the final price of goods in African nations, whereas it only takes up 6 per cent of the prices in the US.
This is how a mango that goes for only KSh5 at the farm gate ends up with a KSh70 price tag at the supermarket shelf in Nairobi.
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With these kinds of prices, how could this produce from Kenya compete effectively in the marketplace? No wonder, locally produced goods constantly face stiff competition from imports that cover huge distances but still cost less.
The first step towards addressing these uncompetitive prices, due to the high cost of logistics, lies in addressing structural barriers to trade, and hence sustainable and inclusive economic growth. Better logistics coordination in these markets is necessary to facilitate more efficient movement of goods that will keep prices competitive.
This involves addressing inefficiencies that stem from a variety of factors including: lack of systems and data, manual and tedious transport sourcing, poor planning and limited or no backhaul that result in trucks taking far too many empty trips.
The misalignment and lack of transparency between cargo owners and transporters has led to huge inefficiencies in moving goods across geographies. It helps when the entire value chain works together for safe and timely delivery of goods.
When good infrastructure, free movement of goods and people, and efficient logistics all work together, not only are goods competitive, but also, the benefits of lower prices are ultimately passed on to the consumer. This enhances their purchasing power, promotes inclusive growth and prosperity for those economies.
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To seize this massive opportunity and close the gaps in information, communication and coordination in our logistics networks, new technologies and business models offer solutions that can be tailored to the issues at hand.
Lori, an e-logistics firm, founded in Kenya, is leveraging technology to seamlessly coordinate haulage and grow trade in Africa by matching cargo and transporters.
Without owning trucks or employing drivers, technology allows Lori to support small and medium businesses across the transportation value chain.
Since 2016, Lori has seen the cost of logistics drop by 20 per cent and the time taken by cargo from the port of Mombasa to Malaba cut down by up to five days. This is also translating into increased truck utilization through more efficient allocation, and location-based matching. As a result of these logistics optimizations, the cost of goods is also expected to progressively drop.
Rethinking logistics through adoption of new business models and technology is a key plank in delivering efficient trade on the continent. It is a key imperative in delivering the benefits of initiatives such as AcFTA by boosting intra-African trade.
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It will make all market participants more efficient, leading to more inclusive growth. The challenge is for policymakers to support such initiatives that are aimed at creating a more transparent and open marketplace, by providing a conducive environment.
The writer, Ron Okello, is the Head of Transport at Lori.
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