Logistics and Global Value Chains in Africa: The Impact On Trade and Development
Logistics and Global Value Chains in Africa: The Impact On Trade and Development
Logistics and Global Value Chains in Africa: The Impact On Trade and Development
E DITE D BY
ADE B ISI ADE WOL E
JOH N J. STRU TH ERS
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Contents
1 Trade
and Economic Development in Africa:
The Interaction Between Logistics and Global Value
Chains 3
Adebisi Adewole and John J. Struthers
2 Logistics
and Supply Chain Infrastructure Development
in Africa 17
Adebisi Adewole
3 Supply
Chain Network and Logistics Management 45
Benjamin S. Bvepfepfe
4 F
reight Transport Technology: A Cost-Effective/Time-
Efficient Solution to Sub-Saharan Africa’s Logistics
Problems 91
David Burl
v
vi Contents
5 Commodity
Price Volatility: Causes, Policy Options
and Prospects for African Economies 133
John J. Struthers
6 Does
Africa Have What It Takes to Upgrade in Global
Value Chains? 169
Samuel K. Gayi and Joseph K. Banini
7 Logistics
and Value Chain Development: Cost
and Capability Considerations 217
Jodie Keane
8 The
Importance of the Services Sector for Africa 239
Ottavia Pesce, Carolyne Tumuhimbise, William Davis, and Lily
Sommer
9 The
Role of Market Institutions in Trade and Economic
Development in Africa 265
Bla J. C. Eba and John J. Struthers
10 Can
Trade Openness and Global Value Chains Improve
Real GDP Growth and Human Development Index
in Sub-Saharan African Countries? 297
Beatrice Isah Dara
I ndex 327
Notes on Contributors
vii
viii Notes on Contributors
researcher, economist and statistical analyst. She has worked in Scotland as assis-
tant statistician/statistical analyst for the Scottish Government. Along with the
rest of the team, she set up CAREED at UWS in November 2015, a unique
research centre that specialises in a range of key economic issues across Africa.
William Davis is an economist working with the Economic Commission for
Africa of the United Nations on financing for development. From 2013 to
2017, he worked for the commission’s African Trade Policy Centre on trade in
services, inter alia, and had a number of assignments prior to that, including
from 2009 to 2011 for Her Majesty’s Treasury in the UK on financial and legal
services policy. He holds an MPhil in economics from Oxford University.
Bla J. C. Eba is a PhD student at UWS, Paisley campus. She is also an econom-
ics tutor at Strathclyde International Study Group. She is originally from Côte
d’Ivoire. She graduated from Glasgow Caledonian University in 2010 with a BA
in business and management and she received the Best Student Award for that
year. She remained at Glasgow Caledonian University to complete her MSc in
risk management in 2011. Prior to starting her degree course, she worked with
Maryhill Citizens Advice Bureau as a general adviser and a tribunal representa-
tive in 2006.
Samuel K. Gayi Until his retirement in June 2017, Samuel K. Gayi was direc-
tor and head of the Special Unit on Commodities (SUC) at UNCTAD, Geneva.
Previously, he was principal planning economist and acting manager of the
African Development Bank in Côte d'Ivoire. He has spent many years teaching
and researching, and has published on a wide range of development issues,
including trade diversification, structural adjustment and poverty, commodity
dependence, financial sector reforms and domestic financial resources mobilisa-
tion. He co-ordinated and contributed to three UNCTAD flagship publica-
tions, including The Least Developed Countries Report (1995–1999) and the
Economic Development in Africa Series (2003–2008). On becoming head of the
SUC in 2011, he introduced and co-ordinated the production of a new biennial
UNCTAD report: Commodities and Development (2013–2017). Under Gayi’s
leadership, UNCTAD’s Global Commodities Forum, a high-level multi-
stakeholder platform on commodities and development, provided an opportu-
nity for deeper examination of equity and other issues facing countries heavily
reliant on trade in major commodities. He was a member of the Senior Steering
Group of the UN Secretary General’s High Level Task Force on the Global Food
Security Crisis. He also co-ordinated UNCTAD’s participation in the UN
Secretary General’s Zero Hunger Challenge. Gayi holds a PhD in development
x Notes on Contributors
xiii
xiv List of Figures
xvii
xviii List of Tables
Table 10.6 Breusch and Pagan Lagrangian multiplier test for random
effects318
Table 10.7 Results for model 2 (real GDP growth) 319
Table 10.8 Results for model 3 (GVCs) 320
List of Boxes
Box 2.1 23
Box 2.2 23
Box 2.3 24
Box 2.4 The Dangote Group 29
Box 2.5 31
Box 2.6 Transport and Trade Facilitation 38
xix
Part I
Logistics and Supply Chain Strategy
1
Trade and Economic Development
in Africa: The Interaction Between
Logistics and Global Value Chains
Adebisi Adewole and John J. Struthers
logistics and GVCs and the relationships between the two concepts.
This book sets out to examine how the demand and supply dimen-
sions of supply chain architecture interact with the economic con-
cepts of GVC. This inter-connectedness between supply chains/
logistics and global value chains is conceptually critical to ensure a
clear understanding of: long-term sustainability of supplier–customer
relationships; environmental accountability; social responsibility; and
the economic viability of actors within GVCs. These four elements
are closely bound together and are reflected in each of the chapters
that follow.
It is the authors’ contention that this book will fill a significant gap in
the trade literature on Africa by combining these two related but distinct
areas of study. In so doing, the authors hope that justice will be done to
the complexity of these intertwined aspects of trade in order that progress
can be made on the African continent to achieve viable and sustainable
supply chain/logistics along with equitable and efficient GVCs. Moreover,
this can also contribute to a more collaborative multi-stakeholder
approach that can help to bring about much-needed fair and more com-
petitive trade deals for Africa.
The word “logistics” originated from the military lexicon during the
Second World War when the allied forces employed logistics skills to
try and win the war. Since the end of the First World War, business
organisations have adopted similar logistics management skills to create
competitive advantages. There have been varying views with regard to
what logistics truly means. While some see logistics as having mainly to
do with the application of mathematics in military concerns, others
(particularly in the latter part of the twentieth century when the term
Trade and Economic Development in Africa: The Interaction… 5
Information/Financial Flows
Fig. 1.1 A supply model. (Source: Model developed by author from the literature)
1.4.2 Part II
The fifth chapter, by Struthers, covers the range and scope of research on
commodities since the 1970s, particularly in relation to African produc-
ers, and how that research has helped academics to analyse this important
topic within African trade and development. The chapter focuses on the
Commodity Dependent Developing Countries (CDDCs), which are
defined as those countries where at least 60% of their overall export earn-
ings come from these (mainly) primary commodities. Topics covered
include: the rise and fall of International Commodity Agreements; the
effects of market liberalisation on commodity markets during the late
1980s and early 1990s; the impact of commodity price volatility and pos-
sible commodity “super-cycles”, especially after the 2007–08 global
financial crisis, and the resultant “financialisation” of commodity mar-
kets; the emergence of market-based price risk management instruments
such as commodity futures and options, which have been developed to
help CDDCs mitigate such risk; and the development of commodity
exchanges in a number of CDDCs including some in Africa, such as the
Ethiopian Commodity Exchange. Finally, the chapter concludes with a
discussion on the means whereby more and more of these CDDCs can
participate in commodity GVCs in order to extract greater value from the
very commodities that they produce. In so doing, the chapter also high-
lights the crucial role played by smallholders in the countries that pro-
duce these commodities, which serves both as a reminder of the constraints
that many CDDCs face in securing these gains, but also the urgent need
to continue attempting to do so, not least in terms of securing the liveli-
hoods of such smallholders. This chapter also provides a bridge between
the first section of the book, which has an emphasis on logistics and SCM
concepts, and the second half of the book, which focuses much more on
the crucial role of GVCs within the context of African trade.
Chapter 6, by Banini and Gayi, has the thought-provoking title “Does
Africa have what it takes to upgrade in global value chains?” After setting
out recent trends in international trade and how these have benefited
many African countries, the chapter outlines the growing challenges
faced by many African countries in the face of rapid globalisation. Partly
due to the fact that these GVCs, especially in manufacturing and services,
Trade and Economic Development in Africa: The Interaction… 11
(cocoa) and Burkina Faso (cotton). The chapter then proceeds to discuss
the impact of the market reforms from a principal–agent perspective. The
creation of local commodity exchanges, such as that in Ethiopia, as a
means of mitigating the effects of commodity price volatility, is then ana-
lysed. It has been suggested by some authors (Struthers 2017) that the
setting up of a commodity exchange can not only mitigate some of the
principal–agent problems that often beset commodity production but
also reduce the potential transaction costs, improve price discovery on
the part of commodity producers and give them greater access to well-
structured foreign markets. This chapter also highlights the problems that
producers, especially smallholder farmers, have in fully engaging with
GVCs for their commodities. The chapter concludes by suggesting that
the creation of successful commodity exchanges can complement the
market reforms that have been carried out in many African countries.
Moreover, some statistical evidence is provided to suggest that such inno-
vations can not only reduce transaction costs but also increase value-
added to the farmers and producers by reducing the number of
middlemen/intermediaries within the supply chain.
The final chapter of the book, by Isah Dara, presents the findings of an
empirical econometric study of a number of African countries in terms of
the links between human development (using the UN’s human develop-
ment index (HDI)) and trade openness. The HDI is a composite index
that measures human development in relation to aspects such as health-
care and life expectancy; education levels; and standard of living, along
with other parameters. Improving these aspects of human development
in Africa is of course a top priority, not least to assist the poorest members
of society to improve their life chances. It can also lead to stronger econo-
mies based on more effective engagement of these countries with GVCs
and trade generally. Improvement in human development (human capi-
tal, knowledge, skills and capacity) are a sine qua non in this context. The
chapter provides strong support econometrically for a link between trade
openness and human development for the countries covered in the
empirical analysis (Chad, Democratic Republic of Congo, Central
African Republic, Niger, and Sierra Leone over a 30-year period) and
outlines some key policy requirements for governments to implement
(Fig. 1.2).
14 A. Adewole and J. J. Struthers
Chapter1: Trade and Economic Chapter 2: Logistics and Chapter 3: Supply Chain
Development in Africa: The Supply Chain Infrastructure Network and Logistics
Interaction between Logistics and Development in Africa Management
Global Value Chains
Adebisi Adewole Benjamin S. Bvepfepfe
Adebisi Adewole & John J.
Struthers Chapter 4: Freight Transport Technology: A
Cost-effective/Time-efficient solution to Sub-
Saharan Africa’s Logistics Problems
David Burl
Notes
1. COMESA is the Common Market for Eastern and Southern Africa;
SADC is the Southern Africa Development Community; EAC is the East
African Community; and ECOWAS is the Economic Community of
West African States.
Trade and Economic Development in Africa: The Interaction… 15
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(pp. 4–6). Ottawa: International Research Centre (IDRC).
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Struthers, J. (2017). Commodity Price Volatility: An Evolving Principal-Agent
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Added Trade in the Global Economy. Geneva: United Nations.
2
Logistics and Supply Chain
Infrastructure Development in Africa
Adebisi Adewole
2.1 Introduction
The impact of global logistics and supply chain strategy has generated
intense debate in both the academic sector and industry. But the signifi-
cance of trade logistics infrastructure as a prerequisite for easier and better
movement of goods and services in twenty-first-century Africa has
attracted little attention. Business analysts and researchers (Fosu 2018;
Brigsten 2018; Thorbecke and Ougang 2018) on Africa agree that Africa’s
economies are growing as the continent emerges as a strategic trading
bloc with a growing wealth and urban-centric population. There are,
however, growing concerns that poor logistical freight infrastructure,
such as road and rail networks, air and seaports, as well as inadequate
modern technologies pose difficult challenges to trade within Africa and
between Africa and the rest of world.
A. Adewole (*)
School of Business and Enterprise, University of the West of Scotland,
Paisley, UK
e-mail: [email protected]
In 2013, the World Bank estimated that 49% of the continent’s 250
million households had discretionary income and by the end of 2015
that figure rose to rise to 64% of 303 million households. This represents
an increase of 86 million consuming households (McKinsey 2015) show-
ing that Africa is fast becoming wealthier. With Africa’s growing popula-
tion and increasing wealth, as well as the significant size of its consuming
middle class, it would mean that trade logistics will have a compelling
role to play in Africa.
Chuhan Pole (2017) viewed that in this context, promoting public
and private investment, notably in infrastructure, is a priority, as Africa
experienced a slowdown in investment growth from nearly 8% in 2014
to 0.6% in 2015.
With poverty rates still high, regaining the growth momentum is impera-
tive. Growth needs to be more inclusive and will involve tackling the slow-
down in investment and the high trade logistics that stand in the way of
competitiveness. Chuhan Pole (2017)
Fig. 2.1 A simplified linear logistics and supply chain structure from the source to
the end consumer
Box 2.1
Frank Matsaert, a company chief executive, noted that in East Africa transit
times are high from Mombasa (Kenya) to Kigali (Rwanda)—on average of
two and a half weeks for a journey of 1600 kilometres. Freight trucks stop
at two border posts and encounter 45 road blocks, each of which involves
delays and costs, as well as potentially damaging the goods in transit. In
contrast, a truck covering a similar distance in Europe—driving from
Rotterdam (the Netherlands) to Budapest (Hungary)—would be able to
complete the route in less than a day. Transport expenses are passed on to
small businesses and customers. The World Bank estimated that logistics
costs account for 40% of consumer prices in East Africa with a population
of about 250 million people. A large number of small business owners are
therefore unable to grow their businesses due to high logistical, sourcing
and distribution costs.
Although the World Bank and African Development Bank (ADB) are
reported to invest USD 93 billion and USD 50 billion respectively every
year in order to bridge the infrastructure gap, the real problem is imple-
mentation. The economic imperative appears to be growing at a faster
pace than the required political reforms, but what is necessary is a balance
between the two for the required effective partnership between economic
entities and political imperatives. The business environment has to be
conducive to enabling investment to get the product to market.
Investment in trade can be futile without an adequate supply chain infra-
structure system in place. Intra-African trading activities can flourish suc-
cessfully only with adequate transport logistics infrastructure.
Box 2.2
2.2.1 When African children drink Milo Chocolate drink or Bunvita, they
are not aware that they are imported and that 45% of the cost covers
transport and logistical resources. The product may have been made
in Africa or overseas, whichever is applicable the children (or their
parents) are paying part of the freight clearance charges, handling
charges, insurance, fuel costs and wages of the freight driver who
moved the product from point A to point B. Consumer goods cannot
improve people’s lives if the cost of importing them is too expensive
for people to access.
24 A. Adewole
2.2.2 Three little boys in Kigali are sharing a lollipop. They lick it in turns.
The lollipop is imported, therefore 45% of its cost is due to transport
and allied costs. It might have been made in Kenya or Tanzania or
even further afield, and it might have travelled thousands of kilome-
tres and passed through several borders. Whichever of the boys
bought that treat has paid part of the freight clearance charges, han-
dling charges, insurance, fuel costs and the salary of the trucker who
brought it to the Rwandan capital.
The cases in Boxes 2.1 and 2.2 illustrate the significance of the activi-
ties in the supply and demand pipelines and how, to a great extent, they
contribute value to the end customer. Therefore logistics and supply
chain processes are essential as they create and deliver value to the mar-
ket. Logistics is the element that determines the quickness (lead time),
reliability and sometimes the size and location of inventories and
facilities.
Despite the challenges facing trade logistics in Africa, the low
cost of labour in Africa has driven renewed efforts from continental
and inter-c ontinental traders to exploit Africa’s potential as a trad-
ing base, thereby raising the role of logistics and transport in the
region (Box 2.3).
Box 2.3
DHL, the international parcel company, has more than 3300 service points
across Africa. The network was developed by forming partnerships with
small businesses, fuel retailers and supermarkets. DHL has grown a success-
ful business in Africa by adapting to the local circumstances of informal
economy, rural population and a large number of small businesses.
identify the linkages between national logistics realities and the continent-
wide logistics requirements.
The Aliko Dangote initiative (Box 2.4), is an example that can be rep-
licated by national governments, regional economic blocs and the African
Union. As found by other developed economies, it is imperative to focus
on collective approaches to strategic and transformational movement
with the purpose of strengthening logistical resources and management
capacity with the necessity to leverage support for continental logistics
infrastructure. It is vital to identify Africa’s logistics requirements and
align those needs with achievable and realistic targets.
Rapid gains in the efficient transportation of goods and services across
Africa can be achieved with the elimination of bureaucracy and road
block bottlenecks. Reducing the time taken for the movement of cargo
from Mombasa to Uganda from 18 days to five days should not require a
significant investment of money. It should be about doing what is right
and getting it right to eliminate the waste of time and effort.
Rail Transport Railways are the most cost-effective way of moving bulk
cargo long distances over land. Rail freight is vital to Africa’s economic
well-being. It has an essential place in providing an efficient movement of
goods and services across the continent of Africa and creating value
through its part in an integrated supply chain.
Box 2.5
2.5.1 Kenya Standard Gauge Rail
In Kenya, there is the construction of a 500 km standard gauge railway from
Mombasa to Nairobi, aimed at cutting the traveling time between the two
destinations from 13 hours to 4 hours with a train speed of 80 km h–1; and
a 1250 km rail line that runs from Mombasa to Kisumu to Malaba with the
purpose to reduce cost of cargo transporting by 60% at the completion of
the project. The rail project is designed to link Kenya’s neighbours: extend-
ing from Mombasa to Nairobi, linking Kisumu through to Kampala in
Uganda, and South Sudan, and Kigali in Rwanda, then to Juba, connecting
four countries together. The regional rail project had been designed to
boost East African trade and development as well as deepen economic inte-
gration in the region.
2.5.2 Angola Standard Gauge Rail
The railway route is 3523 km long and connects Lobito in Angola to Beira in
Mozambique, running from border to border, crossing Angola, the most
southerly part of the Democratic Republic of Congo (DRC), Zambia,
Zimbabwe and central Mozambique. This means copper can be easily trans-
ported from DRC to Angola and to the Atlantic Ocean for export. The proj-
ect was designed to have a profound impact on business in Central and
Southern Africa.
2.5.3 Ethiopia’s Light Railway Project
Ethiopia has been slow to embrace railway transport for decades. The die-
sel-powered Addis Ababa–Djibouti city railway built by the French in the
twentieth century has long been dysfunctional, but in 2011 the Ethiopian
government agreed a contract with the Chinese to build a light railway
transit that can transport 15,000 passengers per hour in each direction. The
train will speed up passenger journeys and provide an alternative means of
public transport to the city’s road-based system as well as provide a more
environmentally friendly transport option. The national electric rail project
costing USD 475 million, covers 34 km (21 miles) of light rail and it is a joint
venture between Ethiopia and China and is the first of its kind for the city
and sub-Saharan Africa. The light rail system, which was part of a five-year
“growth and transformation” project of the Ethiopian government became
fully operational in 2016. Although the light railway is passenger focused
initially, it may be useful to conduct business and move goods in the future.
2.5.4 The Abuja–Kaduna Gauge Rail Project
The project was expected to open up the northern part of the country as it
is designed to connect the line that runs from Lagos to Kano. It was designed
to carry more than 5000 passengers daily, with trains travelling at 160 km
32 A. Adewole
per hour and carrying more than three million tonnes of cargo annually. On
completion, the train journey will take 90 minutes, a journey that normally
takes three hours by road. The railway is being built in segments. Only the
section between Abuja and Kaduna has been completed so far, and services
began officially in July 2016. The leg between Lagos and Ibadan is under
construction. A USD 1.53 billion contract was awarded in 2012 to the China
Civil Engineering Construction Corporation for construction of the Lagos–
Ibadan segment (156 km) of the standard gauge railway by 2016. However,
the project has faced delays. A ground-breaking opening ceremony finally
took place on 7 March 2017 and the railway is expected to be completed by
December 2018.
Other parts of the construction that have not yet started are: Ibadan–
Ilorin (200 km), Ilorin–Minna (270 km), Minna–Abuja, and Kaduna–Kano
(305 km). When all phases are completed the rail will link Lagos from the
sea to Kano in northern Nigeria.
2.5.5 First High Speed Rail in South Africa
The 80 km Gautrain rapid rail link has brought high-speed commuter com-
munications to Gauteng province, the smallest of the country’s nine prov-
inces, but the most important economically and the most densely populated.
Gauteng is at the heart of the South African economy. It creates one-third
of South Africa’s GDP and is home to around 10 million people, one-fifth of
the country’s population. It also includes the country’s largest city
(Johannesburg) and administrative capital (Pretoria), as well as the OR
Tambo International Airport.
With the provision of the high-speed transit link, the government’s
expectation was to stimulate economic growth and job creation by improv-
ing commuter mobility as well as reduce traffic and carbon emissions on
congested highways.The contractor, ABB traction technologies, is playing a
vital role in the project by providing advanced traction solutions that pow-
ers the entire 80 km line and the 24 electric trainsets that operate at speeds
of up to 160 km h–1.
2.5.1.1 Air Transport
in freight tonne kilometres, which represents twice the 4.2% growth of the
global freight market over the same period. This indicated a strong demand
for air freight from importers and exporters. In twenty-first-century Africa,
companies are increasingly opting for air instead of sea transport for urgent
shipments of products, particularly in crude oil and pharmaceuticals.
Hughes Marchessaux, air freight director at Bollore Africa Logistics,
emphasised that the development is a reflection of the global market for air
transport that accounts for just 1% of the volume of goods transported
but 35% of the value. Up to 2018, however, Africa remains the smallest
user of air services in the world due to its low income and lack of air trans-
port infrastructure, despite the air transport sector being a major contribu-
tor to African trade particularly for time-sensitive products such as
agricultural produce and intermediate production networks.
Although it is difficult to find detailed data on intra-African air transport,
The international Bank for Reconstruction and Development (IBRD)/The
World Bank (2009) indicated that air freight is crucial to developing coun-
tries, particularly the landlocked countries. According to the report, land-
locked African countries have limited demand for air freight because most of
the enterprises are small businesses with low production capacities and low-
value goods such as flowers, fresh fruits and vegetables, and electronic parts,
which only require small volume of shipments. The critical strain for African
enterprises is the ability to generate production capacity to attract air freight
services that are both frequent and competitive. Air transport costs in Africa
are above the world average, thereby inhibiting the development of exports
with high value added. This stems from the belief that fuel tends to be signifi-
cantly more expensive in Africa than in other regions. For instance, fuel prices
in Africa are often 40% higher than in Europe (Amjadi and Yeats 1995).
Amjadi and Yeats estimated that air transport cost represents, in some cases,
up to 50% of the value of African exports to the USA. High and rising costs
of air transport services have a direct impact on the cost of cargo flights to
Africa. IBRD/World Bank (2009) reported that in the short run higher cost
of fuel would normally result in a possible downturn of air cargo traffic, and
in the long run, with a continuous, albeit slow, growth, air freight would be
integrated into multi-modal supply chains that could provide some form of
balance between cost and time. The report further stated that air freight would
also open new markets by providing fast, reliable service for initial deliveries of
products, and continue to support production activities and delivery of critical
36 A. Adewole
spare parts and high-value inputs. The report also emphasised the significance
of air freight in supporting reverse logistics activities including repairs and
warranty work for electronic and other high-value consumer goods.
Other militating factors include the variation in the quality of air
infrastructure across the continent; difficulties in finding airports big
enough to accommodate some of the larger cargo planes, especially in
sub-Saharan Africa; and the lack of ease of loading and unloading at
some airports due to inadequate landing equipment.
African governments’ slow response to liberalise is a critical issue in
inter-African air markets. Liberalisation can stimulate both intra- and
inter-continental demand for air travel and create competition and ser-
vice improvements, as well as lower costs that may accumulate while
business is being conducted.
Air transport infrastructure is a necessary condition for economic
growth and, though it cannot reduce poverty in itself, it has a key role to
play as a facilitator of policies that aim to improve living standards. In
twenty-first-century global trade, air transport has played a key role in
fostering economic development and making countries more competi-
tive and productive. Aviation therefore has the potential to make an
important contribution to Africa’s continued economic growth because it
can help open markets and facilitate trade.
InterVISTA reports (2015) reviewed the Yamoussoukro Decision of
1999 signed and adopted by 44 African countries as full liberalisation of
intra-Africa air transport services in terms of access, capacity, frequency
and tariffs; fair competition on a non-discriminatory basis; compliance
with international safety standards; and a requirement for implementa-
tion of the agreement. The report, however, noted that the implementa-
tion of the Yamoussoukro Decision still remains to be seen. This is
because there are still constraints such as:
African countries will need to work more collaboratively for the benefit
of African trade and development. An emergence of an attractive inter-
Logistics and Supply Chain Infrastructure Development in Africa 37
African market will encourage a trend towards new alliances and acquisi-
tions. Good examples are South African Airways acquiring a 49% share of
Air Tanzania and a restructured Kenya Airways sold to private investors.
and user-friendly advanced technologies at the various ports for the ben-
efits of both domestic and international markets.
Logistics efficiency will be improved if decisions are based on accurate
information. In Africa, like everywhere else, during the initial uptake of
technology, businesses tend not to share information with their trading
partners for fear of losing a comparative advantage. However, there is a
strong need to understand the significance of modern electronic tech-
nologies in facilitating business communications and synchronising
logistics and supply chain processes and activities both in intra-African
and with Afro-inter-continental trade partners. Greater investment in
advance electronic transport and communication technologies will turn
out to be to the benefit of Africa, Technology will enable quicker, better
and fairer trade that will have a major impact on trade across the African
continent and make Africa’s value chain much easier to achieve.
References
Adewole, A. (2003). PhD Thesis. University of the Arts London.
Amjadi, A., & Yeats, A. J. (1995). Have Transport Costs Contributed to the Relative
Decline of Sub-Saharan African Exports? Some Preliminary Empirical Evidence
(Policy, Research Working Paper; No. WPS 1559). Washington, DC: World
Bank.
Brand South Africa Report. (2012, November). South Africa’s Transport Network.
South Africa.
Brigsten, A. (2018). Determinants of the Evolution of Inequality in Africa.
Journal of Africa Economies, 27(1), 127–148.
Chuhan Pole, P. (2017, April 19). Economic Growth in Africa Is on the Upswing
Following a Sharp Slowdown (World Bank Report).
Fosu, A. K. (2018). Economic Structure, Growth, and Evolution of Inequality
and Poverty in Africa: An Overview. Journal of Africa Economies, 27(1), 1–9.
Human Development Reports. (2009). United Nations Development Programme.
New York: International Air Transport Association Report.
IMF Reports. 2013.
InterVISTA Reports. (2015, December). The Yamoussoukro Decision – Transforming
Intra-African Air Connectivity: The Economic Benefit of Implementation the
Yamoussoukro Decision. Geneva: International Air Transport Association.
Logistics and Supply Chain Infrastructure Development in Africa 43
3.1 Introduction
The continent of Africa experienced long years of colonisation due to its
wealth of natural resources that provided the much-needed raw material
for Europe during the Industrial Revolution. Since then, the continent
has been a source of timber and other agricultural produce such as:
tobacco, cocoa, coffee and cotton for international markets. More
recently, however, there has been another dimension to the economic
activities in some parts of the continent. This includes recent discoveries
of diamonds in Zimbabwe; oil and gas deposits in Nigeria, Ghana,
Angola and Mozambique. It has also been reported that seven of the ten
fastest growing economies in the world are in sub-Saharan Africa (Kearney
2014), and that the region is the second-fastest growing economy in the
world (IMF 2015). The continent is reported to be a major market for
B. S. Bvepfepfe (*)
Business School, Higher Colleges of Technology, Fujairah, United Arab
Emirates
e-mail: [email protected]
China, with one of the world’s largest economies, whose investments are
targeting mining, agricultural produce and infrastructure opportunities.1
There are also suggestions that Africa will surpass the USA and Europe as
China’s largest trade partner by the year 2020 (Manners-Bell et al. 2014).
We can assume that Africa is on its way to becoming a big competi-
tor in the supply of raw materials. Similarly, the region has drawn much
interest from retailers who aim to extend their supply chain networks to
their pre-production suppliers. ‘Supply chain network’ here denotes the
concept of a system of interacting processes and node points resembling
a net that is connected together. The main components in logistics and
supply chains include location of facilities for production and/or stor-
age infrastructure, equipment for materials handling, modes of trans-
port, information and communication systems and people, all working
for a common purpose. The effectiveness of logistics and supply chain
operations is largely influenced by the availability of these key compo-
nents making up the logistics network in a given region. The World
Bank noted that while logistics infrastructure is significant to Africa’s
economic evolution, its role in driving the continent towards even
greater future development is crucial (Foster and Briceño-Garmendia
2010). Sustainable logistics and supply chain operations continue to be
the real catalyst to economic development. However, it has been
observed that supply chains in Africa are under-developed (Kearney
2014) and lack adequate logistics and transport infrastructure to sup-
port Africa’s trade and economic development to a sustainable stan-
dard. In order for supply chain operations to facilitate the smooth flow
of product/services, information and finance, a sustainable level of
investment in network configuration and assets are required for intra-
regional and global competitiveness.
The region appears to be attractive to foreign investment from abroad,
both as a global market for finished products and as a supply source of
raw materials for manufacturing.2 The population of sub-Saharan
Africa—estimated at 1.2 billion (Canning et al. 2015)—is projected to
grow to 2.8 billion by 2060, representing more than 20% of the world’s
population. The World Bank (WB) reported that this growth contrasts
with population projections for Europe, which will experience a negative
Supply Chain Network and Logistics Management 47
shift from the current 738 million (2010) to a projected 702 million by
2060. Researchers have noted that there is a link between population
growth (with urbanisation) and economic development. They argue that
population growth increases density, that is, the number of people in a
given area, and allows companies to produce in large volumes leading to
reduced costs. However, it has also been observed that the benefits of
population growth are dependent on the policies and associated invest-
ments from governments: for example, local and national governments
investing or providing incentives for investment in infrastructure and ser-
vices to match the growth. The foregoing is based on the notion that exist-
ing infrastructure in some parts of Africa were designed for much lower
throughput and usage and there has not been any corresponding capacity
upgrades or improvements to match population and capacity increase. An
IMF study finds that the largest dividend from population growth will be
gained if government policies are focused on a set of interlinked actions,
including fostering private sector development outside agriculture, bridg-
ing the infrastructure and human capital gaps, tackling labour market
rigidities and supporting stronger trade ties. Supply chain operations are
caught up in this growth demand fulfilment and other expectations.
The aim of this chapter is to highlight the importance of supply chain
networks and logistics management capabilities on trade and develop-
ment in the context of Africa. Evidence suggests that if a region has effec-
tive and efficient logistics capabilities, it will most likely attract significant
economic growth. For instance, manufacturing companies from devel-
oped economies would outsource production processes to such regions.
This chapter outlines the concept of supply chain network and logistics
management in the context of developing regions such as sub-Saharan
markets. The key features and notions of modern day supply chains will
be explored with an in-depth analysis of the attributes of resourcing and
managing supply chain networks. The chapter explores the key network
challenges facing supply chain managers particularly for those businesses
operating in sub-Saharan Africa. Although some reports exclude coun-
tries in North Africa, such as Libya, Morocco, Algeria, Sudan and Tunisia,
this is mainly due to differences in the socio-cultural, political and eco-
nomic settings.
48 B. S. Bvepfepfe
these flows. This calls for suitable supply chain network design and effec-
tive logistics management to reduce these barriers and their negative
impact on the objectives of supply chain operations.
Assuming demand has been established, the key processes and activities of
the supply chain are thus triggered, that is, beginning with supplies of raw
materials that are required for the production process. Finished goods or
semi-finished goods are then distributed through the supply chain net-
work. To illustrate this, Fig. 3.1 provides a simplistic linear view of a beef
products supply chain network. From a materials flow point of veiw, a
supply chain can also be considered in terms of a pipeline through which
goods and services flow from upstream sources to downstream consumers.
The question now is how are decisions on the design of logistics networks
made? One of the main aspect that influences decisions and therefore, the
design of a logistics network is the principles of product characteristics.
Consideration of product characteristics is essential in order to under-
stand what is to be moved or stored, and what is it about the product that
will require special attention or handling throughout the pipeline.
Upstream Downstream
Livestock Abattoirs Butchery Retailers Restaurants Consumer
Farm
Information flows
Materials flows
Skills/Knowledge
Money flows
Returns flows
Perishable by Time These products include any with a “sell” or “use by”
date, as well as products such as newspapers. Some drugs and medical
supplies also fall into this group and the product life cycles are short, put-
ting pressure on the network for effective and speedy delivery. Rapid
transit within the network becomes essential and is a key performance
indicator for logistics management.
Dangerous and Hazardous Goods Some products are toxic and dangerous
to humans, animals and the environment. These must be moved under strict
legislation standards and usually cannot by law be mixed with other prod-
ucts. For instance, mixing a potassium product with water will create an
Supply Chain Network and Logistics Management 51
Bulk Products Bulk granular products such as grain, flour, powder and
cement need to be segregated, as powders can combust with movement
and heat. Most parts of Africa, especially southern Africa, have a strong
agricultural base with a resultant export of produce within the region but
also to global markets. Bulk liquids can be moved only in full container
lots, as movement of a part-filled container will make the load unstable.
Planning will demand full loads or an alternative design of a suitable
system for dealing with movement.
Fragility and High Value Products Some products are fragile, such as
pottery, tiles, glass, furniture and art, and they must be protected in tran-
sit and storage. Special packaging and labelling may be necessary. High-
value goods, such as gemstones, currency, microchips, electronics, works
of art as well as specialist medical supplies, will require special methods of
movement and storage to eliminate potential loss from theft.
From the above, it becomes clear that the design of a supply chain net-
work needs to take account of a product’s characteristics, identifying flexi-
bility and potential combinations, including any additional resources
associated with the flow. For instance, a bulk liquid chemical tank or bulk
liquid food tank must have a chemical clean out at a regulated cleaning
station before a subsequent reload. This requires appropriate facilities, that
will incur additional costs and adding more time to the supply chain pro-
cess. This entails that network design must recognise the inherent physical
52 B. S. Bvepfepfe
Case Study
One of the flows that forms the key link in this supply chain is materials travel-
ling downstream to the end customer, for example feed to livestock, cattle to
abattoirs, beef carcasses to butchers and sliced steaks and portions to consum-
ers. Most of Southern Africa is suitable for livestock farming, for example
cattle, goats and sheep.3 There is evidence of increasing vertical integration
within the beef supply chain in this part of Africa. For instance, in some cases
feedlots own their own abattoirs and supply meat directly to consumers
through their own retail outlets, a form of forward supply chain integration.
On the other hand, wholesalers buy live animals at auctions and slaughter
these at abattoirs of their own choice for distribution to retailers. In Namibia,
wholesalers allow consumers to buy carcasses directly from them. The net-
work requirements for this supply chain include feedlots for live animals,
appropriate transport systems, watering points during transportation (when
necessary), abattoirs, and downstream, wholesalers, butchers and other
retail outlets. Of course, sustainable supply chain operations should also
consider upstream flows, sometimes referred to as reverse logistics in the
form of returns or rejects. Note that this is a typical supply chain for local and
domestics markets, and where regional or international markets are con-
cerned there will be additional links that must be considered. For instance,
import and export networks for international markets become paramount
considerations in light of the safety restrictions that may be necessary. This
will change the dynamics of the design and organisation of the supply chain
network. For instance, in our previous illustration of a beef product supply
chain we can add more nodes or location of distribution points (Fig. 3.2)
Export Import
Storage Storage
Location Locations
Fig. 3.2 International supply chain for beef products. (Source: author)
Supply Chain Network and Logistics Management 53
both for import and export, as this is a key decision factor for the supply
chain performance. Using the same products for an international supply
chain requires an additional network of storage facilities in export and
import countries. This is necessary to ensure compliance with export and
import health and safety requirements for the product. The nature of the
product and mode of transportation dictates not only the speed of move-
ment, but also whether it requires special handling and packaging during
storage, loading and transportation along the supply chain network. It has
been noted that in a majority of cases, goods are held in terminals or transit
points unnecessarily because of insufficient documentation, resulting in
costly repercussions on supply chain networks and operations.
To the above six “rights”, we can add a seventh right: with the right paper-
work (information flows). Information is another of the key flows that
has caused losses and much pain for logistics and supply chain operations.
Logistics management, defined as the integrative process that seeks to
organise the above flows will succeed through adequate information sys-
tems. (Christopher 2016). This is a key competence that enables organisa-
tions to sustain their position in the marketplace by improving its supply
chain visibility. It has been argued that because of the globalised nature of
some supply chain operations, the effectiveness and efficiencies of opera-
tions have been hampered by inadequate and, at times, inaccurate docu-
mentation. In some cases, logistics and other support staff do not seem to
fully appreciate the importance of information flows for planning and
execution of supply chain operations. The adoption of information techol-
ogies in Africa lags behind other regions, and in most cases, information
flows are still based on the manual input of data.
The idea is that supply chains are activities and/or networks of activi-
ties including organisations that are linked in the process of supply and
54 B. S. Bvepfepfe
Upstream Downstream
From this, it can be argued that logistics and transport efficiencies are
inter-related with the profitability of businesses. Consider how a reduc-
tion of inventory holdings through effective logistics planning and effi-
ciencies in information systems can lead to a lowering of total costs in
supply chain operations. The capabilities of effective logistics services
(logistics competence) in responding to demand variations with short
lead times (LTs) provide a much need differentiation in the marketplace.
For example, Kenya has surpassed other larger economies like India to
become the third-largest emerging market in trade with European Union
(EU). This is attributable to its supply chain improvements in air
export capabilities, thereby positioning itself as a favourable logistics hub
for perishable freight within the region. The key influencers for these
capabilities are network design and logistics management informed deci-
sions in the following:
Opportunities Threats
Strengths Limitations
South Africa
11%
17%
East Africa
Franco Africa 15% 12%
Rest of North Africa
Rest of Sub Sahara Africa
Fig. 3.5 Household consumption by 2025. (Source: author from data Oxford
Economics: IHS; African Development Bank; McKinsey Global Institute analysis)
demand for consumer goods and services, for example transport services.
Household consumption was USD 1.4 trillion in 2015 and is expected to
grow at 3.8% a year to reach USD 2.1 trillion by 2025. Africa’s consump-
tion growth rate is second only to that of Asia (MGI 2016). Sub-Saharan
Africa has a high growth rate of 79%, combining the figures of Nigeria,
SA, East Africa and the rest of sub-Saharan Africa (Fig. 3.5). Projections
show that for countries such as Nigeria and SA with a high household
expenditure, the demand for logistics services would be higher than else-
where on the continent. Another observation is that a notable percentage
of these consumers are emerging as “affluent” consumers who will
demand more than just basic goods, thereby expanding the demand vari-
ability. In all cases, the retail market segment is expected to grow with a
resultant demand for responsive logistics and supply chains.
The business to business (B2B) market segment is growing in some parts
of Africa, with the highest expenditure of more than 50% recorded for raw
materials for production; 16% on capital equipment; and the rest on finan-
cial services, transport and telecommunications (MGI 2016). The key sub-
sectors for B2B in sub-Saharan Africa are agriculture and agro-processing;
construction; wholesaling; retail; and transport. A more detailed analysis of
the market would go beyond the objective of this chapter. What this sec-
tion reveals is that logistics and supply chain demand is likely to grow in
response to the projections from the analysis. Earlier, we noted that logistics
management is concerned with aligning operations to fit the supply chain
network design. This expectation enables operations to be streamlined to
avoid unnecessary bottlenecks that may arise from the prevailing business
environment—remember that effective and efficient logistics and supply
60 B. S. Bvepfepfe
chain operations remain the key differentiator within the globalised com-
petitive environment. The logistics and supply chain planners will face
these inherent gaps in their search for opportunities to enhance or improve
supply chain performance.
3.3.1.2 Sourcing
Supply sources and capabilities are a key influence on the design decision
for supply chain networks. For instance, the locations of suppliers and
customers have an immediate impact on the size and complexity of a
network. Often the effective and continuous supply of goods and services
are hampered by a lack of adequate assessment and appraisal of supply
sources. The result of these failings can mean that the cost of goods
becomes highest component of the total supply chain cost. The need for
an integrative approach at an early stage of the supply chain operation is
essential. Organisations should aim to select suppliers that will align with
the overall customer service objectives. The notion that suppliers are con-
sidered an extension of an organisation’s business or network entails effort
in the appraisal of supply sources to ensure continuity and reliability of
supplies.
When negotiating with suppliers, organisations should ensure that
contractual terms of supply are aligned with its supply chain strategy.
Challenges arise when the bargaining power of an organisation is less
than that of a supplier, especially in regions with unfavourable supply
conditions like developing countries. In some of these regions, most
projects are funded by national governments or bodies like the World
Bank (WB) that will insist on some form of competitive bidding for
the selection of suppliers. Competitive bidding and associated rules
may present challenges to organisations trying to collaborate with
suppliers in order to maintain long-term, sustainable relationships.
Overall, the sourcing and procurement strategy should be based on an
appropriate portfolio analysis that enables sourcing from those sup-
pliers that match the criteria of the network design. This ensures that
the trade-off opportunities, in volume, packaging, transportation and
associated costs from network capabilities can be maximised from
source activities.
Supply Chain Network and Logistics Management 61
3.3.1.3 Transportation
and investment may view this increased cost as a “tax” or risk of doing busi-
ness with the region, making the region less competitive for foreign direct
investment and international trade opportunities. A more detailed account
by mode of transport will follow in next sections.
3.3.1.4 Production
The potential for Africa to enter and compete for manufacturing produc-
tion against East European and Asian countries requires an effective sup-
ply structure that can be benchmarked against global standards in
manufacturing processes.5 The main opportunities for manufacturing lie
in the food and beverages sectors; cement and petrochemicals; clothing;
and automotive sectors. Already, North Africa has taken advantage of its
proximity to European markets in the manufacturing of clothing and
other related goods. There are projections that Africa is capable of dou-
bling its manufacturing capacity provided the right business environ-
ment prevails. These sectors are highly competitive, with innovation and
quality being the key differentiators (MGI 2016). For instance, materials
requirement planning (MRP) systems for the continuous flow of materi-
als and components into the production process requires removal of some
of the institutional barriers to effective supply chain operations. These
include reducing border-related complications for upstream operations,
such as corruption and restrictive customs regulations.
While these are considered macro-environmental externalities, they
are still important to supply chain design and network effectiveness and
overall efficiency. On a micro level, manufacturing processes are expected
to be synchronised with other supply chain operations. The key efficien-
cies are based on a lean philosophy, that is, producing more with less, the
elimination of waste or non-value adding activities from the pipeline,
while responding to the market.
3.3.1.5 Warehousing
that include the final assembly of goods, packaging and labelling before
delivery to customers.
Warehousing operations have transformed supply chain operations sig-
nificantly, through numerous value-adding processes. The upstream and
downstream links offer a variety of LTs with warehouses (or appropriate
logistical nodes) operating as de-coupling points to balance the require-
ments of demand, supply and consumption. In Africa, the supply of basic
commodities is subject to seasonality, and the ability to store produce in a
reliable way in itself offers opportunities to businesses to maximise returns
by spreading sales over time rather than being forced to sell at low prices
during harvest time. National governments struggle with the ravages of
drought and pestilence, and the effective use logistics and the proper storage
of produce during periods of good harvest can alleviate severe shortages.
Public warehouses are usually funded from pubic money or, as in some
African countries such as Zambia and Tanzania, through donor funding.
In addition to the strategic storage of farm produce, these warehouses or
grain silos, also act as linkages between finance institutions and suppliers,
wherein suppliers are paid for deliveries into these storage facilities, with
final marketing and distribution taking place at a later stage in the supply
chain. Public warehouses are also required by customs, especially for
imported goods, and also as government central stores for distribution
and storage of medical supplies.
The other class of warehouses is private warehouses, often run and
financed from private funding. These warehouses play various roles in
supply chain operations, depending on the strategy the business has
decided upon. As seen in Fig. 3.6, supply chain networks require ware-
houses for the storage of raw materials for production processes and for
the storage of part-finished goods awaiting final assembly. Warehouses
are also required for positioning finished goods within market segments,
for example a number of manufacturing organisations such as Japanese
Canon have set up distribution centres in Dubai to serve markets in the
Middle East and Africa (Manners-Bell et al. 2014).
Whether public or privately funded, warehouses are crucial for effec-
tive logistics and supply chain operations. This means that key decisions
regarding their purpose, number, location, design and layout requires
careful consideration. Among the factors determining the location of
warehouses are the state and availability of infrastructure, transport links
64 B. S. Bvepfepfe
WIP
Semi-finished
goods
Assembling
DCs Finished
goods
3.3.1.6 Information Flows
design for the information systems that will facilitate logistics and SCM.
Information, communication technology (ICT)—a key driver for infor-
mation flows—has experienced significant growth with a large percent-
age of the population in Africa within reach of a GSM signal. There is
also an increase in the number of people with mobile phones, although
access to the internet is still limited in some parts of the continent. In
research conducted by an Industrial Development Corporation (IDC)
company in South Africa, it was revealed that although the adoption of
digital devices for data capture is maturing within logistics and transport
operations, there are still substantial opportunities for improvement.
There is evidence that technological and communication advances have
been made in Africa through the use of mobile phones and other social
media platforms. In SA, the use of mobile phones for surfing the internet
is on the rise (see Fig. 3.7). Around 39% of mobile phone owners in SA
use their devices for internet use, providing opportunities for omni-
channel sales and distribution.
For instance, it is reported that nearly 80% of logistics functions still
use paper forms and 52% of the data is input manually. More concerning
is that one-fifth of the data captured manually is not entered at all. This
leaves only 28% of the data being entered either using a digital scanning
process or through the use of a digital pen.
There is scope for improved information flows by adopting emerging
technologies. In the SLOT analysis, one of the key opportunities for
Mobile device
Work or Personal
Computer
Desktop Personal
Computer
Tablet
Other device
Unsure
Fig. 3.7 Internet use by device in SA. (Source: author computation of data from
IDC company)
66 B. S. Bvepfepfe
become key strategic decisions for effective and efficient logistics opera-
tions. This requires sound analytical skills being used to examine the
information collected, generating options that can be evaluated to pro-
duce sustainable decisions.
Supply chain decisions are considered mainly in terms of tactics
because they focus more on delivering corporate objectives. This relegation
of supply chain decisions has, in most cases, militated against the effec-
tive performance of supply chain operations. For instance, one of the
reasons advanced for the poor performance of medical supply chains in
developing regions like Africa, is that supply chain decisions are not
accorded a central role in the formulation of an overall strategy. In Kenya,
a national malaria control campaign in 2009 failed because SCM was not
68 B. S. Bvepfepfe
3.3.4 Distribution
• customer experience;
• product variety; and
• returnability.
The market segment and size of an order will influence the decision on
network design in terms of number and location of distribution centres.
Lead time (LT) is the time between identification of a need or receipt of
an order and the time that the need is satisfied or delivery. In addition to
transportation LT, there are a number of other activities that take place
within the distribution network that will also influence the total
LT. Product availability depends on the distribution network setting up
acceptable stockholding levels within strategic locations. This raises
another problem associated with supply chain inventory holding, that is,
the “bullwhip effect” or “Forrester Effect” that increases supply chain
stockholding and total costs. Supply chain network design would not be
complete without consideration and provision of the return loop in the
form of returns of unwanted goods, reworks and other waste resulting
from operations.
Once a firm chooses a mode of transport it can then decide on the logis-
tics network design, which has a major influence on customer satisfac-
tion. Considering the characteristics of products being moved, the
network design needs to ensure that the handling of these goods is timely
(for example perishables need the shortest LT possible). When these
goods arrive at their destination, they must be unloaded with minimal
delay and, if required, stored in temperature-controlled rooms to await
the next movement.
Perishable items such as flowers from a farm in Kenya (currently lead-
ing flower exports in Africa) are transported by road to Jomo Kenyata
airport through either Amsterdam or Dubai for delivery to the market-
place. These flowers are offloaded from the aircraft and stored in
temperature-controlled transit rooms and then cross-docked to 3PL, to
the distributor/retailer and then the end customer (Fig. 3.9). This par-
ticular logistics network design for perishable items is one that has a very
short LT. As noted within this market sector, flowers that are distributed
Supply Chain Network and Logistics Management 73
Upstream Downstream
Export Import
Storage Storage
Location Locations
directly from farm to markets are of better quality than those that have a
longer distribution channel. The challenge for this supply chain is to find
a network that can support the market demands for quality fresh flowers,
minimising handling and time to market.
The network design also involves multi-modal transport using
temperature-controlled lorries. Dubai airport’s logistics department is
continuously looking for new ways to reduce touch-points and LTs.
within some of the countries will spur growth of formal retailing through
shopping malls and large supermarkets. Kearney (2014) noted the low
growth in this formal retail sector as an opportunity for supply chain
operations. The key players on the scene include Shoprites in Southern
Africa, Carrefour in Western Africa and Nakumatt in East Africa. As this
retail opportunity presents itself, logistics and supply chain capabilities
should prepare for a corresponding increase in demand for their
services.
While it is an acceptable economic fact that the demand for transport
and logistics services is a “derived” demand (Rodrigue et al. 2016), effi-
cient logistics and supply chain operations can also have a catalytic effect,
becoming a key enabler for successful growth in retail initiatives.
Designing quick-response supply chain operations (Christopher 2016;
Rushton et al. 2014) will become essential. Information sharing between
demand and order fulfilment, through efficient replenishment systems
and effective deliveries are key performance areas for effective logistics
and supply chain operations.
In order to compete for inclusion in global supply chains, African
countries and others have to address institutional barriers to international
business, such as excessive bureaucracy, customs procedures, laws, finance
and personal security, and improve basic infrastructure. This operational
risk is really important in developing and emerging countries. For exam-
ple, India has one the world’s fastest growing economies but supply chain
challenges remain due to the poor infrastructure. It has a complex tax
infrastructure, weak distribution system, fragmented market and lack of
technology. India has the second largest road network in the world, total-
ling 4.2 million kilometres; most of it is of poor quality. Due to the
country’s weak distribution network, many retailers maintain high levels
of inventory. Retailers will need to invest in innovation systems and skills
development as well as maximise linkages to commodity exports.
USA. The main reasons for this poor state of the transportation system
range from inadequate investments in infrastructure, under-utilisation of
existing systems and lack of management and operational skills. Logistics
and transport systems play a pivotal role in successful supply chain opera-
tions. A major barrier to economic development is the limited access to
consumer markets and restricted capacity. However southern African
infrastructure is considered to be better developed than in West and East
Africa. The main aspects here reflect the volumes to be moved and stored,
where and when. The movement modes attract a range of potential unit
costs and we examine them in greater detail here.
Sea
While around 90% of Africa’s international trade is by sea, it is reported
that lack of infrastructure and port delays are a major concern for logis-
tics and supply chain operations. It is generally accepted that movement
of freight by sea achieves lower unit costs and all goods can be taken.
However, slower delivery speeds have increase supply chain LTs.
20
no. of days
15
10
Fig. 3.10 Port cargo dwell time. (Source: author from computation of data from
Kgare et al. (2011))
the benchmark not only for southern African ports but also sub-Saharan
ports (Fig. 3.10). Collaboration between key stakeholders in public sec-
tors involving customs, port authorities and the private sector (shipping
lines, freight forwarders and customs brokers) resulted in a reduction of
cargo dwell time in Durban (Kgare et al. 2011)
The approach that Durban port authorities took to manage the cargo
dwell time was to split times into specific components, for example oper-
ational, transactional and discretionary times.8 This enabled to port
authorities to identify and reign in the key players who contributed to
dwell time, providing incentives and enforcement to reduce and manage
port operational flows. A pricing strategy was also applied with the same
view of encouraging speedy transactional processes and discharge of
goods to reduce congestion and bottlenecks within storage facilities.
Rail
Railway transport is considered attractive regarding unit cost against
other modes of transport and can transport all goods. However it has
limitations in routes, timings and cargo safety. Today, it is being used
more and more for continental and national freight movement. In
Supply Chain Network and Logistics Management 77
Africa, railway transport has been used mainly for freight movements
and is currently experiencing stiff competition from road transport. Rail
freight movements reflect typical natural resources and economic struc-
tures in different countries, for example minerals movement in Zambia,
Ghana and SA; and grain, coffee and cotton in southern and West
African countries. There is also intra-regional and international con-
tainer traffic that can best be moved through railways, with opportuni-
ties for inter-modal freight operations. Large organisations have
embarked on strategies to increase the proportion of rail movements
within the next three years.
Air
Air movement has increased significantly over the past decade, which
would appear to be contradictory with the need to reduce costs. The dis-
advantages of air transport include the high cost of transporting prod-
ucts. Due to the limited capacity of aeroplanes, air transport is not
suitable for transporting bulky products compared to other modes such
as sea, rail and road. However, it is the fastest mode of transport and has
no physical barriers compared with other transport modes. Political
boundaries are also immaterial as long as legal requirements are observed
and international laws are followed.
However, some of these advantages are not fully realised in Africa. For
example, while it is accepted that air transport remains critical to Africa’s
network integration and for global supply chain operations, inadequate
airport infrastructure and unsatisfactory performances of many national
air transport operators presents major problems for shippers (Gwilliam
2011). However, compared to other transport modes, air transport has
the supreme advantage of speed. Although it is accepted as a higher unit
cost mode, air transport offers a rapid transit of goods (though not all
goods can be transported by air as there are restrictions on hazardous
materials).
Within Africa, air transport is considered as making a great contribu-
tion to regional and economic development. Air transport has the poten-
tial to open up global markets by connecting Africa with the rest of the
world through the key flows of supply chain operations. Agricultural pro-
duce can be moved to global markets with short LTs, as is the case with
Supply Chain Network and Logistics Management 79
beef products from Namibia and fresh flowers from SA and Kenya.
Investments in air transport will enhance the opportunities for manufac-
turing industries to locate to the region because just-in-time supply
chain principles can become possible, making Africa another location for
offshoring of production for some organisations. Investments in air trans-
port facilities improve connectivity between countries and their respective
international trade partners and increase economic development. However,
few airports have direct international links but some, like Johannesburg
and Cape Town in SA, Nairobi in Kenya, Cairo in Egypt, Lagos in Nigeria,
Addis Abba in Ethiopia, and Accra in Ghana, have earned the status of
regional hubs connecting Africa with the rest of the globe.
There are immense opportunities in the growth of air transport in
global supply chains for Africa (Schlumberger 2010). These include
trade-offs between movement unit costs, inventory costs and service LT
commitments. With the current cost models it would appear to be ben-
eficial to reduce inventory and operate a much faster response system
(quick response (QR)). The opportunities for physical integration of the
continent against the inadequacies and weaknesses of other modes of
transport make air transport a vital link in the supply chain network in
Africa. While there has been a significant increase in air traffic over the
last decade (CAPA 2013; Njoya 2016), it has been noted that up to 80%
of inter-continental traffic between Africa and the rest of the world is
operated by non-African airlines (Chingosho 2013).
There are opportunities for African airlines to play a significant part in
this growth area, given that air transport in Africa is expected to grow by
5.7% per year, which is greater than the world average of 4.9%
(Schlumberger 2010). The Yamoussoukro Decision on an open skies
policy that came into effect in 2009 encourages greater participation of
continental airlines in this growth area, although it focuses more on intra-
Africa air transport (Schlumberger 2010). SA has a different air transport
network, which is experiencing significant growth estimated at 30% by
2030 (Mannes-Bell et al. 2014)
Road
Road transport is the most important mode of travel within most coun-
tries. In the context of international logistics and distribution, road
80 B. S. Bvepfepfe
In order for road freight transport to provide a fast and effective logis-
tics service, it is essential that infrastructure comprising of roads network
and associated transhipment points are adequately available. This will
enable appropriate planning for logistics operations that will balance ser-
vice levels with costs. Schedules can be worked into route planning and it
can be highly competitive from a cost viewpoint. For example, trunk-
ing services or primary transport movements involves large capacity vehi-
cles making, thereby reducing the unit freight costs. There is a reduced
double handling for direct, full load deliveries. This freight operation also
saves transit times and minimises the likelihood of freight damages.
Packaging costs can be kept low because loads are less prone to excessive
movement in transit compared with other transport modes. However,
road freight transport is vulnerable to time delays, especially where the
network is poor and inadequate. This combined with the lower speed can
be deemed as disadvantageous. For example, the road access rate in Africa
is recorded as only 34%, compared with 50% in other parts of the devel-
oping world, and transport costs are therefore higher by up to 100%
(AfDB PIDA 2013).
The realisation of a “trans-Africa road” network has been on the draw-
ing board for some time now. The idea was mooted, around 1890, in
Cecil John Rhodes’ vision of the Cape to Cairo rail linkage. More recently
there is evidence of political will to tackle logistics and transport network
problems in order to realise the benefits from trade and resultant eco-
nomic development for Africa Through initiatives such as Programme for
Infrastructure Development in Africa (PIDA), the region aims to set the
agenda for strategic infrastructure projects aligned with Africa’s long-
term goals and highlights the importance of regional infrastructure for
Africa’s growth.10 This should see the creation of major road networks
linking the rest of the continent with major economies and ports. For
Supply Chain Network and Logistics Management 81
Some of these cities are linked by road networks that are in too poor a
condition to achieve smooth flows of goods and services. This, coupled
with border delays and processes, will further inhibit sustainable eco-
nomic growth for the region. The above highway development projects
are estimated to create 56,683 kilometres of road networks (Manners-
Bell et al. 2014) and when successfully completed to full operational
state, should provide much needed inter-connectivity for Africa’s regional
supply chain operations.11 Some form of private–public partnership may
be appropriate for this scale of investment and capital expenditure, as
current financial capacities at national levels may show a shortfall. The
immediate plan for governments in Africa is to ensure that existing road
networks are maintained at acceptable levels, rather than wait until the
network has collapsed entirely, requiring even more resources.12
Inter-Modal Transport
Network providers and shippers in Africa should now consider the oppor-
tunities for inter-modal freight in order to make optimum use of current
resources and gain from reduced costs for their supply chain operations.
There is evidence to suggest that inter-modal freight movement is the way
forward. So far, evidence suggests that there is a higher growth rate in
freight movement by road with that of rail transport being in decline.
This is not good news from socio-political and economic perspectives as
railways are considered to be a more sustainable mode of transport over
82 B. S. Bvepfepfe
Political
Independence from political setups in most sub-Saharan countries
resulted in the withdrawal of much needed skills and investment from
former colonial powers. For example, when France was expelled from
Guinea, it reacted by withdrawing all resources and support from the
country (Gwilliam 2011). Zimbabwe’s land reform programme resulted
in similar reactions from major financial institutions aligned to former
colonial powers. The net effect of changes like these was that some major
transportation projects were abandoned uncompleted, and no new
investments have been forthcoming for much needed rehabilitation and
expansion of the network.
Operational Risk
To operate to international supply chain standards, companies need to
ensure that they have completed the right paper work and follow the
strict regulations set by the customs of the country they are transferring
products to. It is important to do this in order to avoid products being
held at a border, causing a shipment delay. Delays can negatively raise the
84 B. S. Bvepfepfe
Sustainable logistics and supply chain operation are essential for eco-
nomic growth and development in Africa. In terms of infrastructure pro-
vision, there are immense opportunities for developing effective and
efficient logistics and SCM in Africa. Collaboration between the private
and public sector in the management of operations and provision of
essential network resources will go a long way towards sustainability of
supply chain operations.
There is evidence to suggest that investments in transport infrastruc-
ture can enhance opportunities for supply chain network design, result-
ing in improvements in customer service and economic growth (Fig. 3.11).
Supply chain network design requires careful selection of the key link-
ages that facilitate the smooth flows of goods and services with minimal
Improved
accessibility Improved Enhanced
return on customer
investment service
Investment Improved Improved
transport lead times logistics
Increased Enhanced
Infrastructure and supply
business economic
& Logistics chain
operations growth
Management Improved operations
productivity
Improved Increased
competitive investment
Cost ness opportunities
effectiveness
disruptions and with the least cost to end customers. Logistics manage-
ment is about seeing the bigger picture, opportunities and threats within
an operational environment in relation to the key activities of the supply
chain. Decisions are sustainable if they are made after careful analysis of
information in relation to the markets, transport infrastructure, the
nature, origin, destination, distance and the possibility of movements to
be realised.
3.6 Conclusion
There is a need for sustainable supply chain networks in sub-Saharan
Africa in order to deliver a good level of service from a logistics manage-
ment perspective. The region has great potential for both investment
opportunities and economic development. Several factors are influential
in providing Africa with a comparative advantage, due to its rapid growth
in GDP over other regions, its abundance in natural resources like miner-
als, thereby enabling the region to benefit from the globalised supply
chain operations. However government policy, commitment and inves-
tor confidence are a key factor in making Africa an attractive value chain
location for supply chain and logistics operations.
Nonetheless, supply chain managers making the right decisions,
informed by a sound appreciation of the logistics and supply chain
demands of their marketplace should facilitate this comparative advantage
for Africa as a key value chain location in global supply chain operations.
Earlier in the discussion, it was noted that from the 1970s, several
firms in Japan offshored unskilled labour-intensive manufacturing to
South Korea, Chinese Taipei, Hong Kong and Singapore. In recent years
these countries have become global supply chain hubs, offering gateways
to international freight movements into developed countries. It is argued
that for Africa, investments in efficient and effective logistics and trans-
port networks will provide this much needed comparative advantage,
thereby stimulating economic development and improving growth rates.
There is scope for sustainable supply chain operations through effective
logistics management in network design through continuous search for
synergies and associated trade-offs within the pipeline.
86 B. S. Bvepfepfe
Notes
1. China is a major importer of coffee from Uganda; wine from SA, olive
oil from Tunisia and tobacco from Zimbabwe. However the FT
(December 2015) reported a contraction of Chinese imports from
Africa, although the exports to the same region show an increasing trend
during the same period.
2. Sub-Saharan Africa has experienced impressive and sustained economic
growth and development. Some of that growth is powered by natural
resources and policies that are opening up more markets and attracting
investments (Canning et al. 2015).
3. Southern Africa countries suitable for livestock raising include SA,
Namibia, Botswana, Zambia and Zimbabwe.
4. For example, the national malaria strategy for Kenya lacked a supply
chain component until it was reviewed in 2009. This limitation resulted
in ineffective supplies and poor accessibility to essential drugs for the
programme (Riungu 2016).
5. “Manufacturing is a vital engine of economic development, but Africa’s
economies overall have under-performed. As Africa’s economies have
grown and diversified over the past two decades, there has been a steady
increase in manufacturing output—indeed, a rapid increase in Ethiopia
and Tanzania, in particular” (MGI 2016). MGI projects that manufac-
turing capacity in Africa is likely to double by 2015 resulting in demand
for logistics and supply chain operational activities.
6. “In 2010, the aviation industry in Africa supported about 7 million jobs,
including 257,000 direct jobs, which were worth about US$67.8 billion
of the continent’s GDP. 57 Air transport plays a critical role in facilitat-
ing healthcare access, humanitarian assistance, the movement of prod-
ucts to global markets, tourism, and the creation of businesses”
(Schlumberger 2010).
7. The new port of Kribi, 150 km south of Douala, will effectively replace
the latter as the country’s principal port, and with a 16 metre draught, it
will be capable of handling vessels of up to 100,000 tonnes (Kgare et al.
2011).
8. Operational dwell time is mainly the time to unload vessels and store
goods in yards. It mainly depends on the efficiency of the port and the
availability of equipment combined with the level of occupancy of the
storage facilities. Transactional dwell time mainly concerns the transac-
Supply Chain Network and Logistics Management 87
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4
Freight Transport Technology: A Cost-
Effective/Time-Efficient Solution to Sub-
Saharan Africa’s Logistics Problems
David Burl
4.1 Introduction
Centring on land transport, and focusing primarily on road freight,
Africa’s key freight transport problems may be stated as follows: over-
loaded vehicles (per operating trip); under-utilised vehicles (per operat-
ing period); use of older vehicles; delayed vehicles at transit points (e.g.,
inland depots and ports); poorly trained vehicle operatives; low-quality
local/intra-regional road networks; and high road freight transport prices.
Inter-modal containerisation, via a process of freight unit standardisa-
tion, could contribute to the solution of many of these problems. For
example, a standard (10 or 20 ft) container could be filled with a set
quantity of standard plastic crates; this could result in high “unit load
device” utilisation, and prevent vehicle overloading (as containers are
normally weighed before being loaded onto sea transport). Even oligopo-
listic pricing policies could be partially counteracted via the standardisa-
tion of the freight unit (and its component subunits) as it would result in
D. Burl (*)
CAREED, Paisley, UK
umes and order levels. Essentially, where distribution systems are ineffi-
cient, trade volumes will be relatively low and transport technology
investment limited. But that investment is a precondition for increased
trade flows, requiring a positive form of speculative investment—in a
word, “vision”—(see Havenga 2010).
The focus of this chapter is on transport vehicles as opposed to trans-
port infrastructure, technology, although there is some consideration of
distribution centres—for example, inland container depots. The solu-
tions proposed are technological, but it is critical to recognise underlying
socio-cultural dynamics. For example, the issue of vehicle overloading
may be resolved technically, but it is also the product of endemic short-
termism associated with a culture of uncertainty. This in turn is a conse-
quence of environmental instability, associated with limited political,
institutional and organisational development requiring the complex,
long-term process of capacity building (Eade 1997).
It important to note that transport technology has both soft (i.e.,
informational) and hard (i.e., material) dimensions. Problems associated
with both dimensions are evaluated, and solutions explored in the subse-
quent sections of this chapter. Although the discussion that follows may
not provide definitive solutions to the problems identified, it will, we
hope, stimulate reflection, which will lead to operationalisable remedial
action.
Sub-Saharan African road freight transport is typified by the image of
a vehicle that is out-dated, non-specialised and overloaded. These trans-
port technology deficiencies have major consequences for cost, efficiency
and reputation for the relevant transport operators (Naude and Matthee
(2007). Technologies are available at a cost that is moderate relative to
less developed country development projects. However, such projects can
be relatively low profile and the associated technologies and benefits only
really apparent to specialists—theorists and practitioners. The key prob-
lems are related to terrain and materials handling. In terms of terrain, the
principal deficiency is that smooth terrain vehicles appropriate for paved
routes are imported from advanced industrial countries and utilised on
unmade routes requiring rough terrain vehicles. Inevitably, vehicle break-
downs occur that reduce efficiency, increase costs and impair transport
operators reputations. In relation to materials handling, the efficiency,
cost and reputational damage are less obvious, but are nonetheless signifi-
94 D. Burl
cant. The fundamental problem is that both the freight unit (bale, crate,
carton, case, bulk, etc.) and the transport unit (flatbed, van body, bulk
tipper, etc.) are non-specialised and non-standard. These factors result in
a mismatch between vehicle and cargo that, again, negatively impacts
efficiency, cost and reputation. Solutions to these problems are, arguably,
impeded by a perceptual disconnect between First World and Third
World conceptions of appropriate operational standards. Significant
improvement in practitioner practices is dependent on the mutual recog-
nition of industry standards that transcend economic and socio-cultural
barriers (see Wigan et al. 2000). The structure of this chapter is as fol-
lows. Section 4.1 comprises an introduction. Section 4.2 classifies routes/
road networks in terms of two dimensions: route type (origin/destination
points); and route status (route quality). Section 4.3 is concerned with
the classification of road freight vehicles in terms of body type and cargo
capacity. Section 4.4 examines load type (break-bulk/bulk, etc.) Section
4.5 discusses the realisation of road freight transport efficiency via an
effective combination of the factors presented in Sects. 4.2, 4.3 and 4.4
(viz. route type/status; vehicle type/capacity, etc.). Section 4.6 considers
the issue of terrain/route factors and their technological implications.
Section 4.7 attempts to exemplify the optimisation of efficiency via the
effective combination of trip and transport technology. Section 4.8 evalu-
ates a number of organisational issues related to road freight transport,
including the function of cargo hubs, rationalising logistics administra-
tion and so on. These are soft systems initiatives designed to solve the
problems delineated in this chapter and to significantly ameliorate road
freight transport provision in the sub-Saharan African environment.
Section 4.9 contains concluding remarks.
and outbound logistics, which are the focus of this chapter. Substantial
improvements have been made to the trunk components of the network,
which is partly financed by Chinese foreign investment (Foster 2009)
and incentivised by access to raw material resources.
The absence of advanced industrial country institutional development
in the SSA context has impacted seriously on transport planning (espe-
cially route planning) functions. Runji (2015) emphasises the impor-
tance of this capacity building. The result has been ad hoc route
development serving, for example, local agricultural or national commer-
cial interests (typically servicing the primary sector/extractive industry).
A major consequence has been the absence of systematic route integra-
tion. Africa Transport Policy Program (a major multi-national transport
development agency) emphasises the criticality of realising integration
and connectivity in a given transport network. Brushett (2005) provides
a broad perspective on African road transport infrastructure.
National geopolitical interests have retarded the development of inter-
national corridors, and sub-national (tribal) geopolitics has acted as a
brake on intra-national and local route development. The result has been
roads to nowhere—localised road network development critically defi-
cient in terms of general connectivity and geared to economic sector-
specific or political objectives (Rabelland et al. 2008). The requirement
for broader network linkages is emphasised in overarching policy objec-
tives. Runji (2015) cites the need for international road network connec-
tions. Essentially, current paved/all-weather connections centre on city to
city, city to port, and primary sector industry to port, leaving extensive
rural areas significantly under-served.
In relation to current road transport technology, it is evident that a
comprehensive network of paved routes is desirable as a long-term invest-
ment objective. However, the fast pace of technological development
contains an implicit caveat. A hypothetical breakthrough in hover vehi-
cle technology, for example, could render permanent ways redundant.
Given the vast physical and financial requirements for a total pan-African
road system, some caution should be exercised in relation to a “track”
solution to the problem. The alternative vehicle solutions are considered
in Sect. 4.5.
96 D. Burl
4.3.1.1 Route Type
1. RC/UC
2. RC/P
3. UC/P
The road freight transport requirement for this route type would be the
consignment of manufactured (finished/semi-finished) goods to the
port against international contracts. Relevant transport technology is
considered later.
4.3.1.2 Route Status
not. This is outside the direct control of the haulier, but solutions—to
which the road freight vehicle operator may contribute—are considered
in Sect. 4.7.
4.6.2.1 Rigid Vehicles
This type of road freight vehicle design comprises the integration of the
passenger (driver/operator) compartment and the cargo carrying com-
partment (body). Typically, its carrying capacity (expressed in weight, as
opposed to volume terms) is 0.25–20.00 metric tonnes. It is a suitable
design (as opposed to an articulated configuration) for this carrying
capacity and where manoeuvrability and local road ‘rolling load’ bearing
capability are constraints. Another road freight vehicle design—which
presents classification problems—is the road train or drawbar–trailer
combination. This does not constitute a conventional articulated vehicle
Freight Transport Technology: A Cost-Effective/Time-Efficient… 105
4.6.2.2 Articulated Vehicles
This type of road freight transport features a separable tractive unit (pas-
senger compartment) and trailer unit (cargo). It is suitable for trips where
a high cargo carrying capacity is required (20–30 metric tonnes) and
where manoeuvrability and road load bearing capacity are not con-
strained. Its primary advantage is operational and economic, permitting
a single tractive unit to couple/decouple trailers such that trailer loading
and discharge can proceed in parallel (as opposed to in series) with trailer
transportation. It presupposes the existence of minimum cargo volumes
and a network/cluster of transport users in a defined geographic area.
Again, this is typically problematic in sub-Saharan African regions (out-
side major urban conurbations/ports).
Road freight vehicle body types have evolved (in advanced industrial
countries) over the last 125 years. Early vehicles (late nineteenth and
early twentieth century) were characterised by low carrying capacity and
generic body designs. These were associated with relatively low volumes
of cargo from individual consignors. Pressure to rationalise vehicle body
design resulted from generalised/economy-wide mass production, which
developed during the First World War (1914–1918). Improvements to
consignment delivery schedules driven by user requirements (consignor/
consignee/final customer) resulted in operational pressure for (road)
haulage companies, consequently the design of road freight vehicles,
106 D. Burl
4.6.3.1 Flatbed Bodies
This generic road freight vehicle body design accommodates large, irregu-
lar cargo units that must be secured with ropes, straps, nets, tarpaulin and
so on. It is arguably the most versatile body design in that it can transport
every type of cargo/package. However, it provides minimal protection for
the load. The design permits extensive access for mechanised/automated
cargo handling equipment (e.g., forklift trucks).
4.6.3.2 Sided (Slatted/Closed-Sided)
This design encloses the cargo and places a constraint on the horizontal
dimensions. It does, however, provide high accessibility for loading/dis-
charging operations and, again, comprises a versatile cargo platform.
Typically, the (foldable) sides on a closed-sided design are lower (0.5 m);
and higher (2 m) on a slatted-sided vehicle.
4.6.3.3 Box Van
This is the standard road freight vehicle design for packaged goods (espe-
cially cartoned goods). It provides the cargo with a high level of protec-
tion against adverse weather and is secure. However, with the exception
of curtain-sided vehicles, it restricts the use of mechanised materials han-
dling equipment and cannot accommodate out-of-gauge cargo.
4.6.3.4 Bulk
This body type constitutes a high-sided open truck design and is used to
transport bulk (i.e., unpackaged) goods. Typically, it is fitted with a tipper
mechanism—operated by hydraulic rams—that massively accelerates the
Freight Transport Technology: A Cost-Effective/Time-Efficient… 107
Having considered the basic range of road freight vehicle body types
available, we proceed to a brief consideration of cargo types. This is
important because a match between these two factors is essential for effi-
cient, cost-effective materials handling and transportation. The classic,
quaint image of the general purpose African truck, overloaded with mul-
tifarious cargoes, has a serious negative impact on logistics costs and the
reputation of the regional/continental logistics industry. This, in turn,
impacts negatively on national, regional and international sourcing/pro-
curement decisions, inflicting significant economic damage.
4.6.4.1 Break-Bulk
This category covers any packaged goods. Broadly, this includes cartons,
cases, pallets, bales, bundles, carboys, and so on. Essentially, break-bulk
goods must be handled and transported as units, ideally with specialised
materials handling and transport technology. For example, forklift trucks
have specialised attachments for handling pallets, cartons, bales, and so
on. Break-bulk cargoes can be further classified as: high weight/volume/
indivisible loads (requiring low-loaders, heavy-lift cranes, etc.); low
weight/volume divisible loads; loose (low volume); and packaged.
4.6.4.2 Bulk
4.7.2.1 Vehicle Type
Basically, this breaks down into rigid and articulated vehicle designs,
which have implications for the selection of other elements: capacity;
body type; cargo type. Another critical factor in an SSA context is the
rough all-terrain versus smooth terrain capability on the part of the road
freight vehicle. This factor is considered in a previous section on route/
112 D. Burl
4.7.2.2 Vehicle Capacity
4.7.2.3 Body Type
Road freight vehicle body type is dictated primarily by two factors. Firstly,
cargo containment, within the boundaries of the vehicle body is a require-
ment for safe, secure and cost-effective transport. Secondly, materials
handling efficiency, which is discussed later. Vehicle body designs have
been outlined in a preceding section but essentially can be reduced to
Freight Transport Technology: A Cost-Effective/Time-Efficient… 113
bulk and break-bulk types. Bulk goods bodies themselves comprise the
freight unit and perform the key functions of packaging for the cargo
(i.e., containment, protection, etc.). Break-bulk goods bodies provide
secondary packaging functions, while the package itself (carton/crate/
case, etc.) provides the primary packaging functions. As far as materials
handling efficiency is concerned, the key considerations are the suitability
of the equipment for handling the particular freight unit (packaged or
unpackaged bulk quantity) and the accessibility of the vehicle cargo com-
partment. Any deficiency in these vital characteristics translates into
significant increases in cargo loading and discharging times, and signifi-
cant increases in logistics costs.
4.7.2.4 Cargo Type
4.7.3.1 Unmade Road
Gearing: Lower
Uneven road surfaces subject vehicles to the risk of grounding. This must
be counteracted by raising the vehicle body via the suspension units or by
another method.
Freight Transport Technology: A Cost-Effective/Time-Efficient… 115
4.7.3.2 Permanent Way
Essentially, this implies that tyres, suspension and gearing may be stan-
dard, as utilised in advanced industrial countries.
In later sections, stereotypical consignment categories are selected and
the requirements for their efficient handling and transportation are
outlined.
Palm Oilseed
• Route type: rural centre/port
• Route status: unmade road
• Vehicle type: articulated
• Vehicle capacity: 30 tonnes
• Body type: tipper truck
• Special equipment: tipping mechanism
• Terrain: rough terrain/all-terrain adaptations.
Craft Products/Giftware
• Route type: urban centre/port
• Route status: permanent way
• Vehicle type: rigid
• Vehicle capacity: 20 tonnes
• Body type: box van
• Special equipment: none
• Terrain: smooth terrain.
For this type of transit, higher volumes of goods are generated from urban
centres, permitting the use of relatively high capacity vehicles. Articulated
vehicles, featuring either box van trailers or general cargo containers
(based on skeletal trailers) can be utilised for this type of route. If the
transit were purely domestic, container units could be unstuffed at an
urban freight hub (containerbase). If the transit were international,
greater logistical efficiency could be realised utilising the containers’
inter-modal capability—that is, it can be transferred from road to sea
without unloading and reloading. This significantly reduces handling
costs (and transport costs) via reduced turnaround times for the relevant
freight transport unit (especially containerships). This type of transit can
use either full container loads (FCL) where a single consignor can gener-
ate a complete container load, or less-than-container-loads (LCL), where
small freight quantities can be delivered to a containerbase for consolida-
tion and onward sea transport.
In the next section, we consider in broad terms the benefits that pro-
fessionalisation of the sub-Saharan African road haulage sector could
provide.
Whilst the focus of this chapter is on the freight transport unit (vehicle),
the efficiency, effectiveness and economy (the three Es) with which it is
used is fundamentally dependent on the administrative infrastructure
that controls its operations. Central to this infrastructure is the ICT facil-
ity, which when rationally employed can beneficially affect the three Es.
The subject of logistics administration is divided into the following
topics:
3. consignment scheduling;
4. consignment scheduling constraints:
–– material types
–– consignor operating system
–– consignee operating system;
5. ICT systems.
4.8.4.3 Consignment Scheduling
Medium High
Consignor Production System Complexity High/Stockholding Consignor Production System Complexity High/Stockholding
Capacity Low Capacity Low
Consignee Production System Complexity Low/Stockholding Consignee Production System Complexity High/Stockholding
Capacity High Capacity Low
Supply Chain
Integration Levels
Low Medium
Consignor Production System Complexity Low/Stockholding Consignor Production System Complexity Low/Stockholding
Capacity High Capacity High
Consignee Production System Complexity Low/Stockholding Consignee Production System Complexity High/Stockholding
Capacity High Capacity Low
ICT Systems
4.9 Conclusions
Sub-Saharan logistics per se (in particular road freight transport) has been
characterised by technical and financial under-investment. This is con-
textualised by a general resource privation, specifically impairing institu-
tional development (particularly organisations responsible for technical
education and professional development in the logistics/freight transport
domain). The problem may be addressed on a bottom-up basis, by iden-
tifying the critical components of road freight transport and achieving
incremental, but significant, improvements in these areas. As far as
transport technology is concerned, the key factors are: vehicle type; body
design; cargo type; and packaging form. These must be related to road
network specifications, in particular dichotomising them into rough and
smooth terrain sections. Associated with this analysis are materials han-
dling technology and equipment specifications. Contextualising this is a
requirement for organisational development, specifically cargo hubs for
sorting and consolidating consignments and the formation of profes-
sional logistics (road haulage) firms that can systematically and compre-
hensively apply the identified technologies that have been long extant in
advanced industrial countries. In order to expedite national, technologi-
cal progress, it is essential for sub-Saharan African nations to leapfrog
outmoded (transport) techniques, and so the issue of supply chain inte-
gration has been outlined. Bottom-up initiatives are, by definition, small
scale and progressive, and for that reason would be amenable to an action
research approach. This method would research defined (road freight
128 D. Burl
Notes
1. Permanent ways comprise macadamised or concrete roads/routes.
2. The phrase “frequencies of individual firms” refers to how often the out-
put is generated for transport purposes.
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Freight Transport Technology: A Cost-Effective/Time-Efficient… 129
J. J. Struthers (*)
School of Business and Enterprise, University of the West of Scotland,
Paisley, UK
e-mail: [email protected]
the risks themselves, and the index that is actually adopted has to be closely
correlated with the underlying local yields. Moreover, the costs of setting
up the appropriate infrastructure to assess the weather have to be shared
between the producers, with possible support from government.4
Later in this chapter we provide a review of the different types of inter-
ventions within commodity markets in Africa and beyond. Some of these
interventions have been market-based, others have been non-market-
based. In the next section we review some of the official data on com-
modity price volatility from such organisations as UNCTAD, especially
data that has special relevance to African countries.
The UNCTAD report also suggests that although during the 2000s
increasing commodity prices stimulated high economic growth in a
number of less developed countries (LDCs) including many in Africa,
this was due more to an increase in prices rather than an increase in
export volumes. Moreover, any growth in export volume tended to be
outstripped by growth in imports, especially of food and fuel, which led
to declining terms of trade for many of these countries and increased
vulnerability to external shocks. Following the 2008–2009 financial crisis
and the subsequent dramatic falls in many commodity prices, it is clear
that many of these African CDDCs are extremely vulnerable to shocks
out of their control. In essence this means that they can suffer twice.
Firstly from the underlying volatility of their commodity prices. Secondly,
from their inability to participate fully in the GVC for their commodities
(see below).
A key question raised by these types of commodity dependencies is:
What is best for these countries in terms of them being able to participate
fully in the GVCs for their produce? Is a producer country that depends
heavily on minerals and fuels more or less likely to participate fully in the
GVCs for their commodities? Or is this more likely for a producer coun-
try whose dependency is based on food items and agricultural raw
materials?
In the first case, government price support schemes and ICAs were geared
to reduce price volatility. Commodity derivatives instruments, which may
include futures, options, swaps, and commodity-linked notes and bonds,
are all examples of hedging instruments designed to make revenues more
predictable. While the third group of instruments are the various compen-
satory financing schemes such as the IMF’s Contingency Compensatory
Finance Facility, as well as individual credit markets and savings mecha-
nisms (including insurance schemes), which are actually designed to smooth
the consumption expenditures of the commodity producers.
The third category of instruments, compensatory financing schemes,
which try to deal with short-term declines in commodity revenues,
tended to be ex-post interventions instead of being based on a system of
ex ante price risk management. It is for this reason that commodity deriv-
ative instruments are now the preferred form of intervention to deal with
primary commodity price volatility. They enjoy a number of advantages
over the more traditional instruments discussed above.
Varangis and Larson (1996) set out these intervention advantages as
follows: (a) they are based on market-determined prices rather than
administratively based prices; (b) they have the potential to shift risk to
third parties (e.g., brokers) which, because of their size and importance in
the marketplace, are more able than producers or individual countries to
bear the necessary risks; (c) it is possible to link them to specific financial
instruments which reduces transaction costs and; (d) they are less costly
than the traditional governmental price intervention schemes.7
For example, futures and options contracts are now available for a wide
range of commodities, but they are not without their disadvantages. The
main one is basis risk, where a risk remains that the locked-in price will
not always completely cover the cost of the delivered product. For exam-
ple, with food imports, the futures contracts are not always sold at a price
that includes actual delivery of the product to the importing country.
Call option contracts are preferable because, although they also lock in a
maximum price, they do not carry the obligation to buy at the actual
price. Rather, the government is still able to benefit from lower prices
should that situation pertain. Call options effectively combine a price
ceiling with price flexibility (downwards). Governments, of course, will
have to pay non-refundable fixed premia for these options. In Africa, as
142 J. J. Struthers
ers, either within the country itself or overseas, and the producers. In
theory, no risk is transferred to the governments in the producing coun-
tries, which is a major advantage in itself. Not least, does it prevent gov-
ernments from rent seeking to exploit the complex interactions that can
determine commodity transactions?
that past price movements carry full information on future price move-
ments—a process known as trend chasing, that is, buying after prices rise
and selling after prices fall. Too little speculative activity may lead to low
liquidity levels and excessive seasonal price movements. As a consequence
of such possible effects, the need for appropriate levels of regulation
across these markets—or at the very least greater transparency (e.g., in
over the counter (OTC) markets)—is widely acknowledged.
At both international and national levels there is much on-going
debate in organisations such as UNCTAD as to whether “regulators” can
achieve greater transparency within markets.8 UNCTAD, in a report
published in 2009, highlighted how best to manage the financialisation
of commodity futures trading, especially in light of the 2008 financial
crisis. The report indicated that the substantial price hike that took place
in 2007–2008, especially in food prices, and then the dramatic slump
that took place in late 2008, suggested that financial investors (especially
hedge funds) were increasingly using commodities as an asset class in
their own right. This was particularly in evidence with regard to exchange-
traded commodities. As the UNCTAD report argues, financial investors
have in fact been active in commodity markets since the early 1990s,
mainly through the use of swap agreements, which allow investors to
adopt long-term positions in commodity indexes.9
The UNCTAD report shows that the trading volumes on commodity
exchanges increased substantially during the above mentioned period of
price increases, as indicated by a more than fourfold increase in the num-
ber of futures and options contracts between 2002 and the middle of
2008. The nominal value of OTC commodity derivatives increased in
excess of 20-fold to USD13 trillion over the same period, only to go into
serious decline from mid-2008. Such trends suggest strongly that large-
scale speculation played a significant role in contributing to commodity
price volatility during this period (Nissanke 2012; Mayer 2012).
Debate among economists on the impact of speculation on commod-
ity prices has centred on the efficient market hypothesis (EMH), which
states that prices in a free market will perfectly and instantaneously reflect
all relevant and available information.10 The UNCTAD 2009(a) report
posits two reasons why this may not hold for commodity markets. Firstly,
due to the fact that many of these products have low short-run price
146 J. J. Struthers
markets. For index investors, the trading strategy has usually been deter-
mined heavily by specific market conditions (for example the existence,
or otherwise, of a rising market). Other financial investors in commodi-
ties can often trade profitably against index investors, but with increased
volatility this is likely to become more active than passive. This might
lead to more rolling over of contracts or a greater focus on commodity
exchange traded funds (ETFs), which are listed securities that are backed
by either a physical commodity or a commodity futures contract.12,13
Consuming Countries
Exporters
Marketing Boards
Government
Procurement Officers Farmers Cooperatives
Farmers/ Small
Holders Producing Countries
Consuming countries
Speculators
Commodity (Informed/Uninformed
International Brokers
Traders / Noise Trader
Government
Promotion Officers
Farmers
Farmers/ Small Cooperative
Holders
Producing countries
producing countries and the bodies involved in the various ICAs doing
the same within the consuming countries, albeit with potentially greater
power than the domestic marketing boards.
Post market-liberalisation, the principal–agent problem arguably
becomes more complex, as can be seen in Fig. 5.2. The domestic context
for commodity producers became less complex due to the disappearance
of the marketing boards, which acted as intermediaries between the pro-
ducers and the exporters. However if this is combined with the demise of
the ICAs at the international level, there is now the impact of speculators
to consider. As a consequence of market liberalisation, it can be argued
that domestic intermediaries have simply been replaced by new (interna-
tional) intermediaries in the form of brokers and speculators.16
The complexity of all of these principal–agent inter-relationships will
be compounded by the inherent supply/value chain complexities that
exist in particular commodity markets and which will vary from com-
modity to commodity and from country to country. It would seem that
there is now greater potential for the negative effects of the principal–
agent problem to stem from the consuming countries rather than the
producing countries compared with the situation when commodity mar-
kets were regulated by ICAs. In the consuming country it may be the
international buyer who now plays the role of principal. The develop-
ment of well organised local commodity exchanges might mitigate this
shift of power away from the producing countries to the consuming
countries. Struthers (2017) argues this is possible within a principal–
agent context and has developed a taxonomy to calibrate the costs and
benefits of different governance arrangements within a principal–agent
framework using indicators such as risk aversion and transaction costs,
among others.
Membership
The ECX trading system uses a physical trading floor located in Addis
Ababa. Here buyers and sellers engage in “open outcry” bidding for com-
modities. Market prices can change throughout trading hours. These
prices are transmitted in real time to producers and consumers by elec-
tronic price tickers, which were initially located in 21 locations around
the country, although the ECX’s aim is to increase these to 200. The
prices also appear on the ECX website (http://www.ecx.com.et) and via a
mobile phone service.
Commodity Price Volatility: Causes, Policy Options… 159
A clear aim of the ECX is to reduce transaction costs and other risks for
those who participate in commodity markets in Ethiopia. The ECX web-
site says that this is achieved through the following.
• Since the physical transfer of the product is made only after the com-
modity is sold, this reduces transportation costs.
• A market information system also exists within the ECX in order to
increase accessibility to different markets and also to the general public
through different media.
160 J. J. Struthers
Notes
1. The Singer–Prebisch hypothesis became the capstone in these early years
to highlight the endemic problem that less developed countries faced
with declining terms of trade as long as they continued to rely heavily on
primary commodities for their export markets (Prebisch 1950, 1959,
1964; Singer 1950, 1958, 1975, 1982).
2. Economies of scale (and scope) are vital in commodities markets.
Commodity producers are either characterised as latifundia (a small
number of very large-scale producers); or minifundia (a very large
number of extremely small producers). Minifundia are more common in
Commodity Price Volatility: Causes, Policy Options… 161
African economies. A relevant example is the very large number (in the
hundreds of thousands) of small coffee farmers/producers in Ethiopia.
3. Papers by Dercon (2004); Dercon et al. (2005); Morduch (1995) analyse
a range of different shocks that can adversely affect vulnerable countries
(e.g., Ethiopia) as well as the necessary consumption and income
smoothing aspects of these shocks.
4. The Food and Agricultural Organisation (the FAO) has been active in
developing “early warning systems” to be able to anticipate and respond to
severe weather disturbances such as drought, famine and hurricanes,
which can of course threaten life on a huge scale. The FAO has also facili-
tated the setting up of an effective agricultural management information
system (AMIS), which tracks food outputs and yields across the world. It
is an inter-agency platform aimed at enhancing food market transpar-
ency and security. It was set up in 2011 by the G20 ministers of agricul-
ture after the major increases in global food prices in 2007–2008 and
2010. It incorporates the main producing countries of agricultural com-
modities and monitors global food supplies. It concentrates on wheat,
maize, rice and soybeans and is effectively a platform to co-ordinate
policy responses during periods of market uncertainty and volatility.
According to the FAO website, its coverage of global production, con-
sumption and trade volumes in the above crops may be as much as
80–90%. Although its main function is to ensure better global food
security, it can also help to anticipate and hopefully mitigate agricultural
commodity price increases, especially in these vital food crops.
5. “Commodity Dependence and the Sustainable Development Goals: Note by
the UNCTAD Secretariat” prepared for the multi-year expert meeting,
ninth session, in Geneva on 12–13 October 2017.
6. Two other examples from a recent Commonwealth Secretariat publica-
tion edited by Keane and Baimbill-Johnson (2017) are also illustrative of
the potential to move up the value chain (see Keane’s article on the cut-
flower sector in Kenya and Ethiopia, where some upgrading was discern-
ible, especially in the context of Kenyan firms entering the Ethiopian
supply chain; and the paper by Nana Asante-Poku in her analysis of
Ghana’s participation in the pineapple GVC). In the former case, the
upgrading that took place was largely based on the different tiers of sup-
pliers prevailing within the Kenyan market and to some extent within
Ethiopia, as well as Kenyan lead firms who are active in Ethiopia. In the
paper it is referred to as a “flying geese” model. In the latter case, progress
has been more erratic, which the author attributes to a combination of
162 J. J. Struthers
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168 J. J. Struthers
6.1 Introduction
Trends in international trade in the last few decades have been driven by
globalisation, which is in turn spurred by major new developments in
information and communication technologies (ICTs), and logistics, and
greater trade liberalization. World trade in goods and services has increased
steadily since the 1990s. From 1980 to 2016 trade in goods increased from
USD 2 trillion to more than USD 15.7 trillion; and trade in services
from about USD 2 trillion to over USD 20 trillion (UNCTAD 2017).
Manufacturing processes and services that make up “value chains” are
increasingly distributed strategically across the globe, with countries
relying more and more on assembling imported intermediate goods for
S. K. Gayi (*)
African Continental Free Trade Area (CFTA), United Nations Conference on
Trade and Development, Geneva, Switzerland
J. K. Banini
Sustainability Management School, Gland, Switzerland
have experienced a moderate growth in output, but this has been episodic
with high growth rates punctuated by low and sometimes negative growth
rates, resulting in an average annual growth rate of 2.6% (1990–2000)
compared to 1.8% in the preceding decade (1980–1990) (UNCTAD
2014b). This all changed at the beginning of the twenty-first century
with the continent sustaining a robust average annual growth rate of 5%
(2000–2010), although its per capita growth rate has been much slower
at 3%; and the continent’s share in global GDP at roughly 3% in 2015 is
no different from what it was in 1970.1
Economic performance in the 2000s, as in the 1970s, has been on the
back of higher commodities prices and, to a limited extent, volumes
traded. Another similarity between the two periods is that Africa has been
unable to utilise revenues from its commodities exports to structurally
transform its economies. One school of thought thus contends that
unless, and until, Africa undergoes a structural transformation, it will
continue to export agricultural commodities, minerals and petroleum,
which currently dominate its export basket. The “Africa Rising” school,
on the other hand, believes that the good economic performance of the
continent since the turn of the century has launched the continent onto
a sustained growth trajectory. Whichever of these two competing schools
one subscribes to, the indisputable fact is that Africa continues to be
marginalised in global trade.
Africa’s share in exported added-value is very small (Banga 2013,
OECD et al. 2013), although it has been argued that the continent is a
large volume exporter and tends to be heavily integrated into GVC com-
pared to other developing countries (Mc Gregor et al. 2013). While this
is true, one should caution that this is forward integration based on raw
material exports. The benefits of this type of integration are less clear and
certainly smaller than not only those of backward integration, but also of
forward integration based on innovation or research and design both of
which are critical to the continent’s industrial development. Other schol-
ars (e.g., Gibbon and Ponte 2005) argue that GVC success stories among
African countries did not involve upgrading to more advanced and remu-
nerative activities that serve niche markets, but rather “trading down” to
simple, labour-intensive activities that serve mass markets.
Does Africa Have What It Takes to Upgrade in Global Value… 173
60.00
50.00
40.00
30.00
20.00
0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Developed economies 65.76 66.48 65.69 64.84 63.13 60.37 58.79 58.34 56.49 56.41 53.94 52.50 51.07 51.23 51.35 52.23 53.56
LAIA 5.17 5.17 4.99 4.67 4.76 5.12 5.29 5.17 5.19 5.21 5.45 5.64 5.67 5.49 5.31 5.18 5.15
Africa 2.29 2.24 2.23 2.36 2.60 2.96 3.06 3.11 3.48 3.13 3.41 3.33 3.46 3.17 2.92 2.37 2.17
Asia 32.03 30.08 31.25 31.89 32.95 34.18 34.93 35.16 35.88 36.75 38.91 39.31 40.39 40.33 40.70 41.29 40.76
Fig. 6.1 Goods: Annual trade and share; 2000–2016 in percentage of the total world export. (Source: Authors’ calcula-
tions, based on data from UNCTADStat, http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx)
Does Africa Have What It Takes to Upgrade in Global Value…
175
176
25000
20000
15000
10000
S. K. Gayi and J. K. Banini
5000
Fig. 6.2 Global trends in goods and services by region, 2002–2016 (USD current billions). (Source: Authors’ calculations,
based on data from UNCTADStat, http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx)
20000.0
18000.0
16000.0
14000.0
12000.0
10000.0
8000.0
6000.0
4000.0
2000.0
Fig. 6.3 Global trends in goods, 2005–2016 (USD current prices billions – export)
177
178
S. K. Gayi and J. K. Banini
Fig. 6.4 Average annual growth rate, world exports of goods by regions, % GDP (2005–2016)
25.0
20.0
15.0
10.0
5.0
Percentage of GDP
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DE 17.6 16.5 16.0 15.9 15.8 15.5 15.4 15.3 14.9 13.9 14.5 14.5 14.3 14.1 14.1 14.1
LAIA 17.8 17.5 17.4 17.6 17.9 17.1 16.9 16.5 16.3 15.6 15.4 14.9 14.4 14.2 13.9 14.3
Africa 13.2 12.9 12.4 12.7 12.6 11.7 10.9 10.5 10.1 10.7 10.6 10.1 10.0 10.3 10.7 10.8
Asia 18.1 16.6 16.2 16.3 22.0 22.1 22.3 22.6 22.4 21.9 22.7 22.3 22.1 22.5 22.1 21.9
Fig. 6.5 Manufacturing value-added as a share of GDP. (Source: Authors’ calculations based on data from UNCTADStat,
http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx)
Does Africa Have What It Takes to Upgrade in Global Value…
179
180 S. K. Gayi and J. K. Banini
43%
52%
1% 4%
200
150
100
50
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Developed economies 118 133 162 199 155 185 206 201 193 189 172
LAIA 26 27 31 35 23 26 33 34 34 37 35
Africa 8 9 10 13 8 11 11 9 9 10 7
Asia 126 162 193 244 189 238 284 263 253 271 262
Fig. 6.8 Export of low skills and technology intense manufactures (2005–2015)
declined from 13% (2000) to 11% (2015), with the share of manufac-
tures in total exports declining from 21% to 15% over the same period.5
The larger exporters of manufactures had, on average, lower labour
productivity growth (UNCTAD 2016). More than 80% of employment
in Africa is created in the low-productivity sectors of agriculture and
informal services. The continent performs badly in exports of skills and
technology intensive manufactures (Figs. 6.8 and 6.9). The share of inter-
mediate goods in total exports increased marginally from 12% to 14%
(2015–2016), although this is likely to be due to the decline in the export
prices of fuels and other raw materials rather than an increase in volumes
traded (Figs. 6.10 and 6.11). It would thus seem that the de-
industrialisation trend that commenced in SSA in the late 1970s, and was
aggravated through the structural adjustment period (1980–1990s) has
yet to be reversed.
Regarding agricultural products, Africa has been losing market share
to emerging and more efficient producers in other developing regions, for
example coffee growers in Vietnam. On average, while productivity levels
for almost all Africa’s agricultural exports have been increasing over the
years, these remain low and below those of other developing regions.6
The continent has also found it difficult meeting the exigencies of mod-
ern international trade, including sanitary, phytosanitary and other food
1200
800
billions
600
400
200
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Developed economies 492 573 701 828 623 809 946 955 955 941 822
LAIA 93 107 110 116 89 118 136 151 162 180 187
Africa 11 13 15 19 13 17 20 19 20 22 20
Asia 393 462 545 603 429 566 662 713 726 756 734
Vegetable
Transportation 2%
2% Wood
Capital goods
1%
Textiles and clothing 3%
1%
Plastic or Rubber
1%
Miscellaneous Stone and Consumer goods
1% Glass 8%
Minerals
6%
2%
Fuels
23%
Raw materials
26%
Footwear
0%
Food Products Animal
3% Chemicals 1%
2%
Fig. 6.10 Sub-Saharan Africa export products share, percentage of all products
(2006)
Does Africa Have What It Takes to Upgrade in Global Value… 183
Miscellaneous
1%
Intermediate
Minerals goods
3% 14%
Metals
5%
Footwear
0%
Food Products
4%
Chemicals Animal
2% 1%
Fig. 6.11 Sub-Saharan Africa export product share, percentage of all products
(2015). (Source: Authors’ calculations, based on data from UNCTADStat, http://
unctadstat.unctad.org/wds/TableViewer/tableView.aspx)
the transformation of this sector has been slow, as it has remained subsis-
tent, dominated by low productivity and non-tradable activities. The sec-
tor has only picked up in recent years with a few countries supplying
cross-border services, such as finance, banking, education, health, com-
mercial and cargo air transport and telecommunications. Increases in
exports of telecoms services topped the list with 3.6% (2005) as a share
of total services exports increasing to an average of 6% (2013–2016), fol-
lowed by transport services increasing from 24.9% to 28%, and financial
services increasing from 1.9% to 2% over the same period. Despite the
vibrancy of the market and the sector’s growth at more than twice the
global rate in 2009–2011, the continent has remained a marginal player
in the global services trade (the fulcrum of global trade in the last decade)
with an export share of only 2.0%, compared to developing countries’
share of 29.4% in the last decade (see Figs. 6.12 and 6.13).
The region’s trade performance, despite recent improvements, com-
pares poorly with those of other developing regions in terms of the diver-
sification of exports baskets, in particular the exports of skill and
technology intensive manufactures, and participation in services trade.
The reason for this is that the continent has been unable to undergo the
type of structural transformation associated with its counterparts in
South-East Asia. Primarily this is due to Africa’s weak macroeconomic
policy environment, low rates of investment and concentration of foreign
direct investment (FDI) in the natural resource sector, political instabil-
ity, poor trade and trade-related infrastructure, and weak institutions,
including the legal regulatory frameworks. Low intra-African trade, rela-
tive to other developing regions, has also not helped to boost the conti-
nent’s participation in global trade and GVCs. The next section takes up
the issue of structural transformation.
prices billions
1000
US Dollars at current
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
World 2655 2995 3579 4017 3589 3919 4406 4530 4820 5154 4862 4879
Developing economies 613 712 869 1003 903 1097 1242 1320 1388 1492 1452 1436
Developed economies 1988 2218 2626 2909 2597 2724 3048 3085 3296 3535 3303 3337
LAIA 65 73 87 101 91 104 119 126 131 132 127 126
Africa 62 70 82 93 86 95 98 104 101 106 101 96
Asia 580 672 818 949 847 1036 1173 1239 1305 1431 1398 1401
Fig. 6.12 Global trends in services, 2005–2016 (USD billions current prices—export)
Does Africa Have What It Takes to Upgrade in Global Value…
185
186
S. K. Gayi and J. K. Banini
Fig. 6.13 Export of total service, percentage of the world total, 2005–2016. (Source: Authors’ calculations, based on data
from UNCTADStat, http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx)
Does Africa Have What It Takes to Upgrade in Global Value… 187
6.4.3 Infrastructure
(UNCTAD 1999). Thus, it does not help that out of the 54 African
countries 15 are landlocked, the highest proportion of landlocked coun-
tries among the developing regions.15 These 15 countries suffer a double
disadvantage, as they are forced to contend with not only their own cus-
toms and border procedures, which are often inefficient, but also with
those of their neighbours and transit countries.16
The lack of availability and reliability of complementary infrastruc-
ture, electricity and, until recently, telecommunications, further com-
pounds the problem, leading to a situation described by The Economist
(September, 2014) as “bring-your-own-infrastructure” for potential
investors. While microeconomic evidence on the impact of domestic
infrastructure on firm investment is lacking, Bigsten and Soderbom
(2005) suggest that poor infrastructure is the third leading barrier to
investment in Africa after financing and corruption. Indeed, it has been
argued that half of Africa’s improved growth performance between 1990
and 2005 could be attributed to infrastructure investments, and that the
returns to infrastructure investment are significant. ICT investments are
believed to have returns of 30–40%; power/electricity generation, over
40%; and about 80% for roads (Kingombe 2011).
6.4.5 Investment17
Low saving rates cannot meet domestic investment needs, such as those
required for expanding productive capacity. At the same time, given the
unattractive investment climate, it is difficult to attract FDI to sectors
beyond the extractives.
Average savings rates increased steadily from about 17.5% of GDP to
about 24% (1960–1974) but finally collapsed to below 15% in 1992
(UNCTAD 2007) and have generally remained below those of other
developing regions. In 2005, for example, the gross domestic savings in
SSA, at 17.6%, was below those of Latin America (24%), South Asia
(26%) and about 43% in East Asia and Pacific countries.18
Africa’s average investment rate of 19% of GDP was lower than those
of other developing countries (26%) in the two decades to 2011
(UNCTAD 2014b). In contrast, the efficiency or productivity of Africa’s
investment, was much higher than in other developing country regions
of Latin America and Asia in 2000–2011.19 However, combined with a
low efficiency of public investment in SSA, it has been difficult to attract
private investment, as returns to such investment have been sub-optimal
(UNCTAD 2014b).
FDI flows to Africa by volume are low relative to flows to other devel-
oping regions, and in terms of share of global flows and flows to develop-
ing countries.20 Until recently, its share of global FDI flows has been in
192 S. K. Gayi and J. K. Banini
products, which could then evolve into RVCs, thereby facilitating par-
ticipation and upgrading in GVCs.
Regional economic communities (RECs) have been largely policy or
government driven, to the exclusion of the private sector, with markets
being “engineered” without the necessary economic or market infrastruc-
ture and/or interlinkages within the production structures of countries.26
They have overlapping memberships and, often, conflicting agendas for
trade liberalisation, both of which have frustrated the elimination of
intra-regional trade barriers and complicated the definition of the rules of
origin for goods traded within the RECs. In addition, the uneven distri-
butional impact of intra-regional trade liberalisation, including lower tar-
iffs, weaken the commitment of governments because of their high
dependence on tariff revenues and the apparent lack of alternative tax
handles to replace such revenues.27 RECs have thus performed below
their trade and development potential in Africa, unlike in Asia where the
participation of emerging economies in vertically integrated regional
manufacturing production networks led to increased intra-manufacturing
trade across countries and a rise in intra-regional trade (UNCTAD
2013b).
Africa improved its trade performance at the turn of the century, but
its share of global trade and trade in GVCs has remained miniscule. A
major factor, as discussed above, is its lack of structural transformation
underscored by commodity dependence and weak competitiveness. The
peculiar characteristics of FDI inflows to Africa have implications for the
type of profit-investment nexus generated: enclavism, which denies the
wider economy of skills, jobs, technology and growth spillovers; and a
preponderance of greenfield investments over mergers and acquisitions.
These types of FDI also create an unstable investment climate because of
the greater volatility of natural-resource-linked FDI relative to manufac-
turing sector FDI. These inflows are, arguably, not conducive to entry
into, or upgrading in GVCs. Low intra-regional trade marked by weak
intra-industry trade suggests that Africa has yet to fulfil its trade potential
both on regional and global levels. Increasing intra-African FDI flows
should help fill this lacuna. They also display a bias for the services sector,
but services are critical to enhanced GVC participation in the future.
Does Africa Have What It Takes to Upgrade in Global Value… 195
with final products being able to compete with those from developed
countries.30
Enhanced intra-regional trade via RECs provides the opportunity for
economies of scale for the functioning of RVCs, and a basis for the devel-
opment of viable RVCs. In particular, RECs will automatically raise the
demand for inputs into various products and permit economies of scale
in the production of manufactures to supply regional markets. Well func-
tioning RVCs will expand market size since individual African markets
are too fragmented to provide the required conditions for international
competition. Only three African countries, Mauritius, Morocco, Rwanda
and South Africa, were considered competitive according to the global
competitiveness index (2012–2013).
In the rest of this section, a three-pronged approach is presented. The
first addresses economy-wide or structural weaknesses that would enable
the economy to perform at, or close to, its optimum level. As far as pos-
sible, policy reforms should be co-ordinated across regional economies
with a view to increasing intra-regional trade through RVCs. The on-
going discussions of the UNECA and the African Union towards launch-
ing a continental free trade area (CFTA) have the objective of creating the
conditions necessary for increasing intra-African trade using RECs as
building blocks.
Secondly, considering the high commodity dependence in the region,
there is the need for a holistic approach to commodities development in
each country, which should be co-ordinated within a regional framework.
Inevitably, one aspect of this will focus on agricultural products with a
view to promoting forward and backward linkages between the natural
resource sector and industry at national and regional levels. This should
serve as a spring board to identifying the best and most competitive posi-
tioning in each commodity GVC in terms of tasks or functions in the
medium term. A second aspect of a regional commodities development
programme will be to design a strategy for minerals, metals and fuel com-
modities exports based on establishing development linkages with
national and regional economies.
Thirdly, there should be a framework for developing a services sector
with a view to transforming it from providing low-value, informal ser-
Does Africa Have What It Takes to Upgrade in Global Value… 199
Travel This covers primarily the goods and services acquired from an
economy by travellers during visits of less than one year to that economy.
It includes business and personal travel, which includes health-related
expenditure (total expenditure by those travelling for medical reasons),
education-related expenditure (i.e., total expenditure by students), and
all other personal travel expenditure.
Notes
1. See, http://ivanstat.com/gdp/africa.html (accessed 28 August 2017).
2. Upgrading can be defined as improving one position up on the value
ladder, that is, moving away from products and services with low value-
added and low barriers of entry to more sophisticated and higher value-
added products and services (January 2015).
3. In terms of exports and imports of goods and services, foreign trade
accounts for more than 50% of the GDP of African countries. However,
its relatively poor export performance only confirms how import depen-
dent the continent is for its survival.
4. The discussion focuses on manufacturing, agriculture and services
as these are the sectors that are currently important for GVC
participation.
5. Note, however, that a recent ODI study contends that African manufac-
turing has grown by about 3.5% per annum in real terms over the past
decade, with a gradual increase in the technology intensity of these
exports (Balchin et al. 2016).
6. There have been some phenomenal increases in productivity levels in a
few African countries since 2000, but these are still below productivity
levels attained in other developing country regions, in particular, Asia.
7. Some authors have argued that there have been some improvements in
the fortunes of Africa since the turn of the century (McMillan and
Harttgen 2013), but this is varied across countries and regions, with the
notable examples of Ethiopia (leather products and garments) and
Lesotho (textiles and garments).
8. Commodity dependence is defined as the ratio of (percentage) the value
of commodity exports to the value of total merchandise exports. A coun-
try is commodity dependent if this ratio exceeds 60% of the country’s
merchandise export value (UNCTAD 2014c).
9. African Economic Outlook, 2017, accessed 6 June 2010.
10. It is only in Francophone West Africa that inflation has traditionally
been low because of the pegged exchange rate to the French Franc.
11. See, Economist Intelligence Unit (EIU), 16 March 2016
12. For example, the Ibrahim index of African governance shows that only
six countries (Botswana, Cabo Verde, Mauritius, Namibia, Seychelles
and South Africa) of the 54 have made progress between 2011 and 2014
(UNECA 2016).
Does Africa Have What It Takes to Upgrade in Global Value… 211
13. There are still about seven leaders who have been in power for at least the
past 25 years, and there have been some attempts to rewrite constitu-
tions to remove term limits for incumbents, some of which have failed.
Political conflicts in a handful of countries have become protracted
(Somalia, Democratic Republic of Congo and the Central African
Republic, for example) and a few countries in the Sahel also face increas-
ing security risks.
14. This excludes insurance costs, as a percentage of the “cost, insurance,
freight” value of the imported goods.Comprehensive data is unavailable,
but anecdotal evidence suggests that, effectively, freight rates for exports
are lower than those for imports in most countries in these two regions
(UNCTAD 2015b).
15. These are, Botswana, Burkina Faso, Burundi, Central African Republic,
Chad, Ethiopia, Lesotho, Malawi, Mali, Niger, Rwanda, Swaziland,
Uganda, Zambia and Zimbabwe.
16. For other estimates of the cost of poor infrastructure to African econo-
mies and the challenges of landlocked countries, see Chap. 2, UNCTAD
2009.
17. Note that there is substantial cross-country variation in both savings
and investment rates.
18. A few countries such as Algeria, Botswana, Cape Verde, the Congo,
Equatorial Guinea, Guinea, Lesotho, Sao Tome and Principe, and
Seychelles attained rates of 25% or more.
19. Measured by the Incremental Capital Output Ratio (ICOR).
20. Unless otherwise stated, this section is based on UNCTAD 2005b.
21. Viewed from another perspective, however, this share is consistent with
the continent’s share in world output as the ratio of Africa’s share in
global FDI flows to its share in global output has remained broadly
unchanged over this period (UNCTAD 2005b).
22. This notwithstanding, intra-African FDI at 5% of total FDI projects
value (2003–2010) is low relative to the share of intra-ASEAN
(Association of South East Asian Nations) FDI inflows in total FDI
flows to ASEAN, which averaged 16.7% (2008–2010).
23. See UNCTAD 2013; and UNECA 2004a, b.
24. See Onitiri 1995, UNCTAD 1996, and UNCTAD 2013a, for a more
elaborate discussion of some of these issues.
25. Intra-industry trade averages 10% of total trade for a number of coun-
tries, with huge country variations (UNCTAD 2013b, citing Ofa et al.
212 S. K. Gayi and J. K. Banini
(2012)). Transaction costs are much higher for intra-African trade than
for trade with the rest of the world. The average transport costs in Africa
represent 7.7% of total export value, double the global average of 3.7%
(UNCTAD 2013b).
26. On the contrary, in Asia where intra-regional trade has been so success-
ful, production interlinkages and intra-trade expansion have evolved in
the absence of a formal institutional mechanism for co-operation and
integration, almost certainly because of the greater involvement of the
private sector.
27. Fiscal-compensation instruments designed to redress disproportionate
losses suffered by some REC members are complex and difficult to
administer, particularly because of unreliable statistical data in many
countries.
28. It must be acknowledeged that a handful of countries have made it to the
top 50/100 of the World Economic Forum’s competitiveness ranking in
the past two decades.
29. The Economist, 26 August 2017, for example, reports of advanced efforts
to use genetic engineering to grow leather without any need to raise
animals. And, there are companies currently experimenting with auto-
mation for sewing clothes, without any need for tailors.
30. Starting with the first tier of countries—Japan, South Korea, Taiwan and
Hong Kong—production networks later moved into the second tier of
countries comprising Indonesia, Thailand, Malaysia and the Philippines.
31. For a detailed discussion on these, see UNCTAD 2013b.
32. The partnership comprises 36 SSA countries, eight RECs, two African
institutions (UNECA, AU/NEPAD); ten active donors—the European
Commission (main donor), Denmark, France, Ireland, Norway, Sweden,
the UK, the Islamic Development Bank, the African Development Bank
and the World Bank (host)—and numerous public and private state and
regional organisations.
33. Both the African Union and the Secretariat of the African Caribbean and
Pacific (ACP) are in the process of designing such regional strategies. For
the ACP, see paragraph 26 of the Sipopo Declaration “The future of the
ACP Group in a changing world: Challenges and opportunities”, 7th
Summit of ACP Heads of State and Government, Sipopo, Equatorial
Guinea, 13–14 December 2012.
34. For an elaborate discussion on this, and the specific policies entailed, see
UNCTAD 2015c.
Does Africa Have What It Takes to Upgrade in Global Value… 213
35. For the details of these policies, see Gayi and Tsowou 2016
36. For the technical details on the innovations systems for local value chain
and knowledge, see Lee 2017.
37. The informal approach has been found to work quite well in some coun-
tries as it is based on trust between governments and TNCs, and reduces
or avoids legalities. However, whichever of these two approaches is
adopted will depend on the political, social and economic context of the
country.
38. The objective of Indonesia’s ILP is to develop domestic SMEs into com-
petitive manufacturers and suppliers of parts and components and
related services to TNCs, which benefit from some fiscal incentives such
tax incentives for limited periods. Eligible SMEs are granted, among
other benefits, an investment tax allowance on qualifying capital expen-
diture incurred within a specified period. Malaysia’s VDP has similar
objectives, that is: to stimulate SMEs as reliable manufacturers and sup-
pliers of industrial parts and components required by TNCs and large
industries—so called “anchor companies” willing to participate; and cre-
ate growth through “industrial deepening” and import substitution.
Participating SMEs must meet certain conditions, for example, 70%
local equity participation, and have skilled workers with relevant experi-
ence. For details, see UNCTAD 2005a, b.
39. For a detailed discussion on how to unlock the potential of Africa’s ser-
vices sector to promote trade and development, see UNCTAD 2015a.
40. Based on International Standard Industrial Classification (ISIC) Rev.
41. For a detailed discussion of these policies and how they have been imple-
mented in developing countries in Asia and Latin America, see Banga
2013.
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Does Africa Have What It Takes to Upgrade in Global Value… 215
7.1 Introduction
The term global value chain (GVC) has been transformed in recent
years and emerged as a new paradigm to understand contemporary
patterns of global trade. The more recent additions to the GVC litera-
ture focus on vertically fragmented trade—trade in intermediate
goods—between tiers of firms and suppliers organised within global
production networks. As described by Keane (2014), this literature
was prompted by the need to better understand the domestic and for-
eign content of exports, so as to avoid double counting related to the
use of imports. In comparison, the highly asymmetric distribution of
This chapter has been prepared by Dr Jodie Keane, economic adviser, Trade Division,
Commonwealth Secretariat. The views expressed are those of the author and do not represent
those of the Secretariat. However, this chapter draws on analyses including those funded by the
Commonwealth Secretariat.
J. Keane (*)
Commonwealth Secretariat, London, UK
e-mail: [email protected]
shares of value added between chain actors was the focus of the 1990s
wave of GVC literature (Keane 2012).
In view of the low shares of value added now available at some GVC
entry stages, coupled with high trade costs because of geographical dis-
tance from the main hubs of global economic activity, attention has
begun to shift towards analysis of “future fragmentation” processes (Keane
and Bambil-Johnson 2017). It is recognised that the global trend toward
supply chain rationalisation poses big challenges to smaller countries and
firms, which face substantial scale and purchasing power limitations
(Gereffi and Luo 2014). It is increasingly recognised that, underpinned
by the fourth industrial revolution, future fragmentation processes will
be supported by a very different global trading landscape.
Through comparative analysis of the interactions between trade costs,
GVCs and economic development, Zi (2014) finds that “Factory South”
(as opposed to “Factory US”, “Factory Europe” and “Factory Asia”) is
likely to be regionally clustered. This finding is based on an analysis of
two opposing forces: international cost differences and the benefits of co-
location of related stages. This is because of recognised tensions between
the comparative costs that create incentives to “unbundle” compared to
agglomeration forces that may bind some parts of a process together, for
example, through reducing the costs of co-located activities and develop-
ing network effects.
However, while much of the current GVC discourse has focused on
these aspects of trade costs, directly affected by the logistics sector, much
more limited attention has been paid to the role of the logistics sector in
terms of the development of producers’ capabilities. This is an important
omission that assumes a particular importance in view of the role of the
logistics sector in relation to conventional value-adding processes: gain-
ing control of the logistics sector can assist in enabling forms of upgrad-
ing. The ability to service multiple markets can also assist in enabling a
type of “multi-chain upgrading” (Navas-Aleman 2011).
Recent developments within the global economy and archetypal GVCs
suggest that in order for sub-Saharan African (SSA) countries in the
twenty-first century to effectively adapt to the emergence of tiers of suppli-
ers, they must address the underlying factors of their logistics capabilities.
Logistics and Value Chain Development: Cost and Capability… 219
This includes progressing from being a supplier located at the lowest tier
within the GVC without full responsibility for delivery to end markets,
towards assuming this role and therefore capturing and adding more value
in the process.
Through comparative GVC case study analysis, which draws on the
comparative GVC upgrading experiences of producers in the cut flower
GVC in East Africa and the available evidence for firms that trade on an
intra- or extra-regional basis in Southern Africa, including across multi-
ple markets, this chapter underscores the importance of the logistics sec-
tor in terms of the development of producers’ capabilities.
This chapter is organised as follows. In Sect. 7.1, we review aggregate
trends in relation to sub-Saharan Africa’s participation in GVCs and the
influence of trade costs. In Sect. 7.2, these trends are reviewed alongside
the available evidence on logistics capabilities. In Sect. 7.3, country-
specific comparative value chain analyses are introduced. Finally, this
chapter concludes regarding the role of the logistics sector in terms of
the development of producers’ capabilities. In view of the role of the
logistics sector in relation to conventional value-adding processes, gain-
ing control of the logistics sector can assist in enabling forms of upgrad-
ing, particularly multi-chain upgrading.
trade costs as it incorporates all factors that drive a wedge between factory
gate prices in the exporting country and consumer prices in the import-
ing country. It therefore covers the full range of trade frictions, including
tariff and non-tariff barriers, regulatory measures, standards, differences
in cultural and legal institutions, and geographical and historical factors
(Shepherd 2016). It means that bilateral data can be aggregated into a
single number per country by calculating “average” trade costs, in the
sense of a constant value for trade costs that, if applied to all bilateral
partners, would result in the same level of total trade as is actually observed
in the data.
The results calculated for trade costs in SSA by Shepherd (2016) show
that they are around twice as high as in the comparator markets, with
the exception of South Africa, where they are around 1.5 times as high.
This result, although indicative of the economic penalty exerted in
view of geographical factors, also suggests that capabilities matter:
although South Africa is geographically more distant from major mar-
kets than some other countries in the region, its trade costs are sub-
stantially lower.
In order to emphasise how value chains are networks of co-ordinated
transactions rather than a linear series of point-to-point movements,
Shepherd (2016) represents the value added in exports data in network
form for agriculture and textiles and clothing respectively, taking 2000
and 2012 as the base years. In order to do this, only the largest export
flows among regional partners and the UK and USA are considered. As
discussed by Shepherd (2016), each country is represented as a box, and
its largest trade flow is a line connecting it with the destination market.
The results from this exercise are presented in Figs. 7.1, 7.2, and 7.3.
Within both of the archetypal GVCs, the UK and USA are evident as
major sources of demand for SSA’s value-added in both the agricultural
and textiles and clothing sectors. These networks are seemingly rather
stable over time and between 2000 and 2012, although in agriculture
Mozambique moves from the UK-centric cluster to the USA-centric
Logistics and Value Chain Development: Cost and Capability… 221
USA
UK
South Africa
Country
Uganda
Tanzania
Mauritius
Mozambique
Cameroon
Botswana
0 50 100 150 200 250 300 350
Percent
Agriculture Manufacturing
Fig. 7.1 Trade costs in agriculture and manufacturing, per cent ad valorem
equivalent, selected countries, latest available year (2012). (Source: Shepherd
2016)
cluster, via a connection with South Africa. The data suggest that this
particular country has developed stronger links with its large neighbour
in agriculture, which in turn has led to an indirect linkage to the US
market.
For agriculture, only two SSA countries have their largest export flows
with another SSA country (South Africa). For textiles and clothing, the
picture is somewhat different, with large chains predominantly connect-
ing African countries to the USA. Mozambique has changed its position
in the value chain over the period analysed to service the USA-driven
textiles and clothing value chain to a greater extent than the EU-driven
chain.
Although these results present us with some interesting shifts over
time, they focus on vertically fragmented intermediate goods trade. This
is because over the last two decades, some firms within particular sectors
have internationalised to such an extent that their operations now span
multiple national territories. The emergence of tiers of suppliers within
GVC-trade has become more pronounced in recent years. Given this, a
greater range of data are required in order for policy-makers to make bet-
ter sense of the new GVC phenomenon with respect to trade in goods
and services, including in the logistics sector—a key horizontal enabler—
which have accelerated under the recent globalisation processes.
222 J. Keane
However, while much of the current GVC discourse has focused atten-
tion on connectivity in relation to trade costs, directly influenced by
investment in the logistics sector, much more limited attention has been
paid to the role of the logistics sector in terms of the development of
producers’ capabilities. This is an important omission that assumes a par-
ticular importance in view of the role of the logistics sector in relation to
conventional value-adding processes: supporting development of the
logistics sector can assist in enabling forms of upgrading. The ability to
service multiple markets can also assist in enabling a type of “multi-chain
upgrading” (Navas-Aleman 2011). Countries seeking to benefit from
GVC participation need to address underlying factors of their logistics
capabilities (Memedovic et al. 2008).
Thankfully, more recent additions to the literature, which apply econo-
metric techniques, including factor content methodology, have been able
to demonstrate the role of capabilities driving participation in GVCs
(Pathikonda and Farole 2016). In these studies, proximity to markets
Logistics and Value Chain Development: Cost and Capability… 225
Out of the 70 firms surveyed, 85% (56 firms) were involved with
FOB-1 production, 6% (four firms) were involved with FOB-2 produc-
tion and 9% (six firms) were involved with traditional CMT arrange-
ments. They note that only four of the 70 firms surveyed offer finished
products to retailers. This includes providing all necessary production
material, including design and branding.
Although they do not distinguish between the end markets for these
products they do note that, “most of the garment firms in Bangladesh are
owned by domestic entrepreneurs who have limited capital, less experi-
ence, and little knowledge to carry out all necessary stages of production”
(Alam and Natsuda 2013: 27). Competency in design was noted as a
major barrier to entry by key informants in the sector. Overall, they con-
clude that although there is evidence of functional upgrading from CMT
to FOB-1 production, the ability of firms to upgrade to FOB-2 is doubt-
ful. They make reference to broad-based productive constraints, includ-
ing weak infrastructure—a crucial component of logistics capabilities—as
the reasons for this.
Firms based within the South African Customs Union (SACU) are highly
likely to be subject to major or severe customs and trade regulations com-
pared to most other regions (Keane et al. 2010). As major and severe
customs and trade regulatory barriers are experienced, the more likely it
is that Southern African firms export on an intra-rather than an extra-
regional basis (Keane 2015).
In the following sub-sections, the results of the econometric exercise
undertaken by Keane (2015) are summarised. This analysis moves beyond
trade cost considerations in order to explore the capabilities underpinning
the choice of export markers. It explores indictors related to GVC partici-
pation. This includes a customs, trade and regulation dummy variable as
a proxy for logistics capabilities. Despite the limitations inherent in the
research methodology, which are reflective of a more general lack of
information on GVC-related firm-level indicators, differences between
firms trading products mostly on an intra- and extra-African basis have
been identified, which arguably warrant further attention.
7.4.2.1 Empirical Analysis
The potential differences between firms that export goods traded mainly
on an intra- or extra-regional basis are explored. In order to do this we
first specify γ as a dichotomous outcome variable, coded as = 1 if SACU
firms export mainly on an intra-regional basis. The results are presented
in Table 7.3. The independent dichotomous variable is only coded 1 for
those firms that produce products we definitely know are mainly sup-
plied on an intra-regional basis (using our 50% threshold).
It is clear from the results presented in Table 7.3 that the policy/institu-
tional barriers of customs/trade regulations and workforce regulations exert
a significant influence (10 and 5% level, respectively) on the likelihood that
a firm exports on an intra-regional basis. These results are easier to make
sense of when we compare them to the results for extra-regional exporters.
In Table 7.4 we specify γ as a dichotomous outcome variable, coded as = 1
if SACU firms export predominantly on an extra-regional basis.
Logistics and Value Chain Development: Cost and Capability… 233
Notes
1. Although there are three main types, the UNCTAD/Eora database has
the most country coverage.
2. These results are presented in Shepherd (2016).
3. The World Bank’s logistics performance index (LPI)—a weighted average
of six indicators, and based on a survey of around 1000 logistics profes-
sionals—takes into account performance on trade and transport-related
infrastructure, customs clearance, the ease of arranging competitively
priced shipments, the ability to track and trace consignments, timeliness
of delivery, and the competence and quality of logistics services.
236 J. Keane
References
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Garment Industry in the Post-MFA Era, Ritsumeikan Center for Asia Pacific
Studies (Working Paper 13003). Japan: Ritsumeikan Asia Pacific University.
Arvis, J.F., Duval, Y., Shepherd, B., Utoktham, C., & Raj, A. (2017). Trade
Costs in the Developing World: 1996–2010. World Trade Review, 15(3),
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Matter, and Where They Are Going (CEPR Discussion Papers 9103,
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Value Chains. Review of International Political Economy, 12(1), 78–104.
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(Briefing Paper). London: Overseas Development Institute.
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8
The Importance of the Services
Sector for Africa
Ottavia Pesce, Carolyne Tumuhimbise, William Davis,
and Lily Sommer
Ms Pesce completed her contribution to the chapter while working at the Economic Commission
for Africa.
Mr Davis completed most of his contribution to the chapter while working for the African Trade
Policy Centre at the Economic Commission for Africa.
Ms Tumuhimbise completed most of her contribution while working with the African Union
Commission.
O. Pesce
United Nations Economic and Social Commission for Western Asia,
Beirut, Lebanon
e-mail: [email protected]
C. Tumuhimbise
International Organization for Migration, Addis Ababa, Ethiopia
W. Davis (*)
Economic Commission for Africa, Addis Ababa, Ethiopia
e-mail: [email protected]
L. Sommer
African Trade Policy Centre of the Economic Commission for Africa,
Addis Ababa, Ethiopia
e-mail: [email protected]
In addition, the report notes that “inexpensive and good quality ser-
vice inputs (domestic or foreign) can enhance competitiveness in agricul-
ture, mining and manufacturing sectors. According to the [Organization
for Economic Co-operation and Development], as much as 30 per cent
of value-added of the manufacturing sector’s exports is accounted for by
services inputs.”
both growth in gross domestic product and poverty reduction. The research
shows that services growth has a strong poverty-reducing effect across 60
countries (including 29 in Africa, excluding North Africa). Indeed,
between 1990 and 2010, growth in agriculture and services was found to
be strongly associated with poverty reduction, while the growth of indus-
try did not have a significant effect on reducing poverty (World Bank
2014a). A study focusing on Southeast Asia also shows that services have
the strongest impact on poverty reduction in that region (Warr 2002).
Indeed, in 2013 the services sector was the main contributor to gross
domestic product in the majority of African countries—35 out of 54.
Across Africa, value added in services has grown more than value added
in manufacturing, industry or agriculture over 2000–2012. Such correla-
tion is higher than that between growth in manufacturing or industry
value-added and growth in gross domestic product. Value added in ser-
vices in Africa has seen a larger growth than value added in manufacturing,
industry or agriculture over 2000–2012. Moreover, data show a strong
correlation between growth in services value added and growth in gross
domestic product for African countries over 2000–2012, at 0.85. This cor-
relation is higher than those between growth in manufacturing or industry
value added and growth in gross domestic product (respectively 0.70 and
0.81) (Economic Commission for Africa 2015a, b). This might be due to
the fact that the services sector is employment-intensive and points to the
potential of services to drive the continent’s growth.2 Only the correlation
between growth in agriculture value added and growth in gross domestic
product is stronger than the one for services, at 0.90: this might be due to
the fact that agriculture still employs the majority of people in Africa.3
The correlation between growth in services value-added and growth in
manufacturing value-added across African countries over 2000–2012 is
also exceptionally strong, at 0.85, possibly pointing to the synergies
between the two sectors (Economic Commission for Africa 2015a). The
fact that value-added in services and in manufacturing move together sug-
gests that services are necessary to support other sectors of the economy.
Services is also a leading driver of FDI into Africa: the share of FDI
going into services in Africa reached 40% in 2012 compared to 24% in
2011 (United Nations Conference on Trade and Development 2013).
According to Ernst and Young, in 2007 extractive industries represented
8% of FDI projects and 26% of capital invested in Africa; in 2012, they
accounted for a mere 2% of projects and 12% of capital. In comparison,
services accounted for 70% of FDI projects in 2012 (up from 45% in
2007), and manufacturing activities accounted for 43% of capital invested
in 2012 (up from 22% in 2007). Other sectors where there has been a
noticeable shift include information and communication technology
(14%, up from 8%), financial services (13%, up from 6% in the previous
year), and education. By 2016, the vast majority of announced greenfield
244 O. Pesce et al.
FDI projects destined for Africa (USD 71 billion out of USD 94 billion)
were in the services sector (United Nations Conference on Trade and
Development 2017a, p. 45).
Economic Commission for Africa (ECA) research has also found that
the presence of a thriving services sector is essential for attracting inves-
tors into African businesses as it allows them to source the support ser-
vices they need locally. The absence or lack of competitiveness of vital
services such as banking, insurance, business support, telecommunica-
tions and transport can discourage investors from pursuing a business
opportunity in a country.
In 2012, services were the sector with the largest contribution to gross
domestic product in 35 out of 53 African countries. Seychelles, Djibouti
and Mauritius topped the list of African countries with the highest share
of services in gross domestic product. Further, over the past two decades,
services were the fastest growing sector in Africa: from 1995 to 2011,
they accounted for 62% of cumulative growth in gross domestic product
per capita on the continent, compared to 24% for industry and 13% for
agriculture (World Bank 2014b).
As shown in Fig. 8.1, Africa’s growth in services output over 2000–2012
was higher than the world average and faster than that of several other
regions (Fig. 8.2).
Fig. 8.1 Average annual growth in services output by regions 2000–2012. (Source:
Authors’ calculations based on World Bank (2014c))
The Importance of the Services Sector for Africa 247
E. Guinea
Liberia
Congo
Libya
Angola
Togo
CAR
Chad
Sierra Leone
Somalia
Gabon
Mali
Guinea-Bissau
Niger
Guinea
Algeria
Burkina Faso
Ethiopia
Zambia
Swaziland
DRC
Mauritania
Burundi
Mozambique
Sudan
Egypt
Cameroon
Côte d'Ivoire
Tanzania
Uganda
Rwanda
Benin
Ghana
Nigeria
Malawi
Comoros
Zimbabwe
Madagascar
Kenya
Morocco
Sao Tome
Namibia
Tunisia
Gambia
Lesotho
Eritrea
Senegal
Botswana
South Africa
Cabo Verde
Mauritius
Djibouti
Seychelles
- 20 40 60 80 100
Fig. 8.2 Contribution of the main sectors to gross domestic product across
African countries, 2013, in increasing order of services contribution. (Source:
Authors’ calculations based on African Development Bank, African Union
Commission and Economic Commission for Africa (2014))
248 O. Pesce et al.
(McKinsey Global Institute 2014).5 This was much more than the con-
tribution from the resources sector, contradicting the stereotype that
Nigeria’s economy is mainly driven by its oil.
Regarding Africa’s trade in services, in 2013 all African countries for
which data are available exported services. Africa’s exports of services
increased from USD 11.5 billion in 1980 to USD 32.7 billion in 2002
and USD 89.5 billion in 2012, a remarkable and continuous rise
(International Trade Centre 2014; Economic Commission for Africa
2015a, b). This shows that Africa’s services exports are competitive on
international markets. If we were to assume that the international market
for services is competitive, a marginal increase in the productivity of
Africa’s services sector would allow Africa to significantly increase its
share in the global services market.
Figure 8.3 shows the breakdown of Africa’s services exports by sector.
Other business services, one of the fastest growing sectors of world trade
today, which includes for example professional, technical and information
technology-enabled business-to-business outsourcing services, was also a
relatively large share of Africa’s services exports in 2013 (6.3%).
These data reflect the importance of tourism for African economies,
which accounts for 40% of Africa’s services exports. Over 2000–2010,
tourism receipts in Africa increased almost threefold.6 Despite these
encouraging numbers, tourism on the continent remains largely below
potential due to constraints such as transport bottlenecks, insecurity, low
quality of services, lack of investments, expensive aviation and scarce and
Transport
Fig. 8.3 Africa’s exports of services by category, 2013. (Source: Authors’ calcula-
tions based on International Trade Centre (2014))
250 O. Pesce et al.
90,000
Personal, cultural and
80,000
recreational services
70,000 Other business services
60,000
Royalties and licence fees
50,000
- Construction
1980
1984
1988
1992
1996
2000
2004
2008
2012
1982
1986
1990
1994
1998
2002
2006
2010
As shown in Table 8.2, the category of Africa’s services exports that saw
the fastest year-on-year growth between 2002 and 2012 was computer
and information services (+20% per year on average) (Fig. 8.5).
As shown in Fig. 8.6, Africa’s imports of services have grown signifi-
cantly over the past decade, jumping from USD 76 billion in 2005 to
USD 96 billion in 2016 (at 2016 prices). African imports of services
jumped from USD 95 billion in 2005 to USD 144 billion in 2016 (at
2016 prices). Some 28 out of 38 countries for which data are available
had services trade deficits in 2016, with notable exceptions including
15% 0.026
0.024
10%
0.022
5%
0.020
0% 0.018
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Transport Travel
Communications Construction
Insurance Financial services
Computer and information Royalties and licence fees
Other business services Personal, cultural and recreational services
Government services n.i.e. Total services exports
Fig. 8.5 Africa’s share of the world’s services exports by category, 2000–2013.
(Source: Economic Commission for Africa analysis based on United Nations
Conference on Trade and Development (2014))
252 O. Pesce et al.
200
US$ (billions) at 2016 prices
180
160
140
120
100
80
60
40
20
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Goods-related services Transport
Travel Government goods and services n.i.e.
Other services
700
600
US$ (billions) at 2016 prices
500
400
300
200
100
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fig. 8.7 Africa’s imports and exports of goods and services, 2005–2016 (USD bil-
lions). (Source: Economic Commission for Africa analysis based on United Nations
Conference on Trade and Development (2018b and 2018c))
Table 8.3 Africa’s trade balance in financial and infrastructure services, 2012,
ordered by largest export surplus
Services category Trade balance in 2012
Communications 1565
Financial services 735
Computer and information 271
Insurance (6151)
Transport (32,961)
Source: Economic Commission for Africa calculations based on United Nations
Conference on Trade and Development (2014)
Table 8.3 shows Africa’s trade balance across the various categories of
services exports in 2012 (for which more detailed data were available
than for 2016) in decreasing order.
90
80
70
US$ (billions) at 2016 prices
60
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fig. 8.8 FDI inflows into Africa (USD billions), 2000–2016. (Source: Authors’ cal-
culations based on United Nations Conference on Trade and Development (2018b
and 2018d))
share of total global FDI inflows increased from 3.7% in 2013 to 4.4%
in 2014. Total FDI inflows into the region recorded USD 54 billion,
largely unchanged from the year before, whereas global FDI inflows fell
by 16% to USD 1,230 billion. This resilience reflects the fact that intra-
African FDI remains the most important source of FDI in Africa. The
share of intra-regional greenfield investments by African firms in total
announced greenfield investment in Africa was 76% in terms of value
and 68% in the number of projects.
In 2000 not a single African country attracted more than USD 2 bil-
lion year-on-year in FDI inflows, while by the end of 2012 no less than
eight countries on the continent had attracted more than USD 2 billion
in FDI year-on-year (Blackie 2014).
The share of FDI going into services in Africa has been increasing,
reaching 48% in 2014 compared to 24% in 2011. Finance, transport,
storage and communications and business activities receive the largest
shares of FDI in Africa—56%, 21% and 9% respectively. Hotels and
restaurants were one of the most promising sectors for attracting FDI in
Africa over 2013–2015 (United Nations Conference on Trade and
The Importance of the Services Sector for Africa 255
In addition, the Common African Position also calls for the inclusion
of the following goals for which the role of infrastructure services may be
less clear:
• economic growth;
• poverty reduction;
• food security;
• smallholder agriculture productivity improvements, including the
extension of credit to improve the productivity of smallholder
agriculture;
• job-rich growth;
• innovation (R&D spending);
The Importance of the Services Sector for Africa 259
Disclaimer The views expressed in this chapter are the authors’ own and
do not necessarily reflect those of their respective institutions.
Notes
1. That being said, United Nations Conference on Trade and Development
(2017a, b, p. 21) also underlines that reporting practices somewhat inflate
data on foreign direct investment in services.
2. Economic Commission for Africa calculations based on World Bank
(2014c).
260 O. Pesce et al.
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United Nations Conference on Trade and Development. (2014). United Nations
Conference on Trade and Development Database Geneva: United Nations
Conference on Trade and Development. Accessed in 2014.
262 O. Pesce et al.
9.1 Introduction
Agricultural products such as coffee and cocoa form a large portion of the
export commodities in developing countries. Indeed, It has emerged
from the literature that more than half of export earnings of more than
50 developing countries depended on three or fewer leading commodi-
ties in 1998 (World Bank International Task Force (ITF) 2000). In many
of these countries, commodity production and trade affect the livelihood
of millions of people, the government’s fiscal revenue and public expen-
diture, as well as the country’s trade balance, foreign reserve and credit-
worthiness (Xavier 2011; Cashin et al. 1999). Coffee is the developing
world’s biggest trading commodity, with an annual export quantity in the
range of 4.8 million to 5.4 million metric tonnes, and an export value in
the range ofUSD 5–12 billion over the period 1997 to 2005 (ICO, 2006
cited in Gemech et al. 2009 p. 2). In Ethiopia and Rwanda, for example,
coffee exports generated about 26% and 22% respectively in export rev-
enue in 2009 (ADB 2010). Coffee accounted for about 12% of global
supply and 11% of global exports between 2013 and 2014 (ICO 2014).
Ethiopia is the largest producer in the region, with 6.5 million bags, fol-
lowed by Uganda (3.7 million bags) and Côte d’Ivoire (1.9 million bags)
(ICO 2014). The commodity is predominantly produced by smallholder
farmers. In Ethiopia for example, smallholder farmers contribute more
than 95% of total production, which highlights the important implica-
tions of market conditions on growth and poverty reduction in the coun-
try (ADB 2010).
Yet the sector suffers various constraints ranging from commodity
price volatility, lack of access to financial resources, poor market intelli-
gence and limited export market access. These longstanding constraints
prevent countries in the region from fully harnessing the gains of com-
modity production and trade (UNCTAD 2015).
Coarse (1937, cited in Gabre-Madhin and Goggin 2005) argued that,
a fundamental concern of all societies is how the economy is organised
and how market exchange is co-ordinated. There are costs of using the
market mechanisms, which may be reduced or eliminated by certain
types of co-ordination in the market. He further identified two kinds of
costs: the costs of discovering what the relevant prices are and the cost
that may be saved by making a single long-term contract for the supply
of goods and services instead of short-term successive contracts. At its
core, then, the problem of economic order can be conceived as essentially
a co-ordination problem, depending integrally on both information and
on the nature of contracts (Gabre-Madhin and Goggin 2005).
On the one hand, information seems to be at the heart of the institu-
tional problem of order. That is, the transmission of information on
prices, quantities supplied, quantities demanded, actors and their actions,
product quality and attributes, and processes are key to market co-ordi-
nation. The problem of imperfect, asymmetric or incomplete informa-
tion, which in turn leads to decision-making with “bounded rationality”
(Herbert Simon 1955), missing markets and risk (Stiglitz 1982), and
high transaction costs (Williamson 1981), has been the focus of much
economic literature.
The Role of Market Institutions in Trade and Economic… 267
On the other hand, contracts and the costs associated with negotiating
and enforcing contracts are also at the heart of the problem of economic
order. Fundamentally, as Hicks (1969) noted, even the simplest exchange
involves a form of contract, where each party is abandoning rights over
the things that he sells in order to acquire rights over the things he buys.
Thus, all exchange is trading in promises, which is futile unless there is
some reasonable assurance that the promises will be kept. Extending this
concept, Douglass North (1990) has forcefully argued that “the inability
of societies to develop effective, low-cost enforcement of contracts is the
most important source of both historical stagnation and contemporary
under-development in the third world”. If North is right, then achieving
a self-co-ordinated market order in Africa is the way forward to emerge
from under-development and stagnation.
Many authors have suggested different ways in which firms organise
activities such as commodity chains (Selwyn 2015) and supply chains
(Connelly et al. 2013; Priem and Swink 2012). Scholars on commodity
chains place the emphasis on industries and the authority and power
relationships that have emerged within them to explain the role of a lead-
ing firm (Mahutga 2012)—a firm that shapes, controls, co-ordinates and
distributes the value along the chain (Azmeh and Nadvi 2014). Thus,
deriving from this, two distinct chains have been identified: the buyer-
driven commodity chains (in which the leading corporation plays a cen-
tral role as merchandiser and makes sure that all pieces of the business
come together); and producer-driven commodity chains (in which the
leading corporation plays a central role in production activities (Gereffi
and Korzeniewicz 1994, cited in Hernández and Pedersen 2017).
Other authors have placed their emphasis on the analysis of supply
chains, where the supply chain concept explains the firms’ relation-
ships with suppliers and customers to deliver product and services at
lower costs. However, the value chain concept goes beyond the supply
chain concept by explaining that entities may be connected and cre-
ate a value that is a source of competitive advantage (Al-Mudimigh
et al. 2004; Stabell and Fjeldstad 1998). It seems that it is the combi-
nation of these two latter concepts that underpins the idea of local
commodity exchanges, which primary role as a market institution is to
268 B. J. C. Eba and J. J. Struthers
9.2 Development
9.2.1 Background: Market Reforms and Its Impacts
on Agricultural Supply Chains
Prior to the market reforms in the mid 1980s, the introduction of inter-
national price stabilisation programs and measures and the intervention
of governments in the production and marketing of export commodities
have meant that producers have benefited from fixed prices for their pre-
determined production (Akiyama et al. 2003; Gemech and Struthers
2007).
The rationale for such interventions was that governments accepted
their interventions in primary commodity markets as part of the develop-
ment policy framework (Akiyama et al. 2003). While the instruments of
intervention varied across countries and commodities, a dominant archi-
tecture based on the marketing board (Deaton 1999; Kaplinsky 2004)
emerged. Designed to stabilise producer incomes, they often served as a
monopoly distribution network (Kreuger 1990), and administered
domestic prices that were normally pan-seasonal, pan-territorial and
detached from international prices (Gilbert 1999). Controls were fre-
quently extended to cash crops, which had a strategic value as a source of
foreign currency and tax revenues (Akiyama et al. 2003). Commodities
were often useful revenue sources, and some policy-makers saw taxing
commodity exports as the most convenient and practical way to finance
state activities (Bates 1981).
However, in the mid 1980s, many developing countries adopted vari-
ous economic liberalisation programmes (Akiyama et al. 2003; Gemech
The Role of Market Institutions in Trade and Economic… 269
Castells (1998), Stiglitz (2002), Ismi (2004) and Sachs (2005): that
reforms which have limited the governments’ interventions and pro-
moted the markets have failed to yield the desired result of sustained
growth in most developing countries that implemented them. Moreover,
Ismi (2004) noticed that by the late 1990s Latin America had experi-
enced “its worst period of social and economic deprivation in half a cen-
tury” (Ismi 2004, p. 9) after 15 years of implementing the IMF and the
World Bank’s imposed policies. Even though Stallings and Peres, and
Stiglitz highlighted the success of Chile in the region (Stallings and Peres
2000, p. 204; and Stiglitz 2002, p. 18), Latin America financed USD 145
billion in debt payment between 1982 and 1988 at a cost of economic
stagnation, increased unemployment and declined per capita income of
7%. Hence, the economies of American countries adjusted but did not
grow (Todaro and Smith 2009, p. 681).
Unfortunately, the heavily reliance of African countries on agricultural
commodities has exposed their economies to price risk. Indeed, the most
significant problem that has resulted from the liberalisation identified in
the literature is the price risk to which producers and intermediaries are
exposed and their inability to deal with it (Krivonos 2004; Gilbert 1999
cited in Gemech et al. 2009).
9.2.2.1 Côte d’Ivoire
As discussed above, the government body that was dealing with the
marketing of export commodities such as coffee and cocoa prior to
the market reforms was “la Caise de stabilisation” (commonly known
as CAISTAB), established in 1960. CAISTAB was under complete
control of central government and determined payments for all stages
along the marketing chain, including the producers’ remuneration.
Producers’ prices were meant to “reflect production costs” and provide
“equal remuneration for all crops” (Akiyama 1988). Consequently,
the ratio of producers’ prices for both coffee and cocoa has remained
The Role of Market Institutions in Trade and Economic… 271
9.2.2.2 Ghana
Prior to the reforms, the Ghana Cocoa Board (COCOBOD) fully con-
trolled the internal marketing, exporting, grower prices and marketing
margins (Xavier 2011). The Produce Buying Company (PBC), a subsid-
iary of the COCOBOD, bought coffee from producers and stored it in
its warehouses after processing, inspection and grading (Xavier 2011). A
different division of the COCOBOD, the Cocoa Marketing Company
(CMC), handled external marketing. However, the cocoa sector in Ghana
has not been an unmitigated success. Since the introduction of cocoa to
Ghana in 1888, the crop has undergone a series of major expansions and
contractions. For example, after emerging as one of the world’s leading
producers of cocoa, Ghana experienced a major decline in production in
the 1960s and 1970s, and the sector nearly collapsed in the early 1980s.
Unfortunately, unsustainable levels of government expenditure, an
increasingly overvalued exchange rate, import licensing, inflation, price
controls and heavy state involvement in the running of the economy
(Tsikata 1999; Leith and Söderling 2000) led to a collapse in 1983 and
the introduction of the Economic Recovery Program (ERP) became nec-
essary. In 1984, COCOBOD underwent institutional reforms aimed at
subjecting the cocoa sector to market forces. However, liberalisation was
only partial as the government adopted what Ofosu-Asare (2011) called
the “meso” or mid-way model to the reforms. Under the “meso model”,
the state fixed the producer price of cocoa after a recommendation by
COCOBOD even though the internal market had been liberalised.
COCOBOD played other important roles after the reforms: it regulated
the activities of the private licensed buying companies (LBCs); provided
seed money to the LBCs for their operations; implemented innovative
programmes like Cocoa Disease and Pests Control (CODAPEC), hi-tech
fertiliser application, and planting of hybrid cocoa varieties to enhance
cocoa farmers output; and controlled the activities of the cocoa value-
adding companies for example, by supplying them with cocoa beans
(Ofosu-Asare 2011). The main aims of the cocoa sector reforms were to
increase producers’ prices, reduce COCOBOD’s operational costs, and
liberalise the internal marketing of cocoa (Toyi 1991, p. 174 cited in
274 B. J. C. Eba and J. J. Struthers
9.2.2.3 Burkina Faso
the early 2000s, structural deficiencies have led to persistent trade deficits
(Savadogo 2009).
Hausmann et al. (2007) noted that export sectors are key to economic
growth, as they typically have a cascade effect on other sectors.
Unfortunately the issue of commodity dependence in most developing
countries exposes them to unbalanced growth patterns driven by a
restricted number of export commodities traded on highly volatile world
markets (Hausmann et al. 2007). Furthermore, these commodity mar-
kets are characterised by distortive policies and barriers to entry or par-
ticipation for farmers in developed countries. Meanwhile commodity
production and trade are the primary means of earning a living for mil-
lions of households. Commodity sector development is essential for pov-
erty alleviation and overall economic development. Many ACDDCs
faced with both high marketing costs and price volatility see commodity
exchanges as an alternative way to manage risks and increase efficiency in
a liberalised market environment (Gilbert 1996; Morgan 2001; Thurow
and Kilman 2009).
Smallholders Plantations
Domestic
industry
Exporters
(eg. International
companies)
Semi-finished Domestic
consumers
International
Buyers/Grinders
Fig. 9.1 Post-market reform basic cocoa supply chain in a country where there is
no LCX. (Source: Authors’ own figures)
278 B. J. C. Eba and J. J. Struthers
prices were frequently fixed for the crop year. To smooth annual price
fluctuations, domestic prices were uncoupled from international prices.
And to resolve regional disparities, fixed prices were pan-territorial so that
all producers received the same purchase price. Governments obtained an
economic gain from farmers products without there being any reciprocal
benefits to the farmer. This is in line with the advocates of the AT argu-
ment that the corporation’s primary objective is to maximise the share-
holders’ wealth, claiming society is best served by companies pursuing
self-interest and economic efficiency (Friedman 1970). MBs did not
empower farmers; they created the controls necessary to sway farmers to
make decisions that are in their best interests (Jensen and Meckling
1976). However, high levels of corruption exacerbated parastatals’ finan-
cial difficulties. This, combined with governments’ fiscal problems made
these systems unsustainable and prompted market reforms in many
African countries (Akiyama et al. 2001).
Figure 9.1 shows that in a liberalised commodity market, producers
have now been given the opportunity for direct trade. In some countries,
such as India, producers have three ways of selling their products: they
can sell directly to exporters, hold it at a curing factory before selling it,
or sell it at voluntary auction (Akiyama et al. 2001). Currently most pro-
ducers market their coffee directly to exporters. The exporters commis-
sion agents and provide them with a range of acceptable daily prices to
buy from the growers. These agents, knowing that producers are unaware
of the price range given by the exporters, often take advantage of produc-
ers by offering them the lowest price possible. Meanwhile, producers
with very little information about the prices and unable to store their
products have to take the prices offered. Since coffee producers began to
trade their products on both the Multi Commodity Exchange and the
National Commodity & Derivatives Exchange of India Ltd, their income
has increased considerably (MCX 2014).
In other countries such as Ghana where a partial implementation of
market reforms was adopted, MBs still play a role in the marketing of
commodities, such as cocoa, by setting a minimum price for farmers,
providing licences to traders, among other things. There are about 26
LBCs buying cocoa from farmers to sell to Ghana’s COCOBOD (USDA
2012), which in turn exports it through its subsidiary, the Cocoa
280 B. J. C. Eba and J. J. Struthers
Fig. 9.2 Centralised trading system connecting various actors in a value chain to
the global value network. (Source: Ethiopian value chain, adapted from Ethiopia
Ministry of Trade, coffee opportunities in Ethiopia, (2012))
286 B. J. C. Eba and J. J. Struthers
∆=
( 226.67 − 109.39 ) = 117.28 × 100 = 51.74%
(9.1)
226.67 226.67
∆=
(1.08 − 0.40 ) = 0.68 × 100 = 62.96%
(9.2)
1.08 1.08
∆=
( 684.64 − 181.91) =
502.73
× 100 = 73.42% (9.3)
684.64 684.64
9.7 Conclusions
Local commodity exchanges play an important role in the global value
chain. Their primary role is to act as a market institution, connecting the
various actors in the commodity markets and creating value for those
actors. The ECX has shown that commodity exchanges can help to reduce
transaction costs and improve farmers’ profits by reducing the number of
intermediaries involved in coffee trading. Results from the percentage
analysis and the ordered logit all confirm that the ECX has had a positive
impact on the Ethiopian trading system, thereby adding value to the agri-
cultural marketing system.
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10
Can Trade Openness and Global Value
Chains Improve Real GDP Growth
and Human Development Index in Sub-
Saharan African Countries?
Beatrice Isah Dara
10.1 Introduction
In this chapter, the author analyses the role of trade openness on the
human development index (HDI) and economic growth in five Sub-
Saharan African countries with the lowest HDI, using unbalanced panel
data from 1980 to 2016. The use of the Hausman test allows the researcher
to determine the right estimate for analysing panel data.
The HDI highlights the importance of using people and their capabili-
ties as the “ultimate” criteria for assessing the development outcome of a
country alongside economic growth. It is a “composite index” that mea-
sures the human development achievements of a country in terms of (a)
health–life expectancy at birth or living a long and healthy life, (b) educa-
tion–average years of schooling for adults and expected average years of
schooling for children and (c) standard of living–the Purchasing Power
B. I. Dara (*)
Center for African Research in Enterprise & Economic Development—School
of Business & Enterprise, University of the West of Scotland Paisley Campus,
United Kingdom, Paisley, Scotland
Parity (PPP)-adjusted gross national income (GNI) per capita (see UNDP
2015). Over the years, the HDI measure has been accepted as an indica-
tor for welfare comparison across countries due to its ability to capture
multi-dimensional well-being variables (which are the life expectancy,
knowledge and living standard) that extend beyond the purchasing power
of personal income (Harttgen and Klasen 2012) and due to its simplicity
(Hou et al. 2014). According to UNDP (2015), HDI can be used to
examine national policy choices. It can compare countries with the same
level of GNI per capita and question why they end up with different
human development outcomes.
Nevertheless, this indicator has been criticised in terms of its method-
ology (Ravallion 1997; Grimm et al. 2008; Harttgen and Klasen 2012)
as it does not measure variables such as inequalities, poverty, human secu-
rity and empowerment. The indicator has also been criticised in terms of
a development viewpoint. Literature has advocated that both social and
development components, such as cultural freedom, human rights, access
to social services, peace and security should be included in the measure-
ment of the HDI (Noorbakhsh 1998; Sagar and Najam 1998; Anand
and Sen 2000).
Correspondingly in the literature, trade openness has received positive
recognition as a strong factor that influences economic progress, espe-
cially in the long run. Similarly, global value chains (GVCs) have received
positive recognition as strong factors that influence economic progress
through linking and co-ordinating global trade activities from the pro-
duction of raw material, through the stage of finished product and to
supplying the finished goods at global markets. GVCs link production
stages from start to finish hence linking and co-ordinating activities of
firms across countries. GVCs have provided poor countries with the
opportunity to expand their export hence strengthening their integration
into global economy. According to World Bank (2017), poor countries
that are involved in GVCs have experienced rapid productivity growth,
employment growth and an improvement in their standard of living and
a decline in poverty. This chapter, therefore, aims to investigate the impact
of trade openness, GVCs, education, foreign direct investment (FDI)
and GDP per capita on the HDI in the sub-Saharan African countries
that recorded the lowest HDI between 1980 and 2013, such as Chad,
Can Trade Openness and Global Value Chains Improve Real… 299
nel that also brought in products (imports) from other countries, which
were not produced locally but where there was an increasing demand
(Thirlwall 2006). Adam Smith, in his book The Wealth of Nations, high-
lighted that free international trade brings about global competition and
economic growth. Furthermore, IIASA (2008) showed that free trade
encourages: (a) exploitation of economies of scale in countries where more
units of goods and services can be produced on a larger scale at a minimal
cost; (b) an increase in economic wealth—GDP; (c) an efficiency of
resource allocation; (d) R&D—competitiveness and technology spillover.
The potential gains to trade openness are commonly classified into static
and dynamic gains from trade as shown in the Fig. 10.1.
Static
•Comparative Advatage Dynamic
•Economies of Scale
•Competitive Advantage
•Economic Wealth •R&D
•Effective Resource Allocation •Technology Spillover
•Innovation Process
(Process, Product organisation
innovation)
refine crude oil could have produced 4057 tonnes of uranium instead,
then the opportunity cost of refining crude is the 4057 tonnes of ura-
nium. It would be cheaper for Niger to import petroleum from Nigeria
and then produce uranium. This means Niger has a comparative advan-
tage in uranium production, while Nigeria has a comparative advantage
in producing petroleum.
Limited
Restrictions
and Tarriffs
Sound
Infrastructural
macroeconomic
Facilities
Policies
Trade
Openness
Transportation
Fabrication and Construction,
Materials and Procurement,
installation and Refining
Pipeline managemnt
commissioning, surveying
and positioning services Retail
Product transportation and
distribution, truck package,
disposal and industrial waste
transport services.
Distribution and marketing of
petroleum products
Fig. 10.3 Global value interlinkage in the oil and gas sector in Nigeria. (Source:
Author 2018)
Fig. 10.4 Relationship between trade openness and GVCs in Chad, Niger,
Democratic Republic of Congo and Sierra Leone. (Source: Author 2018)
Trade Openness
Increased government
expenditure on
healthcare, education
and facilities
Fig. 10.5 The conceptual framework linking trade openness and human devel-
opment. (Source: Author 2018; Thirlwall 2006; Razmi and Yavari 2012; Kabadayi
2013)
Can Trade Openness and Global Value Chains Improve Real… 309
In 10.1, yit represents the dependent variable, xit represents the observed
or included variables in the model, α is the intercept, β is the estimated
coefficient, μit is the unobserved variables and εit is the error term. For
instance, in model (1) where country i = Chad, …Sierra Leone and time
periods t are from 1980 to 2016, if the unobserved variables μit have an
effect on yit and are correlated with the observed variables xit, the FEM
will be appropriate for estimation. But if the unobserved variables μit have
an effect on yit and are uncorrelated with the observed variables xit, the
REM will be used for estimation. Nevertheless, the Hausman test will
help to determine the right model to use in the panel data analysis
(Table 10.1)
10.7 Models
To decide between an FEM and REM, a Hausman test was conducted to
know whether the unobserved variables μit are correlated or uncorrelated
with the observed variable xit in the model. The Hausman test result indi-
cates that the unobserved variables in the model μit are uncorrelated with
the observed variable xit (see Table 10.2) As a result REM is considered in
this chapter.
Model (1)
The model is specified using the same structure as Brooks (2008) although
using economic data instead. Brooks used financial variables to estimate
their impact on banking growth using a REM. To investigate the impact
of trade openness on HDI and real GDP growth while simultaneously
controlling for other factors in the panel data, an REM is used in 10.2
and 10.5.
Model (2)
To test the impact of trade openness on economic growth, we specified
our model using the Cobb–Douglas production function by combining
capital and labour.
Here, rGDP^ represents real GDP growth, TOit represents trade open-
ness, logKit represents capital stock, Lit represents labour force, μ repre-
sents the observed variables, ε is the stochastic error term, a is the
intercept, β1…n are the parameters, i is the country vector and t represents
the different time periods.
Model (3)
To measure the impact of trade openness on GVCs, the variable export
value-added index is used as a proxy to measure GVCs as suggested by
Johnson (2017). The variable is sourced from World Bank National
Accounts Data (2017). The data are time series data from 1980 to 2016.
A model similar to Aichele and Heiland (2016) is adopted. They derived
a model for value-added trade flows based on the methodology developed
by Johnson and Noguera (2012). The export values index is the current
value of export converted to US dollars and expressed as a percentage of
the average for the base period 2000. OLS regression is used to run the
model to determine the impact of trade openness on GVCs at individual
country level. The following regressions are used:
logGVCs _ Chadt = β 0 + β1TO _ Chadt + rGDP ^ t +ε t (10.6)
logGVCs _ CARt = β 0 + β1TO _ CARt + rGDP ^ t +ε t (10.7)
logGVCs _ DRCt = β 0 + β1TO _ DRCt + rGDP ^ t +ε t (10.8)
logGVCs _ Nigert = β 0 + β1TO _ Nigert + rGDP ^ t +ε t (10.9)
logGVCs _ Sierra Leonet = β 0 + β1TO _ Sierra Leonet
+rGDP ^ t +ε t (10.10)
In 10.6, 10.7, 10.8, 10.9, and 10.10, logGVCst represents the variable
GVCs for the five respective sub-Saharan African countries included in
the analysis, TOt represents trade openness and rGDP^ represents real
GDP growth, t represents the 37-year time period from 1980 to 2016
Can Trade Openness and Global Value Chains Improve Real… 315
variables, ε is the stochastic error term, β0 is the intercept and β1…n repre-
sents the parameters. The OLS estimator is a method of estimating
parameters β1…βn in a linear regression model.
Y = β 0 + β1 x1 + β 2 x2 + …. + β n xn (10.11)
( )
n 2
SSR = ∑ yi − βˆ0 − βˆ1 xi1 − βˆ2 xi 2 −…. − βˆn xin (10.12)
i =1
Table 10.3 Breusch and Pagan Lagrangian multiplier test for random effects
Estimated results Var sd = sqrt (Var)
Log HDI 0.0448205 0.2117085
E 0.0185305 0.1361268
U 0.0013375 0.0365713
Test: Var (u) = 0
Chibar2 (01) = 11.07
Prob > chibar2 = 0.0004
Author (2018)
Can Trade Openness and Global Value Chains Improve Real… 317
Table 10.5 Hausman test for model (2) (real GDP growth)
Test: Ho: difference in coefficients not systematic
Chi2 (3) = (b-B)’[(V_b-V_B)^(−1)](b-B)
= 0.88
Prob>chi2 = 0.8298
(V_b-V_B is not positive definite)
Author (2018)
Table 10.6 Breusch and Pagan Lagrangian multiplier test for random effects
Estimated results Var sd = sqrt (Var)
rGDP^it 62.81454 7.925562
E 49.6869 7.048894
u 0 0
Test: Var (u) = 0
Chibar2 (01) = 0.00
Prob > chibar2 = 1.0000
Author (2018)
Can Trade Openness and Global Value Chains Improve Real… 319
Bruckner and Lederman (2012); and Chatterji et al. (2013) who support
the argument that trade openness can accelerate GDP growth. Barro and
Martin (1997) further highlight that trade openness will enhance eco-
nomic growth in the long run through the creation of access to interna-
tional markets and importation of technology and knowledge into home
countries.
Besides the trade openness variable, the regression included other
potential determinants of economic growth (capital accumulation, and
labour force) based on the Cobb–Douglas production function. From
the pooled OLS and RE results in Table 10.7, we find capital accumula-
tion (logKit) is associated with economic growth. It has a positive and
significant impact on economic growth: a 1% increase in a country’s
capital accumulation will increase economic growth by 0.619. The results
are consistent with the work of (Keho 2017) who found a long-term
relationship between economic growth and capital accumulation.
However, the variables of labour force and education did not show any
significant relationship to economic growth. Research conducted by the
International Institute for Applied Systems Analysis showed that coun-
tries with low levels of education tend to have a slow rate of economic
growth.
join a production chain. Chad has oil, cattle, cotton, gum Arabic and a
large pool of labour. This provides an excellent opportunity to the country
to specialise in the production of cattle, cotton and gum Arabic, hence
generating a portion of value-added goods. This means that a share of the
value-added of exports is captured locally. Knowledge transfers from other
producers in the value chain can support productivity and income growth
(Allard et al. 2016). Sub-Saharan countries such as Niger and Sierra Leone
have made progress in integrating value chains where uranium ore, dia-
monds, rutile, cocoa, coffee, livestock, cowpeas and onions are the com-
modities playing a major role. They further added that Democratic
Republic of Congo and other oil exporters in sub-Saharan African coun-
tries are the least integrated into GVCs, suggesting that diversification of
trade away from natural resources has stagnated if not gone backwards
over the past 20 years. To improve the impact of trade openness on GVC
in Central African Republic and Democratic Republic of Congo, and to
take advantage of their comparative advantages, these countries need to
create policies to improve their business environment, infrastructure
(energy, good transportation and c ommunication links), improve political
transparency and uphold their rules of law. For GVCs to be more effective,
the manufacturing sector and industries need to be revived because they
are the most vital sector for stimulating economic growth, productivity
and value chains.
Notes
1. This is the act of differentiation, integration and vector calculus for func-
tions involving more than one variable (multiple variables).
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Index1
1
Note: Page numbers followed by ‘n’ refer to notes.
M
K Malawi (MWI), 34, 38, 137, 155,
Kahneman, D., 148 211n15, 222, 223, 255
Kaplinsky, R., 7, 148, 170, 268 Market-based risk instruments, 151
Keane, J., 11, 148, 161n6, 217, 218, Marketing boards (MBs), 149,
230–235, 236n6 152–154, 164n15, 268,
Keynes, J. M., 133, 143 277–279, 281, 283
Kimmis, J., 148 Market segment, 57–60, 63, 70, 71,
Korzeniewicz, M., 7, 140, 267 77
Kuleshov, A., 150 Materials handling, 46, 93, 104,
106, 107, 109, 111–113, 117,
127
L Mauritius (MUS), 171, 174, 187,
Landlocked countries, 22, 71, 72, 198, 205, 210n12, 222, 246,
189, 190, 200, 211n16 252, 255, 256
Laroque, G., 133 Mayer, G., 145
332 Index