By Rafiq Raji, PhD
According to PwC, a consultancy, it is more expensive to ship a container to and from Africa than for other continents. Small shipment sizes are one reason why. Dwell times are another. Some of these inefficiences are due to inadequate infrastructural and human capacity; well-run African ports outside of South Africa tend to be those concessioned to foreign operators. Were African ports to be more efficient, the cost of African goods exports and imports could be cut by more than half, research shows. Higher volumes per port could be a solution. Economies of scale via regional hub ports with shipping volumes of more than 2 million twenty-foot equivalent units (TEUs) per annum would reduce transport costs and make African goods more competitive. That is the thinking of PwC, at least, elaborated in a recent report. Shipments to West Africa, say, would go to one hub port, from where smaller ships and/or inland road and rail infrastructure would be used to transfer the containers to neighbouring countries. PwC believes these regional hub container ports are likely to be those in Durban (South Africa), Abidjan (Ivory Coast) and Mombasa (Kenya). Currently, only the Port of Durban, which handles more than 2.5 million TEUs, qualifies as one. There would eventually be other regional hub port contenders, though.
The Chinese factor
There has been increased invesments in African ports lately; about 10 percent of the global total (based on estimates by PwC). Most are to improve existing port facilities in addition to better managing them via concessions. There are also a few planned greenfield investments. Considering the continent’s contribution to global trade growth has been below 1 percent over the past three decades, the increased interest seems a little counterintuitive. But that would hardly change if what are mostly inefficient African ports are not revamped. African governments now see the need, certainly. Not that they did not hitherto. With so many demands on the public purse, supposedly self-funding ports could not have been a priority. So what changed? John Ashbourne, Africa economist at London-based Capital Economics, a consultancy, suggests reasons why: “There are a combination of factors at work; but a key one is the large pool of Chinese capital that is targeting infrastructure programmes abroad. While France remains a dominant player in West Africa, a lot of the big schemes elsewhere (in Kenya, for example) are only possible due to Chinese involvement.” China, which is now the continent’s biggest trading partner, clearly sees how mutually beneficial it would be to help out.
In late March, Nigeria’s vice president Yemi Osinbajo flagged off the construction of the Lekki Deep Sea Port. When completed, it would be able to handle 1.5 million TEUs annually and as much as 4.7 million subsequently; eclipsing the 650,000 TEUs Tincan Island Apapa port with a channel draught of 13.5 metres. With an expected post-dredging draught of 16.5 metres, the Lekki Port’s channel would also be the deepest in the country; and perhaps the West African region. If all goes according to plan, it would rival that at Abidjan eventually; which is already doubling its capacity to 3 million TEUs from about 1.2 million currently. The $962 million worth of upgrades to the Port of Abidjan by a Chinese construction firm, which began in October 2015, includes a second container terminal and a widening of the port’s main channel. And in east Africa, the Dar-es-Salam and Doraleh ports in Tanzania and Djibouti respectively, are already cannibalising the traffic of the Kenyan port in Mombasa, with Ugandan and Rwandan bound goods increasingly transiting via Dar-es-Salam and Ethiopian ones almost exclusively moved via the port at Doraleh. The capacity of the port at Dar-es-Salam is also being doubled and should be able to handle 28 million tonnes of cargo a year by 2020; when new capacity in Abidjan and Lagos are expected to come on stream. The Chinese are also the ones doing the construction. Incidentally, the Chinese are also the ones doing the deepening and expansion of the port at Walvis Bay in Namibia, which President Hage Geingob confirmed in his April state of the nation address, would be completed in 2019. Apart from the Lekki Port, other greenfield projects are being embarked on. In March, Sudan and Qatar agreed a $4 billion concession to develop the Red Sea port of Suakin in Sudan; though this could potentially be at conflict with an earlier deal with Turkey for the same port in addition to building a naval dock. Similarly in March, about a month after losing its Djibouti Doraleh container terminal port concession, DP World, a Dubai-headquartered ports operator, won a 30-year joint venture management and development concession for a new port at Banana creek in the Bas-Congo province of the Democratic Republic of Congo (DRC) that is expected to cost at least $1 billion to construct. The rationale is the same as the Lekki Deep Port. The DRC’s current main port is too shallow to handle bigger vessels. The new investments are providing model African port operators with new opportunities. For example, South Africa’s Transnet aims to operate three berths at the new port being constructed in Lamu, Kenya and is also looking at a deal with ports authorities in Benin Republic in west Africa. At least $2 billion in port investments are also planned in Ivory Coast, Mozambique, and Tanzania; some of which would be accompanied by new railways and roads.
More ports, more trade?
Is there a risk of overcapacity then? After all, some ports are already cannibalising each other’s traffic. It would be short-sighted to think so. According to the IMF in its April World Economic Outlook report, China is expected to grow at about 6 percent over the next half a decade, and thus remain the main driver of global growth; estimated at about 4 percent in the period. In the same vein, Africa’s projected economic growth of about 4 percent over the next five years is expected to remain driven in part by international trade; more of which it now does with China. In its most recent update, the IMF notes a strong recovery in global trade, which grew by an estimated 4.9 percent in 2017. And although a potential trade war between America and China is a cause for concern, and could potentially dampen the resurgent optimism, recent developments like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership by countries that account for 15 percent of global trade and the African Continental Free Trade Area (AfCFTA) agreement, point to likely higher trade growth in the future. So, better-run African ports, with greater capacity, and indeed new ones, would potentially position the continent to be a more active participant in global trade. PwC explains the logic in its report this way: “increased volumes of trade and more productive and attractive ports will accelerate changes in global shipping routes serving Africa…[and] will lead to increased integration with global shipping and trade routes,…reducing transit times and reducing the unit cost of transport to and from the continent”. But is it that simple? Not entirely. Capital Economics’ Ashbourne assesses the matter this way: “Improved infrastructure will help to boost trade [but] the real problem is often “last mile” links. [So] it doesn’t matter if the port functions perfectly if the rural roads that lead to the inland areas don’t work properly.” Infrastructure for trade, whether they are ports, roads or railways, have to be integrated to make a difference.
An edited version of this article was published by African Business magazine in May 2018