According to World Bank data, sub-Saharan Africas growth increased moderately in 2014 to 4.5 percent, compared with 4.2 percent in 2013. The organization predicted that regional gross domestic product growth will remain broadly unchanged at 4.6 percent in 2015. Looking farther ahead, the bank reported, Despite headwinds, growth is projected to pick up to 5.1 percent by 2017, lifted by infrastructure investment, increased agriculture production and buoyant services.

Despite this positive outlook on sub-Saharan Africa, lack of infrastructure remains a daunting challenge to intra-African trade. The World Bank report, Defragmenting Africa, emphasized that the African market remains highly fragmented, resulting in the loss of enormous opportunities to exploit cross-border trade and, in turn, to generate new jobs. Effective regional integration is more than simply removing tariffs – it is also about addressing the barriers that undermine the daily operations of ordinary producers and traders of both goods and services, the report stated.

Logistical Challenges

In a presentation at the Argus Africa Base Oils & Lubricants Conference in Johannesburg in June, Samer Akram, director-operations for Unichem South Africa, noted, Intra-Africa trade is a mere 7 percent, compared to intra-European trade at more than 70 percent and intra-Asian trade, which exceeds 55 percent. The United Nations Conference on Trade and Development (UNCTAD) report, Intra-African Trade: Unlocking private sector dynamism, noted a significant decline in intra-African trade. The share of intra-African trade … rose from 19.3 percent in 1995, reached a peak of 22.4 percent in 1997 and fell to 11.3 percent in 2011.

The report noted that African trade with the rest of the world grew much faster than intra-African trade. Over the period from 1996 to 2011, intra-African trade grew annually by 8.2 percent while trade with the rest of the world grew by 12 percent.

Of the 55 countries on the African continent, only 38 have ports; the remaining are either landlocked or have problems with accessibility. Landlocked countries in the region require efficient transport links to enjoy competitive prices for landed goods and exports, said Akram. Most ports in the region currently operate near capacity and experience delays due to poor integration with other transport modes and slow clearance processes.

Akram identified the main transshipment points for regional traffic as Abidjan, Cote dIvoire; Dar es Salaam, Tanzania; Djibouti; Durban, South Africa; and Mombasa, Kenya. However, he said, They are not major hubs on the main international itineraries. He added that container transport in sub-Saharan Africa has an average annual growth rate of 7.2 percent – with a 13.8 percent growth in West Africa – but it is still far less than 1 percent of total global container traffic.

Challenges

At the Argus conference, Kamil de Villiers, lubricants manager, international business development for Engen, identified three critical challenges for those wishing to do business in Africa: in-country production, in-country distribution and importation. According to de Villiers, in-country production challenges include access to raw materials, lack of storage facilities, limited manufacturing capability, high cost of toll blending, long lead times and a degree of inflexibility by both customers and producers.

In-country distribution challenges include lack of health, safety and environmental compliance in distribution channels, traffic congestion, poor road conditions (especially in the rainy season), remoteness and limited market reach. Finally, import challenges include high duties, fragmented customs, border and port congestion and widely varying import requirements and legislation.

Port congestion is definitely an issue, said de Villiers, as well as high import duties. Legislation dictating who can compete in local markets also varies widely from country to country, as do reporting requirements. One country asks for certain information, while the next will ask for totally different information, he said.

Ranjith Ramkissoon, technical director for Umongo Petroleum, South Africa, said that high transport costs and poor infrastructure are significant challenges to growth for the lubricant market on the continent. There are infrastructure deficits all over Africa – rail, roads, ports and power generation – with fewer roads than were available 30 years ago, he said. The impact of poor infrastructure results in loss of business due to poor service and erratic supply, along with a high cost of doing business. It also discourages foreign direct investment and private investment while increasing maintenance costs.

Unichems Akram said that several issues are a result of the fact that most ports and railways in sub-Saharan Africa were built for resource extraction rather than to facilitate trade. Africas colonial history highlights road and rail routes built to transport goods out of African countries as opposed to creating regional networks for trade, said Akram. This results in a significant amount of time and money to cross borders because of the poor logistics and transport infrastructure. This is a deterrent for intra-African trade and international trade with Africa, and, as a result, the cost of doing business in Africa becomes more expensive.

Akram noted that in 2006, one extra day in port cost more than U.S. $35,000 for a 2,200-TEU (twenty-foot equivalent unit) vessel, and proportionately more for larger ships. Delays are often caused by long processing and administration times and by poor handling in congested port areas, as opposed to lack of basic quay capacity, he said. Consequently, shipping lines have responded by introducing congestion charges, ranging from U.S. $35 per day for a 20-foot container in Durban to U.S. $425 per day in Tema, Ghana.

Market Review

Engens de Villiers reviewed two of Africas lubricant markets: Tanzania and Mauritius. He noted that Tanzania is a huge market where lubricant consumption is not just concentrated in the capital city of Dar es Salam but is spread throughout the country.

To do business in Tanzania, you have to have a significant footprint as far logistics and operations are concerned, said de Villiers. He noted that a serious issue facing marketers is a glut of substandard imported products in the market that are priced below the cost of quality oils. At some point, consumers need to be educated about the long-term consequences of using low-cost products in their machines.

De Villiers described Mauritius as a well-regulated market in line with the worlds best standards. He said that the countrys retail market comprises four major marketers but also includes a host of imports from outside Africa. Mauritius is an advanced economy and very good as far as regulation is concerned. It is not as challenging as some other countries on the continent, he said.

Despite the challenges Africa poses, de Villiers said, The African continent does have tremendous potential vs. other markets that are saturated and have sophisticated consumers, resulting in a high barrier to entry. However, he emphasized the need to introduce minimum standards in Africa to serve the interests of individual countries and the environment. While identifying consumer education as vital, de Villiers noted a pressing need for legislation controlling the disposal of waste oils in each country.

For suppliers considering entering the African lubricants market, de Villiers advised them to adopt a long-term view. Africa is not about coming in and making a profit and not investing in the local community. I think companies need to have a long-term outlook and make sure they engage with local stakeholders. Giving back to the local community should be paramount, he concluded.