Logistics is fragmented in Africa, but an all-around approach can solve the problems.
Solving the problem of logistics for the African market is critical. Africa is still heavily reliant on roads which accounts for 80% of the movement of goods and passengers, according to the African Development Bank. Of that 80%, only 15% is paved in Nigeria, per this Stears report. On another hand, investment in logistics startups on the continent is not as easy as it seems. Ciku Mugambi, CEO of Kobo360, a Nigerian logistics startup, admitted that operating a logistic business in Africa is not “sexy” compared to other tech sectors like fintech, for instance.
Mugambi said this during a panel session at TechCabal’s flagship conference, Moonshot, on Thursday, October 12. “We are literally just moving goods and people from one place to another and most people don’t find that to be very exciting. There is no doubt about how important logistics is. Nothing goes anywhere except we provide the means for that to happen,” Mugambi said. [ad]
The inevitability of finance
Very closely associated with the logistics business is the consistent need for finance. Mugambi said this is inevitable because the business deals with micro-fleet owners who need to get paid before they run their next trip. “For us to mobilise as many transporters to guarantee reliable supply to our enterprise clients, we need that velocity to be happening faster. Because our bank won’t extend purchase orders financing, we have to bridge that gap,” she explained.
Another panellist, Miishe Addy, co-founder and CEO, Jetstream Africa, shares a similar view. Addy insisted that truck drivers should not be given loans to fulfil orders without any assets. She explained that unsecured loans can lead to loss of one’s investment in the business. “If lenders don’t have a security interest in a cargo, you are at a loss,” she said. Her argument is simple: no logistics company should give free money away. If credit is provided, it would have to be on top of the asset to mitigate against any form of default from the fleet owners.
Solving the problem a step at a time
Lack of finance is just one portion of the many issues that logistics companies face. Many logistic startups have to decide whether to own their own fleet or have another firm fulfil those orders. For investors, how these companies manage this aspect is top of mind at all times and the determinant factor for any investment. On the other hand, it is a challenge coordinating drivers of these trucks or e-hailing drivers in the mobility sector who battle fuel hikes, asset maintenance and poor road systems.
Mugambi is positive about the outlook for logistics despite the fact that the sector is “highly fragmented, opaque and informal”. She admits that the business requires investors who are familiar with devaluation amidst the other economic situations plaguing the continent. “If I show my numbers when the naira was at ₦450 and now it’s ₦750, you are not asking what happened. Also, it requires investors who are in it for the long haul and a specific kind of capital attached to it,” she said.
Another panellist, Onyeka Nduka, head of growth and marketing at Haul247, said it is time to activate the African Continental Free Trade Area (AfCFTA) agreement and get government buy-in on road maintenance. “We need more financing and structure for the businesses to have access. I believe that private-public sector partnership will drive that, and it makes projects more efficient,” she added.
