A positive challenge: The logistics sector looks set to grow

Ghana’s recovery from a dip brought on by the global financial crisis is certainly good news for the logistics sector. With economic growth of 14.5% in 2011, according to the IMF, and as the government plans to use the offshore associated gas finds to bolster economic diversification, the prospects for logistics firms look strong.

A brief look at the trade statistics illustrates the growing potential of the logistics market. In 2011, imports grew in value by 46.2% to $15.97bn, while exports rose by 60.6% to $12.79bn. Ghana is likely to see these figures continue their upward trend as it is keen to develop its manufacturing and industrial base, which needs intermediary imports to fuel this expansion. The onset of hydrocarbons production is also expected to be a large growth contributor, particularly around Takoradi, which, as the nearest commercial port to the offshore oilfields, has become something of a boom town in recent years. “The impact of the oil sector, especially around Takoradi, is creating many opportunities for logistics operators,” said Wolfgang Busch, the country commercial manager at Bolloré Africa Logistics Ghana.

RISING CONSUMPTION: The direction the country is moving in is clear, even at the consumption level. As Ghana targets middle-income status and a per capita income of $4800, consumption is likely to increase, bringing greater demand for freight-forwarders and warehousing capacity. “We are not in the thick of the oil and gas boom but an expanding middle class is creating more opportunities across the board,” Bryan Taylor, the CEO of Stellar Group, told OBG.

Indeed, as Ghana’s per capita income grew by 60% between 2006 and 2011, and is expected to increase by a further 50% by 2016, according to the IMF, the effects are already beginning to be felt by transporters and logistics firms alike. According to Godfred Yaw Ofosu, Maersk Line’s country sales manager, one of the reasons for continued growth in container shipping is a developing consumer market. “We are seeing increased consumption and new patterns; for example, there has been growth in high-value electronic goods,” he said.

CHALLENGES: However, there are still significant challenges for the industry. An immediate concern for importers is the negative impact the weak currency is having on the trade environment. Due to the poor reputation of the cedi, the level of imports has been affected. With a growing current account deficit, this could lead to a decline in imports, negatively affecting freight forwarders and warehousing operations. In the longer term, there will be a need to address the entrenched problems in the logistics sector. According to the 2012 Logistics Performance Indicators produced by the World Bank, Ghana came in 108th out 155 countries, scoring 2.51 on a scale of 1 (worst) to 5 (best). While the country ranked above neighbouring Nigeria (121st), it was well below several other countries on the continent, including South Africa (23rd) and Morocco (50th).

CROSSING BORDERS: Ghana continues to experience a number of issues when it comes to transporting goods across its borders and on its land transport network. According to the World Bank’s “Doing Business Report 2012”, Ghana slipped three places in the rankings to 90th out of 183 economies on trading across borders. The country performs well against its sub-Saharan peers on the time and cost of import and export (29 days at a cost of $1315 per container to import, compared to 37 days at $2502 for sub-Saharan Africa), but it is still well behind the OECD average (11 days at $1085 per container).

Furthermore, there are also problems with transportation within the country. A 2010 US Agency for International Development report found it costs seven times more to deliver the same container from Tema Port in Accra to Ouagadougou in Burkina Faso than from Newark, New Jersey to Chicago, a roughly equal distance. Even though trucker salaries in the US are approximately 25 times higher than those in Ghana, Ghanaian truck prices are higher. This is driven by a number of factors, including price increases associated with the enforcement of Economic Community Of West African States regulations on axle loads, preventing trucks from maximising their cargoes (overloading), as well as instances of border and checkpoint corruption.

The logistics environment has also been hampered by a lack of warehousing capacity . While the World Food Programme’s 2011 “Logistics Capacity Assessment Report”, found there was excellent warehousing capacity at Tema – almost 35,000 sq metres provided by Damco, Mankoadzie and SDV – it noted that quality leasable options in the rest of Ghana are limited. Though there have been attempts to remedy this, particularly in the agricultural sector, including the Millennium Challenge Corporation’s agri-business centres in Tamale, the time and cost of building a warehouse (more than six months at a cost of GHS468,027 [$277,493], according to the “Doing Business” report) is still a concern.

THE LONG TERM: The longer term success of the sector, and investors’ appetite to dedicate capital to logistics, is likely to rest on the ability of the government to deliver on its strategy of making Ghana a regional trade hub. The country has several factors in its favour, including political stability and security. In addition, improvements in efficiency at Tema Port have already raised confidence in Ghana as a transit corridor for goods headed to the rest of West Africa. “Several investors are in talks about setting up manufacturing plants using raw materials imported through Tema,” Ofosu said.

SLOW PROGRESS: However, significant obstacles remain. Perhaps the greatest challenge ahead is the Baonkra Inland Port project near Kumasi. First mooted over a decade ago, the project to construct a multi-modal transport hub connecting freight networks in the south and the north has seen little progress since 2001. The government has been unable to attract substantial investment. In September 2011 Michael Achiah, the northern sector manager of the Ghana Shippers Authority (GSA), told local presssignificant capital investment as well as the risk on returns has scared off investors.

The port, which has been allocated a 400-acre parcel some 27 km from Kumasi, will lie 295 km from Tema and 330 km from Takoradi. It will consist of custom bonded and unbonded estates with container depots, commercial and light industrial estates and administrative buildings. The GSA and the Ghana Ports and Harbours Authority under the direction of the Ministry of Transport are promoting the concept. The government is hoping to finance the project on a build, operate and transfer model. Phases 1 and 2, which will see the construction of the basic infrastructure and the estates, will cost an estimated $210m, according to the GSA.

Despite a 2008 campaign pledge to complete the project, thus far the government has been unable to find an investor to undertake the inland port’s development. However, there is still confidence that the project will go ahead, with the government stressing that it is putting the necessary transport infrastructure in place to improve the investment environment.

FOCUS ON RAIL: As a central component of this strategy, the government is concentrating on rehabilitating its rail network, which will feed into the inland port. “We want to upgrade the lines and move from narrow gauge to standard gauge,” said Emmanuel Opoku, the chief executive of the Ghana Railways Development Authority (GRDA). “We’re getting $500m from the China Development Bank to reconstruct the western line and I think it will take about three years to complete.” The GRDA also plans to rehabilitate the central and eastern lines, both of which are closed. However, despite the injection of capital into the infrastructure sector, funding is likely to remain a significant challenge.

If the government can find the requisite investment to overhaul the rail network, the inland port concept should become much more appealing to potential investors. This could dramatically alter the landscape for logistics firms, with a more integrated transport system offering much opportunity for freight forwarders to base their West African operations out of Ghana.

Although logistics deficiencies certainly remain, there are many opportunities for firms looking to penetrate the market. While transport will need to improve, the general growth trends, coupled with a lack of quality supply, should encourage logistics firms to study the Ghanaian market more carefully over the coming years.