Commentary: Modernizing Africa’s logistics capacity, one startup at a time

Defining the problem – inadequate supply chain logistics stunts Africa’s economic growth

The World Bank’s International Logistics Performance Index (LPI) provides a convenient and simple point of departure for framing the problem. In the 2018 LPI rankings, which covers 160 countries, highly developed economies tend to have a high LPI Rank while less developed countries rank lower on the LPI, with Germany having the best LPI rank of 1, corresponding to an LPI Score of 4.20.

African countries do not make an appearance until South Africa appears, with an LPI rank of 33. That is followed by Cote D’Ivoire and Rwanda at 50 and 57 respectively. Kenya comes in at 68. Benin and Mauritius are at 76 and 78 respectively. Ghana and Nigeria do not appear until 106 and 110 respectively. 

African countries are poorly represented in the top half of the table. Nigeria’s position is noteworthy since it is Africa’s largest economy, and also has, by far, the largest population of any African country. 

By comparison, China comes in at 26, Vietnam at 39, Malaysia at 41, India at 44, Indonesia at 46, Turkey at 47, Mexico at 51, Brazil at 56 and Russia at 75.

In Aid for Trade and Value Chains in Transport and Logistics, a 2013 paper authored by Ben Shepherd under the auspices of the World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD), the author states: “One well-known connection between transport and logistics and development is in facilitating international trade transactions, which, under appropriate circumstances, boost national income, reduce poverty, and thus contribute to economic and social development.”

In Improving The Supply Chain, published on July 25, 2019, the Swiss pharmaceutical giant Roche reports that suboptimal or broken supply chains across sub-Saharan Africa lead to compounding costs at each node in the supply chain, sometimes leading to mark-ups as high as 700%.

That statistic is highly upsetting to me. Most of my relatives live in a small village in the Upper West Region of Ghana, surviving on far less than $2 a day. As a teenager I went out every evening to buy medicine for my grandfather who suffered a chronic case of rheumatoid arthritis. Roche’s article tells me that the medication I bought for him every day could have been marked up by as much as 700%, if not more, primarily because of the lack of adequate supply chain logistics and transportation infrastructure in Ghana.

In How Online Marketplaces Can Power Employment in Africa, published on March 26, 2019, the Boston Consulting Group stated: “The cost of getting a product from the factory to an end user within Europe adds around 90% to that product’s manufacturing cost. In Africa, logistics add an average of 320% to a manufactured good’s cost.”

Building up Africa’s supply chain logistics and transportation capacity is more than simply an issue about increasing trade. It is about increasing trade, as well as positively affecting all the economic and non-economic factors that contribute to Africa’s development.

Increasing supply chain logistics capacity has a multiplier effect on every other aspect of a society’s economic development and well-being by making it possible for individuals to more easily profit from their labor.

On July 1, 2020, trading starts within the African Continental Free Trade Area, established through the African Union’s Africa Free Trade Agreement. The Africa Free Trade Agreement has been ratified by 54 out of the African Union’s 55 member states.

For this agreement to fulfill its potential, goods and people must be able to move freely across the continent. That will not be possible if supply chain logistics remains the bottleneck that it has always been.

There is much that governments across Africa’s 54 countries should do to increase each country’s logistics capacity – upgrading transportation infrastructure, for example. But, while we wait for the politicians to get their act together, investors like Eghosa Omoigui and others are betting on startups to fill the gap where that is possible.

Insights from the field – startups are working on different aspects of the problem

Ligare Technologies was founded in 2018, and is based in Lagos, Nigeria. Ligare is building an ecosystem that connects all stakeholders in the trucking value chain. Through its web app Ligare connects carriers, shippers, financial institutions, and other trucking industry service-providers such as spare parts suppliers and diesel merchants. By creating transparency in Nigeria’s notoriously opaque trucking market, Ligare is making it easier for shippers to find available trucking capacity, and for carriers to publicize their availability. Moreover, Ligare implements a load-matching algorithm that increases the efficiency of this process.

Ligare Technologies currently operates in Nigeria, with a team of 20 people, and expects the team to increase by at least 30 people – for a total of at least 50 people – by May 2020.

When I asked about fundraising, John Izekor, CEO and Co-Founder, said “Ligare Technologies recently completed a high six-figure fundraise, including equity from a top early-stage VC [venture capital] firm and working capital debt from Nigerian banks. We are now raising $1 million in equity and venture debt.”

Lori Systems was founded in 2016, and is based in Nairobi, Kenya. Lori builds and manages a software-enabled supply chain logistics marketplace that connects shippers and carriers, enabling shipments to 10 countries across the African continent. According to Lori, some customers are already experiencing savings of 22%, and the company has moved millions of tons.

Lori Systems notes it has concluded a yet unannounced Series A for an undisclosed amount on its website, while a recent article in the Financial Times put the figure at $20 million. The round was led by Hillhouse Capital and Crystal Stream Capital, with participation from partners at DST, EchoVC, Timon Capital, Raba, Ryan Peterson (CEO of Flexport), Iyinoluwa Aboyeji (founder of Flutterwave, Andela), FJ Labs, Local Globe, and Joe Montana’s Liquid 2 Ventures, amongst others. Lori Systems emerged as the Best of Show, and winner of the Productivity and Utility category, at the first ever Startup Battlefield Africa, organized by TechCrunch in 2017.

Reliable data about the size of the traditional trucking market across all the countries on the African continent is hard to find. However, Ligare Technologies, Lori Systems, Kobo360 (based in Lagos, Nigeria), Musanga Logistics (based in Lusaka, Zambia) and other startups like them are building software-enabled logistics orchestration platforms to make it easier for shippers and carriers across the continent to find and do business with one another.

Investors see great potential in the modernization of Africa’s supply chain logistics sector. According to Crunchbase, Kobo360, which was founded in December 2017, has raised $37.3 million over six funding rounds. That amount reportedly includes $10 million in venture debt, as well as a $20 million Series A that was led by Goldman Sachs and announced in August 2019. The International Finance Corporation, based in Washington, D.C., is one of Kobo360’s investors. Western Technology Ventures, based in Portola Valley, California, is another. What you might not expect is that Y Combinator – most famously known for being the accelerator that spawned AirBnB, Dropbox and other startups originating and centered around Silicon Valley, is an investor in Kobo360 as well.

Insights from the field – Josh Sandler, CEO and Co-Founder, Lori Systems

I first met Josh Sandler, CEO and Co-Founder of Lori Systems, in New York City in December 2017.

For this commentary, I asked him what he has found most exciting about building a modern, software-enabled supply chain logistics platform that does business across Africa.

He said “At the highest level, we’re motivated by our mission to lower the cost of goods in Africa. One of our major themes at Lori is about building trust in markets – because trust in markets enables trade and growth. By building a transparent marketplace with technology that treats all customers fairly and equally, we’re doing just that.”

Having grown up in Ghana and Nigeria, and given that my mom and dad have been small business owners since I was a young boy, I am familiar with some of the frustrations that accompany efforts to build any kind of business in Nigeria specifically, and in Africa more generally.

I asked Sandler about some of the challenges Lori Systems has encountered since its launch. He said, “There are definitely challenges – ensuring we can scale fast enough given constraints will always be difficult – in any market one would operate. Ensuring that investors realize that the continent isn’t how the media often paints it (with entrenched bias) is a challenge and frustrating – we have been able to demonstrate this by bringing people with us and showing them the massive opportunities present.”

Lori Systems currently serves customers in Burundi, Democratic Republic of the Congo, Ghana,  Kenya, Nigeria, Rwanda, South Sudan, Tanzania, Togo and Uganda. It has grown to nearly 200 employees spread across the continent.

I asked Sandler about Lori Systems’ outlook for 2020. He said, “Obviously, geographic expansion across the continent is a key priority, as is going deeper in the markets where we currently work. We care deeply about driver safety and health, and will pursue new partnerships to support happy and healthy drivers as well. More broadly, road safety is a top priority and we will continue to expand opportunities for drivers and transporters to make new investments in safety, including as value-add services for moving on the Lori platform.”

He added, “We see ourselves as problem-solvers and partners at every stage of the cargo journey and will never stop finding new ways to increase efficiencies and reduce barriers to customer success and growth. We have also launched financing initiatives that support both the drivers and the cargo owners.”

Insights from the field – John Izekor, CEO and Co-Founder, Ligare Technologies Limited

Commenting on what he has found most exciting about building a modern, software-enabled supply chain logistics platform that does business across Nigeria, John Izekor said, “It has been a great experience, especially working with drivers, who stakeholders consider the biggest problem in African logistics. It’s amazing what we’ve been able to achieve with the same incumbent players by deploying technology and effective incentive systems. This is pretty exciting to see the application of technology turn around the service levels and operational key performance indicators (KPIs) amidst the myriad of challenges.”

I also asked Izekor about Ligare Technologies’ outlook for 2020. He said Ligare Technologies is focusing on three primary objectives for 2020:

• First, the startup plans to scale its core business across the industry verticals and segments it has identified as those on which it should focus across Nigeria.
• Second, the startup plans to boost truck supply by launching an asset finance business, to help its truckers expand their fleets, or, in the case of individual drivers, to help them become owner-operators.
• Third, Ligare Technologies will expand into selected pilot west African markets, to extend its services into its customers’ cross-border businesses. Expansion is something its customers are requesting, and more specifically when I asked if there are imminent plans to expand beyond Nigeria, Izekor responded, “Absolutely. Pan-African presence and operation is a natural next step for us as we scale, and our customers have requested that we offer cross-border logistics services as well.”

An opportunity is not an opportunity if there are no potential obstacles. Izekor stated that Ligare Technologies will be focused on overcoming two key obstacles in 2020:

• First, attracting, recruiting, training and retaining the best talent is an issue that the team is continuously working on. Given the expected growth of the team in 2020, this is an area of particular concern.
• Second, the startup will focus on access to financing. “In business-to-business logistics, payment cycles tend to be quite lengthy. We continue to engage with our bankers and investors to ensure that we are able to execute 100% of the orders we receive,” Izekor said.

Startups are gearing up for a battle royale as they introduce to Africa the platforms, products, services and business models that are commonplace in trucking freight markets in other parts of the world.

Ligare Technologies and Lori Systems both peg the opportunity for long-haul trucking at being between $20 billion and $25 billion in Nigeria alone, almost twice as large as the opportunity in all of East Africa. Lori Systems pegs the opportunity over all of Africa at significantly more than $150 billion, and closer to $200 billion.

In my opinion, because supply chain logistics has a multiplier effect, ultimately the opportunity could prove to be substantially larger than these estimates suggest.

Is the Africa Continental Free Trade Area a catalyst for supply chain logistics technology startups?

Both Lori Systems’ Sandler and Ligare Technologies’ Izekor express optimism about the effects that the impending implementation of the Africa Free Trade Agreement could have on the opportunities their respective startups are pursuing.

A June 2010 report by the McKinsey Global Institute, Lions on the move: The progress and potential of African economies, underscores the potential that could be unlocked by the implementation of the Africa Continental Free Trade Area (AfCFTA). This image from McKinsey & Company points to the size and scope of the opportunity that excites entrepreneurs like  Izekor and Sandler, and the investors that back them.

While the data from McKinsey paints a picture of the absolute size of the opportunity as forecast in 2010, the United Nations Conference on Trade and Development’s Economic Development in Africa Report 2019 enables us to think about the opportunity on a relative basis. According to that report:

• “Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55.0% in America and 7.0% in Oceania.”
• “Intra-African trade, defined as the average of intra-African exports and imports, was around 2% during the period 2015-2017, while comparative figures for America, Asia, Europe and Oceania were, respectively, 47%, 61%, 67% and 7%.”

Once implemented, the AfCFTA will be the largest of its kind in the world, counting the number of countries included.

As Izekor put it, “The AfCFTA ís coming into effect at the perfect time for us. The significant positive impact the pact promises to have on the trade volumes and value chain integration across the continent opens up new opportunities for us as we go pan-African. The pact opens up new market access for our customers and we are continually building the capability to support their expansion efforts.”

Sandler goes a step further, “While there is much work to be done as AfCFTA becomes a reality, we believe firmly that our mission will be greatly amplified when smart policy and technology come together. We are very excited to support the efforts and have worked with governments already to drive smoother border crossings to ensure more efficient trade.” He added that Lori Systems has been a vocal proponent of AfCFTA, and has written about its potential benefits in West Africa and East Africa.

Given Africa’s youth-bulge, the projected rates of future economic growth, the accelerating trend towards urbanization that is occurring all over the continent, and China’s push for closer economic ties with several countries in every region of the continent, it makes sense that entrepreneurs and investors are jumping in to fill the glaring void in supply chain logistics, and especially, to apply software technologies to the problems and opportunities created because of that void.

In 2019, African startups raised record-breaking amounts of capital from investors. The investors come from all over the world, but there’s a particularly high degree of interest from Chinese investors.

I expect that trend to continue in 2020, and beyond.

As CNBC has reported, “Jim Breyer, an early Facebook investor and partner at Accel Partners, likened the investment opportunity in Africa to China in the early 2000s. Breyer, who’s now the founder of Breyer Capital and Co-Chairman of IDG Capital based in Beijing, said promising businesses in Africa haven’t necessarily invented something new – they’re finding “novel ways to leverage technology.””

Jack Ma, Founder and former CEO of Alibaba Group, synthesizes the factors driving investor interest in technology, innovation and entrepreneurship in Africa when he says that Africa today is where China was 20 years ago, and that Africa’s future belongs to entrepreneurs who harness software and software-enabled technologies, among other things, to solve the problems that exist all over the continent.

The excitement around supply chain logistics startups in Africa mirrors what is happening in the United States, and other parts of the world as supply chains are being refashioned to handle the challenges the world must grapple with in the future.

Omoigui sums the situation up this way: “Everywhere I have been, in Africa, Asia, the Middle East, Latin America, etc., all I have noticed, as far as the eye can see, is the massive opportunity that is emerging markets logistics. We believe that multimodal-optimized people and goods haulage networks will become as fundamental as on-demand services like AWS, Azure and Google Cloud. One key element of our ‘organize the offline’ investment thesis is to orchestrate these networks and incubate and/or invest in high-quality teams that share this vision and can execute to unicorn outcomes.”

If you are a team working on innovations that you believe have the potential to increase Africa’s supply chain logistics capacity, we’d love to tell your story in FreightWaves. I am easy to reach on LinkedIn and Twitter. Alternatively, you can reach out to any member of the editorial team at FreightWaves at media@freightwaves.com.