Africa’s logistics space on fast growth trajectory as funding and opportunities pile up
BY TOM JACKSON ON
The African logistics sector is on an upward trajectory as startups in the sector secure growing amounts of funding as the potential for the space to power a commerce revolution on the continent becomes clearer and clearer.
According to the latest edition of the African Tech Startups Funding Report released each year by Disrupt Africa, logistics startups had a record-breaking 2019.
Twenty-three logistics startups secured investment, up 91.7 per cent on 2018 numbers, which in turn were an increase of 140 per cent on the year before. Total funding increased by 264.6 per cent to US$69,627,000, with logistics startups securing the biggest share of investment by any sector bar fintech. Total annual funding in this sector has been growing at hugely impressive rates, jumping an astonishing 6,746 per cent since 2016.
Though much of the logistics sector’s growth funding-wise over the last few years has been driven by two companies, with more than 80 per cent of the space’s investment total in 2019 raised by Nigeria’s Kobo360 and Kenya’s Lori Systems, we are seeing a trickle-down effect, and startups raising at all levels.
Powered by opportunity
The development of the sector and its increased attractiveness to investors can be attributed to the size of the opportunity. The ability of e-logistics solutions to power the growth of African commerce – and e-commerce – as that undergoes a revolution of sorts is key.
Tonye Membere-Otaji is founder of Nigerian company MVXchange, a tech-driven maritime platform that matches vessel charter requests with available Offshore Support Vessels (OSVs), helping users conveniently charter vessels while reducing man-hours, cutting costs and improving performance. He says local and international investors and entrepreneurs are more aware of opportunities in Africa’s logistics space than ever before.
“I believe widespread technology penetration in traditional logistics sectors like trucking and shipping has reinforced the need and opportunities for investments in the space. Kobo360, Lori Systems and Sendy, just to mention a few, are obvious success stories.
“Africa’s fast-growing youthful population is receptive to new technologies and data-driven processes. This will facilitate quick technology adoption across the continent within this decade and next.”
Oumar Basse is chief executive officer (CEO) of Senegal’s Yobante Express, an online marketplace connecting users with local couriers that has expanded into multiple markets across the continent. He says logistics is one of the fundamental factors in the development of any trade, and also to be a determinant of the success of online business, and thus startups operating in this space are of crucial importance.
“Obtaining efficient, affordable and fast logistics becomes the element that determines the possibility of offering products to consumers,” he said.
Africa’s commerce revolution
Offering products to customers is something we are likely to see more of. Over the last decade, a growing middle class and rapid progress in mobile and Internet penetration has made Africa ripe for e-commerce, and consumer spending across the continent is projected to reach US$2.1 trillion by 2025.
“As Africa has risen to prominence as an investment destination over the past few years, so the role of logistics has taken on greater significance,” Basse said.
Fuelling the growth of commerce on the continent is at the heart of the logistics opportunity, says Jean-Claude Homawoo, co-founder of Lori Systems, a tech-driven logistics services that, as mentioned previously, is a big fundraiser.
“Due to systemic inefficiencies, logistics account for up to 75 per cent of the price of goods on the continent versus six per cent in the US and Europe,” he said. “Furthermore, on the ground, a lack of transparency, coordination, and information availability are the leading causes of perpetual delays, inefficiencies, and cost.”
E-hailing solutions have many of the answers here, hence the sector’s swift growth. Lori, for example, effectively coordinates transactions between shippers and transporters using data to reduce waste and lower costs.
“This enables more efficiency in the market to ensure the smoother flow of goods and therefore a reduction in overall logistics costs. Imagine the impact on the price of a loaf of bread if the average cost of moving grain could be reduced by 20 per cent,” said Homawoo.
“A further impact on the continent would be the professionalisation of the transport sector. Our platform allows informal drivers and transporters to become part of a more formalised economy, therefore opening up opportunities for financing and credit that will enable their growth. Because of the area of our focus, our primary impact is on the effectiveness and costs of large scale commerce which also impacts e-commerce goods.”
This all comes together to create a virtuous cycle, says Kennedy Nyabwala, CEO of Kenya’s Bwala, a last mile logistics marketplace that has itself secured funding.
“The growth of e-commerce will lead to a huge growth in e-logistics, in the sense that online orders can be consolidated, and there’s product movement and traceability from start to end,” he said.
“E-commerce growth will also lead to huge volume movements, and this automatically leads to a reduction in price of delivery, or cost per drop.”
Free trade is coming
Logistics companies are also well-positioned for the future, with the African Continental Free Trade Agreement (AfCFTA) signed last year with the goal of creating a continental free trade area to accelerate intra-African trade. Logistics companies are set to benefit.
“It can only enable the growth of our platform as we will be able to link cargo owners and transporters from all over the continent to enable continental trade to flourish,” Homawoo said.
“The AfCFTA presages a new era of trade in Africa. For this trade to be effective, border crossings, documentation, payments, all have to be brought into the 21st century to ensure the friction and inefficiencies on the ground do not scuttle the massive opportunity this represents for participating countries.”
Homawoo says Lori’s platform is built with this in mind, but other startups are also optimistic about the opportunities thrown up by the agreement. Abdulaziz Omar is co-founder and chief executive officer (CEO) of Kenya’s MPost, which enables the conversion of mobile numbers into official virtual addresses. The startup currently has over 250,000 customers in Kenya, and raised Series A funding late last year.
“The AfCFTA will have a positive impact in Africa and for African companies. This is because it will tear down the current bureaucracies and open up more markets,” he said.
Basse agrees the agreement will have a positive impact on the logistics sector, especially the cross-border segment.
“The agreement will facilitate expansion for companies like Yobante Express,” he said.
A funded future
All of this suggests logistics startups on the continent can expect a bright future. With 16 logistics companies already having receiving around US$40 million in total investment in 2020 so far, according to Disrupt Africa figures, the sector is on course to equal or better last year’s record.
Nyabwala says he expects more and bigger rounds to be closed by the end of the year, with the key fundamentals of the space remaining the same even in the time of COVID-19.
“This is a promising sector due to the rise of internet penetration, great margins due to low competition, and the fact Africa imports around 70 per cent of the items it consumes,” he said.
“This is a huge market for logistics to thrive in.”