Logistics, Public Infrastructure and the Business Environment in Africa
Sebastian Krantz
2022-05-31
Africa is the world region with the lowest level of public infrastructure and quality of logistic services. This pertains to transport infrastructure such as paved roads, railways and ports, but also to electrification, water and sanitation, and internet access. Nevertheless public infrastructure is improving in many parts of Africa, alongside a renewed interest of African governments to develop their economies through infrastructure spending. Recent years have seen large infrastructure spending shares in government budgets, often financed through bilateral creditors (mostly China) and public-private partnerships.
The availability of public infrastructure and logistic services is also closely related to the business environment perceived by firms operating in a particular country, which impacts decisions over domestic entrepreneurship and Foreign Direct Investment (FDI).
This datastory elucidates the development of logistic services and public infrastructure in Africa and their relationship with the business environment and economic growth. It also touches upon the topic of infrastructure investment in Africa.
Executive Summary
Logistics performance in Sub-Saharan Africa is between the low-income and lower-middle-income world average, and higher in Eastern & Southern Africa compared with Western & Central Africa. The logistics performance in Eastern & Southern Africa ranks comparable to the performance in the Middle East and South Asia since around 2016. In Africa, strong logistic services are correlated with higher real GDP growth rates, but not with higher levels of FDI to GDP.
Logistic services are also an important correlate to the overall quality of the business environment in African economies, and seem more relevant for economic growth than other factors influencing the World Bank’s Doing Business Ranking.
Major logistic bottlenecks in Africa are the quality of public transport infrastructure and the efficiency of customs and clearance processes. The time and cost of exporting and importing vary widely across African economies, but are high by international standards. In the median African country, it takes around a week to export or import 15 tons of a standardized good, and 20-30% of local firms perceive customs and trade regulation as a major business obstacle.
Roads are the main means to transport both goods and persons in Africa. In North Africa and South Africa, the vast majority of roads are paved, whereas in other parts of Africa only major transport routes and inner-city roads are paved. Railways, though present in many countries from colonial times, only account for meaningful shares of transport volumes in Egypt, South Africa, and Morocco. Air passenger volumes are small, but growing in importance across the continent. Aviation only accounts for large volumes of goods transported in Ethiopia. In 2019 the continents ~3 dozen container ports handled 2.1% of global container traffic, the bulk of which is handled by larger ports in Morocco, Ivory Coast, Nigeria, South Africa, Djibouti, Kenya, and Tanzania.
By 2019, 48.4% of African households had access to electricity. In North Africa nearly 100% of households are connected, whereas in some poor countries like South Sudan, Chad, or Burundi, less than 10% are connected. Overall, a slightly higher fraction of connected households live in western Africa compared to eastern Africa. The quality of the grid varies considerably between and within countries. Around 80% of African firms experience power outages of varying severity. The median firm experiences around 4-5 short outages per month. 30-40% of firms identify electricity as a major business obstacle. Around 30% of Africans actively use the internet (exempting social media usage which is more widespread). Most are connected through mobile cellular subscriptions. Only a small number of countries in North and South Africa and island states like Seychelles or Mauritius have a significant share of the population connected through broadband internet.
Infrastructure investment is small in the majority of African countries, and is often conducted with private participation. In several countries such as Uganda or Benin, the public-private investment volume has reached 5% of GDP in recent years, and some small countries like Togo or Djibouti have invested in excess of 10% of GDP. The total international aid given to Africa for transport, communications, and energy-related projects has stabilized at around 35 Billion US$ in constant 2011 terms since ~2000. As a share of total aid given the sector has decreased in importance to ~18% of aid given since 2010. The official aid trends stand in contrast to Chinese Development Finance, which has increased in recent years, peaking at 84.6 Billion US$ in constant 2017 terms in 2016, of which 25.3 billion were allotted to transport and storage and 22.8 billion to energy-related projects.
1 Logistics Performance in Africa
Measuring the quality of logistics services is challenging, due to the multi-dimensionality of the concept and the different processes, infrastructure, and services required to transport goods across borders. The World Bank’s Logistics Performance Index (LPI), released for the years 2007, 2010, 2012, 2014, 2016, and 2018 attempts to measure logistic performance both holistically and comparatively across 160 countries (2018 release). The LPI is based on a worldwide survey of operators on the ground (global freight forwarders and express carriers), providing feedback on the logistics “friendliness” of the countries in which they operate and those with which they trade. The international LPI is a summary indicator combining data on six core performance indicators ranked from “very low” (1) to “very high” (5) in survey questions:
- Efficiency of customs and border clearance
- Quality of trade and transport infrastructure
- Ease of arranging competitively priced shipments
- Competence and quality of logistics services
- Ability to track and trace consignments
- Frequency with which shipments reach consignees within scheduled or expected delivery times
These 6 indicators are combined using Principal Components Analysis (PCA), into a single index on a scale of 1-51.
1.1 Logistic Performance in Africa and the World
The figure below shows the LPI averaged across countries in Sub-Saharan Africa, as well as Eastern & Southern and Western & Central Africa, and compares it with averages across countries at different income levels according to the World Bank classification. It shows that logistics performance in Sub-Saharan Africa on average is between the low-income and lower-middle-income world average, and higher in Eastern & Southern Africa compared with Western & Central Africa.
The following figure compares logistics performance with developing countries in other world regions. It is noteworthy that logistics performance in Eastern & Southern Africa ranks comparable to performance in the Middle East and South Asia since 2016.
1.2 Disaggregated LPI
Disaggregating the LPI into its six components for Sub-Saharan Africa reveals that the quality of transport infrastructure and efficiency of the customs process remain the greatest logistic bottlenecks in the region.
1.3 Africa LPI Country Ranking
The chart below shows a ranking of African economies based on the latest LPI release. The ranking is according to the overall LPI but the component measuring the quality of transport infrastructure is also shown as an additional benchmark measure. It is evident from the chart that, apart from Cote d’Ivoire, Egypt and Benin, the top logistics performers are in Eastern & Southern Africa. South Africa, Cote d’Ivoire, Botswana, Tanzania, and Rwanda have overall LPI scores above the world average of 2.87 in 2018, followed by Egypt, Kenya, Benin, and Namibia with scores around 2.8.
1.4 Country-Level Performance Gains
Since the 2010 LPI release, logistics performance has increased in about 2/3 of African countries and decreased in 1/3. The median rank remained the same, hence this also approximately reflects developments in the world at large. A small number of countries in Eastern & Southern Africa comprising Mozambique, Somalia, Namibia, Burundi, Botswana, and Rwanda achieved annual LPI growth rates of 5% or higher between 2010 and 2018.
1.5 Logistics Performance and GDP Growth
Logistics is at the core of economic activity, and one can expect developing countries with better logistic infrastructure to grow faster. The following figure shows a scatter plot between the averages of the Post-2010 LPI values and real GDP growth rates of African economies.
With the exception of some outliers such as South Africa which achieved low growth with the best logistics performance and Somalia which achieved high growth despite very low logistics performance, there appears to be a noisy positive relationship between the two.
Estimating a simple linear regression of GDP Growth since 2010 on the average LPI, under the exclusion of South Africa, Somalia, and Ethiopia, yields a significant coefficient estimate of 3.7, indicating that a one-unit improvement in logistic performance, e.g. the difference between Burundi with an LPI close to 2 and Rwanda with an LPI close to 3, is correlated with 3.7 percentage points higher average GDP growth. The results are almost identical when considering only the infrastructure component of the LPI, yielding a coefficient of 3.25.
##
## Call:
## lm(formula = RGDP_Growth ~ LPI, data = temp_data, subset = !Country %in%
## c("Somalia", "Ethiopia", "South Africa"))
##
## Residuals:
## Min 1Q Median 3Q Max
## -5.8378 -1.3215 0.1092 1.7517 3.9124
##
## Coefficients:
## Estimate Std. Error t value Pr(>|t|)
## (Intercept) -5.632 3.890 -1.448 0.1549
## LPI 3.686 1.570 2.348 0.0236 *
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
##
## Residual standard error: 2.075 on 43 degrees of freedom
## (1 observation deleted due to missingness)
## Multiple R-squared: 0.1136, Adjusted R-squared: 0.09299
## F-statistic: 5.511 on 1 and 43 DF, p-value: 0.02357In both cases, there are many potential confounding factors, such as good economic institutions or oil production, which directly impact both growth and infrastructure / logistic performance. Thus these estimates should be considered as an upper bound for the growth-enhancing impact of better logistics.
1.6 Logistics Performance and FDI
Efficient logistics are also often a prerequisite for investors to consider investing directly into a country’s industry and exporting the produce. The scatterplot below shows the FDI share in GDP against the LPI. The graph shows no meaningful relationship between the two.
Further analysis reveals that the LPI is positively correlated with the log-level of FDI, but when controlling for the log-level of GDP the effect goes to zero. Thus there appears to be no obvious direct relationship between logistic performance and FDI in Africa.
## model 1 model 2
## Dependent Var.: log(FDI) log(FDI)
##
## (Intercept) 14.65*** (2.166) -1.433 (2.455)
## LPI 2.042* (0.8578) -0.0067 (0.6111)
## log(RGDP) 0.9054*** (0.1135)
## _______________ ________________ __________________
## S.E. type IID IID
## Observations 47 47
## R2 0.11181 0.63696
## Adj. R2 0.09207 0.62046
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 12 Overall Business Environment
Logistic performance and public infrastructure are also highly correlated with the overall business environment in an economy. The World Bank Doing Business Project evaluated business environments in 190 economies until 2020 through a worldwide survey of > 12,000 stakeholders (lawyers, accountants etc.). the Doing Business Index (DBI) is a weighted average over 41 normalized indicators that are first averaged into 10 Doing Business topics, which are then averaged into the final doing business score:
- Starting a business – Procedures, time, cost, and minimum capital to open a new business
- Dealing with construction permits – Procedures, time, and cost to build a warehouse
- Getting electricity – procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
- Registering property – Procedures, time, and cost to register commercial real estate
- Getting credit – Strength of legal rights index, depth of credit information index
- Protecting investors – Indices on the extent of disclosure, the extent of director liability, and ease of shareholder suits
- Paying taxes – Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit
- Trading across borders – Number of documents, cost, and time necessary to export and import
- Enforcing contracts – Procedures, time, and cost to enforce a debt contract
- Resolving insolvency – The time, cost, and recovery rate (%) under a bankruptcy proceeding
The best regulatory performance in each of the 10 topics is given a score of 100 and the worst a score of 0, such that the overall DBI score for each country is bounded between 0 and 100. The figures below compare Africa with the average scores for different world regions and income levels in 2019.
2.1 Africa DBI Country Ranking
The 2019 DBI Ranking of African economies shows that some countries, particularly in Eastern & Southern Africa have a DBI Score comparable to the High-Income average. Rwanda in particular was ranked 38th in the world, followed by Morocco and Kenya ranked 53 and 56.
2.2 DBI and LPI
The DBI is also quite strongly correlated with the LPI in Africa, as shown in the following figure.
However, as the next figure shows, the DBI is not strongly correlated with GDP growth, and neither with FDI.
The regression table below confirms this, and indicates, together with the analysis conducted above, that logistic performance and transport infrastructure are important for both GDP growth and a better business environment, but that a good business environment in itself is (at least in post-2010 Africa) not yet a guarantor of strong GDP growth or FDI.
## mod1 mod2 mod3 mod4
## Dependent Var.: DBI DBI RGDP_Growth FDI_GDP
##
## (Intercept) -11.80 (12.45) 5.823 (9.446) 2.220 (1.740) 4.918 (2.969)
## LPI 25.80*** (4.966)
## LPI_INFR 20.51*** (4.106)
## DBI 0.0302 (0.0323) -0.0308 (0.0551)
## _______________ ________________ ________________ _______________ ________________
## S.E. type IID IID IID IID
## Observations 50 50 54 54
## R2 0.35993 0.34210 0.01661 0.00598
## Adj. R2 0.34659 0.32840 -0.00230 -0.01314
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1Indices like the LPI or DBI are useful to provide a broad overview of the level of regulatory and services infrastructure in developing countries for these difficult-to-measure concepts. They are however mostly based on subjective judgments of a selected group of traders or professionals, which limits both objectivity and cross-country comparability of the measures.
The following sections thus summarize some more objective quantitative information relating to customs and trade-related processes and levels as well as levels of public infrastructure in African economies.
3 Trading Across Borders
When considering to start an export or import-oriented business, an often critical consideration for both domestic entrepreneurs and foreign investors is the time, effort, and cost required to move goods across the border. The World Bank Doing Business project recorded Detailed Information on the time and cost of trading across borders, gathered through a questionnaire administered to local freight forwarders, customs brokers, port authorities, and traders.
3.1 Aggregate Comparison
The following figure shows the average time in hours needed to export and import 15 metric tons of a standardized product2 across the national border by income groups. The figure makes it evident that border processes are on average very slow in Africa, and that importing takes up to 30% longer than exporting.
Very similar results are obtained when considering the cost of exporting and importing 15 tons shown below.
3.2 Country-Level Comparison
The aggregate figures hides some heterogeneity at the country-level, with a few countries such as Botswana extremely efficient by international standards (exporting and importing within hours), whereas in the median African country each process takes around 3-4 days, such that one can safely assume an additional week required for exporting or importing.
Similar conclusions hold for costs, where the median cost in Africa to export of import 15 tons of produce is between 500 and 700 US$.
3.3 Other Measures
Outside of the Doing Business Project, World Bank Enterprise Surveys (ES) give a comprehensive snapshot of the firm-landscape and business environment in 153 countries using a standardized questionnaire, which also includes questions about trade and customs-related matters. The figure below shows the average number of days reported by firms required to obtain an import license. The data is taken from the latest ES conducted in the country since the year 2000, the median year is 2014. The data is broadly congruent to the Doing Business information, but also holds some surprises such as the relative efficiency of obtaining an import license in some smaller poor countries such as Lesotho, Gambia, Burundi, and Sierra Leone.
Similarly, the following bar chart shows the latest ES-based information on customs and trade regulations as perceived by firms.
4 Public Infrastructure Levels
Together with lacking efficiency in customs and clearance processes, the availability of adequate trade and transport-related infrastructure is of major area of concern for logistics in Africa - as shown above in the LPI breakdown for Africa. The graph below also obtained from the latest ES questionnaire shows that, with few exceptions such as South Africa and Rwanda, more than 10% of firms identify transportation of goods as a major business obstacle - the median across Africa being around 25% of firms.
Transport can be a concern because of the inadequacy of transport services or of infrastructure necessary to transport certain goods. Inadequate infrastructure leads to delays and possibly damage of products or prohibits the transport of certain goods altogether.
Another concern for firms operating in developing countries is public infrastructure provided in the location of operation, in particular the supply of electricity, water and sanitation, and internet access.
The remainder of this datastory, therefore, gives a quantitative overview of public infrastructure in developing countries, and levels of investment therein.
Inside Africa, goods are transported through roads or railways, with roads assuming increasing importance in the post-colonial era. Cargo flights only account for a very small share of transport volumes.
4.1 Road and Railway Networks
Next to the overall size of road and railway networks, the quality of roads and usage/maintenance of a railway line are critical factors to consider.
4.1.1 Roads - Network Size
The overall size of road networks tends to be larger in the larger and more populous African countries, but many of these roads are unpaved, and vast areas in countries like Congo, Sudan, Algeria, or Lybia are uninhabited.
A more sensible approximation to the road network density in Africa is thus to consider the km of paved roads per inhabitant.
4.1.2 Roads - Fraction Paved
Regarding the surface of roads, there is a remarkable difference between African states north of the Sahara and rich island states where most roads are paved, and Africa south of the Sahara where only around 20% of roads are paved. This discrepancy masks the fact that also south of the Sahara major transport routes and inner city-roads are typically paved. Counties like Rwanda, Uganda or Kenya for example have paved highways connecting the capital cities with other cities in all parts of the country. However in Sub-Saharan Africa most roads connecting villages or towns throughout the country side, and most residential roads in major cities, are unpaved.
The figure below shows primary and secondary roads in Africa by pavements status, extracted from Open Street Map. It is evident that pavement coverage is higher in North and South Africa, and in parts of Western Africa.
4.1.3 Railway - Network Size
Colonial authorities constructed - to a greater or lesser extent - railways in the majority of African countries, but few countries have actively maintained and developed their Railway system. Thus both measures of the total railway network side or network density may be misleading since railways may not be used or peripheral to the centers of economic activity in a country.
The following graph shows the average growth rate of the railway network since 2000, making it evident that the network is declining in most countries. Investment in railways is done primarily in Noth Africa, with Morocco, Algeria, and Egypt the flagship countries investing in railways (with aid from France in the former two). South of the Sahara, it is notably Ghana that has invested in new railway lines, including a line to Ouagadougou, the capital of Burkina Faso. In East Africa, there are concrete plans to revive a railway line connecting Mombasa to Kampala, but thus far only the route from Mombasa to Nairobi has been modernized.
4.1.4 Railway - Passenger-Km per Capita
The underutilization of railways for passenger transport in Africa is evident from the low km per capita estimates in much of SUb-Saharan Africa.
4.1.5 Railway - Ton-Km
Similar conclusions hold for the transport of goods …
4.2 Aviation and Shipping
With long distances between and within countries, and often inadequate road or rail transport, aviation is also assuming an increasing role. A growing African middle class is likely to further increase demand for flights in the coming years.
4.2.1 Aviation - Passenger-Km per Capita
Data on aviation is only available for a few countries and at different intervals. The figure below reports the latest annual passenger transport data reported for a country since 2010.
Examining this data in per-capita terms makes it clear that passenger flights have mostly taken hold in North Africa and some of the wealthier countries of Southern Africa.
4.2.2 Aviation - Ton-Km
In freight transport the ranking of countries is quite different from passenger transport, with Ethiopia taking leadership in overall terms, followed by South Africa, Egypt, and Kenya.
4.2.3 Shipping - Container Port Traffic
Africa has a small number of larger ports, the biggest ones being in Morocco, Ivory Coast, Nigeria, South Africa, Djibouti, Kenya, and Tanzania. Through these ports, it accounted for about 2.1% of global container port traffic in 2019.
When normalized by GDP in constant 2015 US$, the container freight per GDP in Africa is equal to the world average of around 9.5 TEU per million USD in GDP. This also highlights the growth potential of African ports and logistics industries as the continent continues to grow.
Two figures below show the same information by world regions. It is evident that apart from the high-income countries, East Asia accounts for more than 30% of World container traffic, with the other developing regions accounting for less than 15%.
As a share of GDP, the amount of container traffic in Africa is in-line with the volumes in South Asia and Latin America.
The country-level data shows that countries with the largest ports also have the largest share of traffic. Morocco and Egypt assume privileged positions at the Straights of Gibraltar and Suez, respectively.
4.2.4 Shipping - Liner Shipping Connectivity Index
4.3 Electrification and Internet
For businesses operating in Africa basic services and utilities, and infrastructure is sometimes problematic. Another obstacle to business expansion may be that consumers in the country of operation are not adequately informed or financially able to purchase a product. A factor contributing to both issues is still lacking electrification in many peripheral parts of Africa.
4.3.1 Population Access to Electricity
The figure below shows the fraction of people with access to electricity. Whereas in all other world regions > 95% of the population had access in 2020, in Africa less than 50% of people had access.
At the country level there exists nearly perfect heterogeneity in electricity access, with the North African countries and rich island states fully connected to the grid, and on the other hand a set of poor landlocked countries such as South Sudan, Chad, and Burundi that are almost fully rural and disconnected.
4.3.2 Firms Experiencing Power Outages
Next to the lower extent of the grid, its reliability is often much lower than in developed countries. As the following graph shows, in all African countries, a fraction of firms experiences power outages, the median across countries is 80% of firms3.
The frequency and duration of power outages also vary greatly within and across countries. The median across countries is around 5 outages per month, and for most countries the data is outdated, leaving room for considerable improvements in recent years.
Electricity nevertheless remains a major business obstacle for many firms. Most firms operating in Africa have diesel generators as a reserve when power cuts occur, which are expensive to use when fuel prices are high.
4.3.3 Internet Usage
Despite the abundance of smartphones and 3G technology in many African regions, still many Africans don’t actively use the internet.
The volume of mobile cellular subscriptions is nevertheless high and increasing. Social media like Facebook and WhatsApp is highly utilized.
In stark contrast, the broadband infrastructure and utilization is very poor in most of continental Africa.
5 Investment in Infrastructure
Overall, Africa lacks public infrastructure in many vital business domains such as transport, utilities, and connectivity. This calls for large volumes of investment in infrastructure. The World Bank, through its Private Participation in Infrastructure database, records some data on infrastructure investment through public-private partnerships (PPP). The graph below shows the average post-2000 investment in transport infrastructure through PPPs as a share of GDP.
The following figure shows the investment share of all 4 categories: transport, energy, ICT, and water & sanitation.
5.1 Aid In Infrastructure
AidData’s core release database records official development finance, including Official Development Assistance (ODA), Other Official Flows (OOF), and Export Credits, and Equity Investments, in a project-level database of over 1.5 million development finance activities funded between 1947 and 2013 by 96 bilateral and multilateral donors.
The graph below shows the total annual finance given for transport, communications and energy-related projects. It can be observed that since 2000 the amount is approx. constant.
The following figure gives a breakdown by sector.
As a share of the total aid given one can observe a significant decline in importance to less than 20% since the early 2000s.
5.2 Chinese Development Finance
A different and very important source of funding for infrastructure projects in Africa nowadays is Chinese development finance, which is generally not recorded as official aid flows. AidDate has therefore also gathered information on Chinese Development Finance from 2000 through 2017 in a separate Database. The figure below shows Chinese commitments over the entire period by sector.
Chinese development finance is centered around transport and energy-related projects. The following figure further shows that, apart from energy-related projects in Asia, Africa received the largest shares of Chinese financing in these sectors.
In terms of the temporal sequencing, Chinese investments in Africa appear to have peaked around 2016.
See also the methodological note↩︎
See methodological notes here: https://archive.doingbusiness.org/en/methodology/trading-across-borders↩︎
The data is already a bit dated for most countries.↩︎