As we continue our season on value chains, in this episode, we explore logistics.
The cost of goods and food is disproportionately higher in Africa than anywhere else in the world, with consumers in some markets spending 50% or more of their total income on food alone. A major reason for these high prices is logistics.
So how do we fix this? How do we improve the efficiency of logistics on the African continent, and ultimately drive down the cost of goods?
[04:20] – On the role of containerization and efficient ports, with Jetstream Africa’s Miishe Addy.
[11:37] – After we get through the ports, our goods are loaded onto a truck. We hear from Omar Hagrass on how Trella is trying to improve long-haul efficiency in North Africa and the Middle East.
[15:26] – From the port, we move on to the wholesale distributor. As we discuss with Daniel Yu, Sokowatch is aggregating small retailers at the fragmented last-mile and offering same-day delivery of fast-moving consumer goods.
[22:37] – As the nature of retail evolves and more small merchants need logistics solutions, logistics-as-a-service providers like Sendbox are playing a role at the last-mile. We hear from its CEO, Emotu Balogun.
[26:41] – But amidst all of this tech and innovation – what about infrastructure? To what extent is the problem just poor ports and roads? The Flip’s b-mic, Sayo Folawiyo, and its host, Justin Norman, call up infrastructure investor Dami Agbaje for some insight.
[32:42] – This episode’s retrospective with Sayo and Justin.
This season is sponsored by MFS Africa.
All this season, we’re exploring value chains. And in the payments value chain, no fintech has a wider reach on the continent than MFS Africa. Through their network of over 180 partners – MNOs, banks, NGOs, fintechs, and global enterprises – MFS Africa’s API hub makes connects over 320 million mobile wallets across 30+ countries in Africa.
This episode features:
Miishe Addy – Co-founder & CEO, Jetstream Africa
Omar Hagrass – Co-founder & CEO, Trella
Daniel Yu – Founder & Global CEO, Sokowatch
Emotu Balogun – Co-founder & CEO, Sendbox
Dee Abudu – CEO, Baxi
A cameo from Dami Agbaje – Investment Director, African Infrastructure Investment Managers
Sayo Folawiyo – B-mic, The Flip
Justin Norman – Founder & Host, The Flip
Audio Production by ZVUK Studio
Miishe Addy: The cost of product is disproportionately supply chain logistics.
Justin Norman: That’s Miishe Addy, the Co-founder and CEO of Jetstream Africa.
Miishe Addy: It’s all passed on to the consumer. So when you have surges in freight prices, surges in duty, mistakes at the port, it raises the cost the consumer is paying for an everyday good.
Justin Norman: The cost of goods and food is disproportionately higher in Africa than anywhere else in the world, with consumers in some markets spending 50% or more of their total income on food alone. A major reason for these high prices is logistics.
So how do we fix this? How do we improve the efficiency of logistics on the African continent, and ultimately drive down the cost of goods?
All season, we’re taking a look under the hood at how operators and innovators are working to improve their value chain of choice.
This episode commences a multi-part series on how tech companies are using bits to better move atoms. In this episode, we’ll explore logistics and supply chains – following a product from the port all the way to last-mile consumer, to better understand not only how it gets there, but how those we speak to in this episode are working so that it gets there faster and cheaper than ever before.
Justin Norman: Before we start, we’d like to thank MFS Africa for their sponsorship of the entirety of this season of The Flip. I first got introduced to MFS Africa for an episode during season two of the show, after their acquisition of Beyonic in June of 2020. And they’ve just made another acquisition of the super-agent network Baxi.
Through this acquisition, MFS Africa is expanding into Nigeria. Yes, MFS Africa, which already connects 320 million mobile wallets in 30-plus markets, had a limited presence in Nigeria up until this point. So to better understand how this acquisition came together and what this acquisition means for the hundreds of thousands of merchants and SMEs operating as agents in Nigeria, I spoke to Dee Abudu the CEO of Baxi.
First, in an environment of few exits, it’s interesting to hear how this exit came to be. Just like with Beyonic, this acquisition was completely organic.
Dee Abudu: So I met Dare about seven years ago, you know, I’ve known him for a long time. And it’s always been every time I go to South Africa, I always, generally I just pop in to say, you know, how are things going? You know, always trying to get some advice, cause he was, MFS, Africa is a few years older than we are. So there’s always a, how things going, how’s capital- everybody’s always looking for, I mean, for me personally, I was always looking for capital. So it was quite funny that those discussions were just ongoing over the years.
And then the last couple of years it just became more like, you know, there is a possibility here, and we looked at it and I guess like the planets just aligned really, and things came together probably the last six, seven months.
It made a lot more sense for what they were looking to do strategically and what was really, I found, profound and fantastic was that actually we had the same mindset and objective in terms of the long-term value proposition of this payments ecosystem. We both believe it was really with micro SMEs and SMEs, that’s really where the value is and where the growth potential is. And I think once we got to that point, it was just a matter of how, okay, how could we make this work?
Justin Norman: We’ll hear a bit more from Dee on the opportunities that exist post-acquisition later in the show.
VO: You’re listening to The Flip. The podcast exploring more contextually relevant stories from entrepreneurs around Africa.
Justin Norman: Welcome back to The Flip. I’m your host, Justin Norman.
If you ever have the opportunity to visit Cape Town, as you drive into the City Bowl from the airport, on the N2, coming around Devil’s Peak and the easternmost side of Table Mountain, one of the first things you see of the city center and Atlantic Ocean on your right is the Port of Cape Town.
Its gantry cranes towering up over the harbor, their arms reaching out over container ships to unload 40-foot, 30,000-ton containers off at a rate of around one container every two minutes, for ground transport into South Africa and beyond.
I became obsessed and bewildered by container and global freight shipping, after reading a book called The Box, on the history of containerization. Not too long after that, the Ever Given, a massive 400-meter container ship, ran aground in the Suez Canal, blocking entry and exit of one of the world’s busiest water passageways, and teaching consumers around the world a bit more about how global supply chains work. At the time, it was estimated that at least 369 ships were queuing to pass through the canal, which prevented an estimated US$9.6 billion worth of trade.
The author of The Box talks about the importance of containerization to a country’s economy. Here’s what he wrote,
A country cursed with outmoded or badly run ports is a country that faces great obstacles to finding a larger role in the world economy. In 2004, the World Bank estimated that if Peru were as effective at port management as Australia, that alone would increase foreign trade by one-quarter. The Peruvian government took that warning seriously, arranging $2 billion in port investments over the ensuing decade, which made possible a very large increase in foreign trade. Tanzania, on the other hand, staunchly resisted modernization. If only the port at Dar es Salaam had been as efficient as the nearby port at Mombasa, the average Tanzanian family in 2012 would have saved a stunning 8.5 perfect of its annual expenses.
So it’s here, at the container port, that we start our exploration of supply chains in Africa.
Miishe Addy: It sounds very easy and straightforward, but the reality is in most cases, the chain that starts with the manufacturer and ends at your doorstep for an import has seven minimum, minimum seven different companies who are completely disconnected, at least two different currencies, sometimes two different languages. And so you have this incredible vertical fragmentation where everyone’s working in a silo.
Justin Norman: That’s Miishe again, who we heard from in the opener. Let’s start by explaining how imports work. And we’re importing baby diapers In this example, by the way.
Miishe Addy: So the manufacturer will get your order, will create the number of baby diapers that you need and will contact his or her local freight forwarder. That local freight forwarder will send a truck to the factory, pick up those baby diapers, bring them to the port and either internally or externally, have a customs broker work with the local customs authorities to get the cargo out of the country. So some people don’t know, but there are two sides of customs clearance, there’s export customs clearance, which is the permission you need from the local government to get cargo out, and then there’s import customs clearance, which is the permission you need from the government to get cargo in. So you clear export customs, you put it on a ship or a plane, it gets to the destination country, and then you do the import customs clearance, which is an entirely different set of people. You pay your customs duties and your taxes, you put it on a truck and then you get it to the importer’s destination. That usually takes, for sea freight these days, it can take anywhere from four to six weeks.
Justin Norman: Manufacturer, local freight forwarder, local logistics company, export customs clearance, container ship, to the port of the destination, import customs clearance, and another local logistics provider. Got it?
Now, here’s the problem – African markets aren’t well equipped to deal with all that complexity.
Miishe Addy: The wait times to clear cargo through African ports are the longest in the world. And the prices of bringing in containers to Africa are the highest in the world.
Justin Norman: And why is that?
Miishe Addy: Wait times have to do with two things. The first is just infrastructure. So many of the ports in Africa are outdated, they are not big enough for the ships that come in. A great example is Nigeria where the roads are too narrow to accommodate the number of trucks that need to go in to pick up cargo. So you’ll have a ship that docks with a lot of import cargo ready to drop off into Lagos and then a line that’s literally two weeks long of trucks trying to get into the port to pick up the cargo.
Justin Norman: There’s YouTube videos of that line, which I’ll link to in the show notes. So infrastructure is problem number one, and problem number two?
Miishe Addy: There’s also a big problem around documentation and competency.
Justin Norman: As Miishe just mentioned, these goods need to be cleared to be imported into the country. That’s the role of customs brokers, and when these customs brokers don’t have the right documentation, it gets expensive.
Miishe Addy: Shipping lines charge a type of fee called demurrage, which is basically a storage fee. So if you don’t pick up your cargo within a special allotted time, sometimes it’s seven days, it depends on your deal with the shipping line, they charge you rent.
Only about 20% of the containers that come into Ghana are actually cleared before they start hitting demurrage. It’s so common that even in a port like Ghana, where the roads are good, the infrastructure is fabulous, you can physically move a container in and out within 24 hours, the paperwork issues cause a lot of the containers to back up anyway.
Justin Norman: So those baby diapers – one of the reasons why they’re so expensive is largely because of paperwork. Yes, paperwork.
Miishe Addy: The way that the industry works is that a freight forwarder or a cargo owner will go to that parking lot where his container is and he’ll want to get it out. And so he’ll get a bill from the container terminal, which is one company. And he’ll get a separate bill from the shipping line, which is another company. And then he’ll get another bill from the government customs office, which is separate. And then there’s, you know, tobacco and firearms group, they’re just different agencies. So he’ll have at the end of the day, 10 different bills for all of these different services to clear a single container. And so he’s running around to the bank, he’s running around to the offices of these various places and usually paying cash for the release of his cargo.
Justin Norman: There has to be a better way. Right? That’s Jetstream Africa’s goal. They’re bringing technology and automation in to handle the paperwork, with the goal of ultimately reducing the cost of the goods being imported.
Miishe Addy: The realization for Jetstream is you can separate that running around and that collection from the release of the cargo, which is physical. So the release of the cargo will continue to be physical, but there doesn’t have to be a dedicated guy who’s running around doing all this stuff for a day or two days or three days while the container collects demurrage. So we are the connective tissue between all of those disconnected silos and cross-border supply chain. So that’s our specific focus is what happens at the ports and then right before and right after.
Justin Norman: Now the efficiency at the port is one major way in which costs of logistics, and therefore consumer goods, is driven down. Another is working capital and trade finance, which is a distinct challenge for African shippers, as well.
Miishe Addy: So speed is a big factor in driving sort of cost savings and also freeing up working capital. The big piece of our platform that I think is not obvious to folks, you start out in the logistics industry is trade finance. With long transit times for border cargo, you’re waiting four to six weeks. A lot of African businesses, they’re in the position where they have to pay upfront on both sides. So if they’re importing, they have to pay their supplier upfront. And if they’re exporting, they have to wait until their buyer gets it. So they have this sort of short end of the stick on both sides.
Justin Norman: Ok so we got some trade finance, we worked through Jetstream Africa to get our baby diapers through the port, now they’re put onto a truck for overland delivery.
Miishe Addy: So the innovations that we’re seeing in domestic logistics is a perfect sort of compliment to what Jetstream is doing because we’re all playing, you know, part of the same big picture.
Justin Norman: One such company at the trucking level of the supply chain is Trella.
Omar Hagrass: My name is Omar Hagrass. I’m one of the co-founders of Trella.
Justin Norman: The Cairo-based startup Trella picks up where JetStream Africa left off, building software products to improve efficiency at the middle mile.
Omar Hagrass: We are a company that aggregates between demand and supply. In our case, demand are customers who require shipping or trucking, and supply are the truck drivers.
Justin Norman: The inefficiencies in intra-Africa shipping are adding to the price of our baby diapers, as well.
Omar Hagrass: The cost of moving goods and according to the IMF in Africa is two to four times more expensive than it is in the US and in Europe. It’s ridiculously more expensive.
Justin Norman: But the inefficiency in trucking is caused by different problems than at the container port. One of the biggest problems is empty trips. Something needs to be shipped in one direction, but there aren’t as many shipments sent back in the other direction.
Omar Hagrass: If you are a transporter in Europe and you have a load from Germany to Poland, chances are very big that you’re going to come back from Poland to Germany with another load. Versus, in our case, if you’re taking a load from Egypt to Libya or from Egypt to Sudan, actually in most cases, you don’t come back with another load. So what the drivers do righteously is that they actually double bill the company. And obviously all these costs are transferred to the goods itself.
Justin Norman: Trella is working to bring efficiency to logistics using technology to better coordinate routes.
Omar Hagrass: What we’re trying to do is make sure that when these trucks go, they have something that they can carry on their way back to reduce some of these costs. And there’s a lot of tactics as well. So it’s not the same route, backhaul, but you can also have what we call triangulation, where the driver goes Libya, and then from Libya, he goes to Northeast Egypt, then from Northeast Egypt, he goes to Alexandria. Then from Alexandria, he moves back to Egypt. So this way actually you become even more efficient than just the backhaul, because the driver actually makes more money, so he’s happy, and you’ve managed to reduce a lot of other dead legs that might not necessarily be directly a part of the backhaul itself, but you’ve solved more efficiency problems in other routes.
Justin Norman: While Trella itself isn’t moving any of the goods, it’s their software that helping solve this coordination problem.
Omar Hagrass: How can we make sure that the trucks are utilized as much as possible? How can we make sure that the workflows and the shipper piece is streamlined and automated as seamless and quick as possible?
A lot of people argue that supply chain is super complex, technology is maybe not ready to disrupt supply chain, there’s a lot of variables in one load, there’s a lot of stakeholders in one load. So just to give you an example, in one load, you have the truck drivers, sometimes you have fee partners or brokers, and sometimes you have the shipping lines and the customers, sometimes they have their consignee or recipients.
So all of these, just to come in one place and have things organized is a very, very, very hectic job, and having a marketplace that could eventually enable this type of organization and efficiency is, is something that we’re striving to.
Justin Norman: Now, Trella doesn’t own any trucks, and they take an asset-lite approach to a market like Egypt, which already has an oversupply of trucks.
But as our baby diapers move further down towards the last mile, things tend to bifurcate. On one hand, this asset-lite approach works when there is existing supply, but when there isn’t…
Daniel Yu: That initial pilot, all the way back in 2016, was in fact a failure, or didn’t get nearly the level of traction that it required because the shops were not actually getting the goods that they were ordering through the platform.
Justin Norman: That’s Daniel Yu – the Founder and Global CEO of the B2B commerce platform Sokowatch. Daniel is talking about Sokowatch’s initial product, a software-as-a-service product for manufacturers to help manage the ordering of products by distribution. It didn’t work – and why is that?
Daniel Yu: And that was because of the logistics bottlenecks that were occurring at the distributor’s side specifically, the lack of interest in delivering small sub-150, even $10 orders. They just didn’t have the actual physical infrastructure, the physical trucks, that could do these kind of small on-demand orders
Justin Norman: Let’s take a quick step back and talk about retail – it’s a topic we’ll cover in full in the next episode of The Flip – but that we need to talk about here, as well. Whereas in developed markets, goods may ultimately end up in a big box store, in Sub-Saharan African markets like Kenya, last-mile retail is incredibly fragmented, with the majority of consumers purchasing FMCG products in small quantities at small shops or from traders at a market. And it’s that fragmentation, coupled with small order sizes, that creates a logistics problem for distribution.
Daniel Yu: What that really means is like one box of soap, it’s one box of soap that maybe has 20 individual bars within it. And a consumer is coming in and buying that bar of soap for 20 cents a piece. And so you’re delivering one box worth of soap, which is, maybe $5 worth of soap, and the reality is that the supplier, that soap manufacturer, that soap distributor, would never be able to profitably deliver one box of soap to say 10,000 different shops in Nairobi.
Justin Norman: So merchants in a traditional scenario may go to a wholesale market to buy their goods from wholesalers – and additional middlemen in between manufacturer and retailer can add to the cost, which is then passed down to the consumer. But the retailer’s inventory is also then typically limited by the cash they have on hand – which creates stock and availability challenges for consumers, as well.
Sokowatch provides financing to its merchants and crucially, ensures they get the products – same day.
Daniel Yu: And this is actually where same-day delivery becomes quite important because if you’re doing even just next day delivery, which is actually where we started, what we found was that the reliability of successful orders was actually at risk because what would happen is you have a merchant placing an order today for $50 with the products, you show up the next day with the $50 worth of goods, and they say, “Oh, sorry, I’ve already spent, you know, $20 of that buying something else on my own. And so actually now I can’t take the full order cause I don’t have the full cash on hand.” And so getting down to same-day delivery was a big driver in improving our successful delivery rate.
Justin Norman: So same-day delivery ensure retailers get what they initially order, and that they inventory for their customers when they need it. But getting down to same-day delivery in Kenya is also a bit more involved than just plugging an address into google.
Daniel Yu: You have to actually do the routing and the kind of territory mapping in a way where the drivers have a familiarity and experience delivering to that shop ideally, if not, you know, shops within the vicinity.
So they know their way around, they know the landmarks, because kind of turn by turn navigation is something that’s also just unreliable in a lot of these neighborhoods, because they’re not kind of properly mapped on Google.
Justin Norman: When stores don’t have proper addresses and streets don’t have names, businesses providing location-based services like Sokowatch need to go offline to verify.
Daniel Yu: I mean, to this day, you know, we still have a high-touch onboarding process, which I think it’s just essential. Then also to help them register and sign up and as part of the process, actually capture the exact location pin of where the store is, given that there is no address system in most of the markets where we operate.
Justin Norman: And then using existing data and ordering history, Sokowatch sets up their logistics operations accordingly.
Daniel Yu: And then at the actual logistics level, it’s about organizing your fleet in a way where it’s not just, you know, hey, whoever is available and has their truck ready makes this delivery. So you end up having to allocate orders in a way that you are considering both the confirmed location, but then also the knowledge and experience of certain drivers based off of territories.
Justin Norman: Coming up after the break, we go from asset-heavy to asset-lite, and then discuss the major elephant in the room… or the elephant in this episode.
But first another word from our sponsor MFS Africa. Earlier in the show we heard from Baxi’s Dee Abudu on how the recent acquisition by MFS Africa came together. And once the deal’s closed, what opportunities does it create for the combined company, and particularly for Baxi’s merchants and their customers at the last mile?
Dee Abudu: I think what really happens next is it helps us to accelerate the breadth and the depth of credit products on our platform that can really support SMEs. My belief is the most important way of empowering SMEs is to provide credit, and the way credit is structured currently isn’t really suited for retail last-mile. Most of the commercial credit products are sort of structured around more developed, more formal businesses. So you need collateral or you need really consistent cash flows and so on and so on. Whereas, you know, nothing is really created or customized for this demographic. So I mean, I’m pretty sure that with the partnership with MFS Africa, we’ll be able to put some pretty smart minds together to create a much broader portfolio of credit products that can better suit that demographic and create a lot of value and empowerment.
Naturally, there will be synergies for remittances that creates inbound and outbound corridors between Nigeria and across Africa, and inbound and outbound with China. And those are obviously significant markets that we think we can, over the long term, generate a lot of value. And then, you know, I guess the third leg of it is just to constantly try and create payment innovation or innovation around ease of payments that suit the last mile. And that comes around just, you know, using technology just to simplify payments, and education and training and awareness that that demographic will need to be able to use technology and be more digitally enabled over time.
Justin Norman: So physical retail is one way – and indeed the most prevalent way – our baby diapers get bought in African markets. And for that Sokowatch has built out its own fleet to manage logistics and distribution.
But there are two emerging trends here – first, when Sokowatch got started 5 years ago, there also weren’t necessarily reliable third-party logistics providers they could use to deliver such small quantities to their merchants, which is why they invested the infrastructure themselves. But as ecosystems evolve, as the inputs before and after where companies sit in a given value chain improve, other startups are able to rely on third parties more than ever before.
Second, as commerce increasingly becomes digital, and ecommerce slowly but surely gains market share, this is where third-party logistics providers play a role at the last mile. Whereas select ecommerce companies like Jumia might be vertically integrated, having built out their own fleet to deliver direct to consumers, logistics-as-a-service platforms provide the infrastructure for everyone else.
Emotu Balogun: What we’re seeing though, is that more and more many of these transactions are starting to go online. It appears to be a trend that is going up so many more merchants are comfortable doing their direct to customer sales, as opposed to always a lot of the activity through third-party marketplaces, which is one of the reasons why a lot more activities started to happen on channels like Instagram and Facebook and WhatsApp, because I mean, there’s not really a middleman in between them.
Justin Norman: That’s Emotu Balogun, the Co-founder and CEO of Sendbox, which is a…
Emotu Balogun: Sendbox is a fulfillment platform for merchants who do e-commerce using social media channels or their own direct-to-customer channels. So basically anyone who doesn’t sell in a traditional marketplace still requires the infrastructure needed to actually get the fulfillment done.
Justin Norman: In the context of micro and small retail in African markets, many of these merchants might be selling online, but are too small to build out the infrastructure themselves. It’s something Emotu experienced as a merchant, in his prior startup.
Emotu Balogun: So we had a fashion marketplace and, you know, one of the big challenges that we had, as we started and try to scale the business up, was dealing with logistics. At the time there weren’t services like what we were offering in Nigeria. And because of that, it became a bit of a challenge to actually expand or scale the business without having to significantly invest in the logistics infrastructure ourselves. And so, over the course of a few years, once things started getting really tough with that, we decided that we were going to try to fix the problem.
Justin Norman: Similar to how Trella’s platform connects long-haul shippers to available trucks, Sendbox connects shippers to available logistics providers at the last mile.
Emotu Balogun: So to speak to Nigeria, where we are, we have a fair amount of already existing logistics companies that are all doing, you know, the traditional model, which is they own the assets, they figure out the drivers and all of that.
Our typical merchant is someone who sells probably over Instagram or via WhatsApp, or maybe on their own website. Or even offline, like they have a physical store, and they’re taking phone calls to book orders. So once these orders are booked on our platform, what happens is that Sendbox dispatches a first-mile courier who’s going to be able to reach that merchant and pick up the item, and then we figure out how to route it through what partners we need to route it and how it needs to get to where it needs to go.
The interesting thing here is that now, for most of these merchants, they don’t really have to try to figure out which partner to work with. For whatever routing that they need, all they just need to do is get Sendbox.
Justin Norman: So using existing infrastructure, Sendbox is solving this coordination problem, making it easier for merchants to send their goods and ultimately making it easier for consumers to get their goods. But there’s one final elephant in the room that we need to discuss. Infrastructure.
Not just trucks or other mobility assets, but physical infrastructure – ports and roads. As The Flip’s b-mic, Sayo Folawiyo and I were finalizing production of this episode, one persistent question came up. How far can tech go in our endeavor to reduce the price of goods for African consumers?
The companies we talked to in this episode are better organizing and creating greater transparency in the logistics space. But to what extent are the problems in question just solved by building better infrastructure?
After all, Nigeria’s port congestion problem, as we heard from Miishe earlier, in which trucks line up for two weeks to pick up or drop off their containers, that’s an infrastructure problem.
So Sayo and I phoned a friend. We made an impromptu call to Dami Agbaje, the Investment Director of African Infrastructure Investment Managers, to get his perspective from the infrastructure side of the equation.
Sayo Folawiyo: So we’re doing this episode on logistics and it’s very techie, techie, tech, tech, and the point of view that we’re missing and trying to get a view on it, cause we don’t even know anything, is like, what is the impact of these kinds of coordination techie things on the price of goods versus just like building ports and roads. And how should we think about that?
Dami Agbaje: So it is my personal view, Sayo might’ve given you context, so I worked for a very large, in the African context, infrastructure investor that owns port assets and has looked at them in the past, et cetera. And they’ve also owned toll roads. So I have a view of that angle and how it works and how long it actually takes to close those projects, how much they cost, how difficult they are to actually achieve. The tech stuff is really cool, but you can’t disrupt the, just lack of infrastructure. What they’ve done is important. They’ve made the whole value chain more transparent, so people really understand better the sort of beast they’re dealing with, but I do think there’s like a hierarchy of needs, and on the continent, actually, I think infrastructure is just a top-order thing.
Justin Norman: Yeah, I think we’re very cognizant of the fact that this tech stuff is just a means to an end and really can only go so far. So then our question is like, to reduce costs further, what percentage of it is infrastructure and like, why don’t they just like build a better port? I don’t mean to ask such a trite question, but you know what I mean? It’s like, it seems like that’s the…
Dami Agbaje: It’s a reasonable question. So, they are building a better port. Ports are expensive. They’re very expensive. And I think, the absolute amount of resources is low, relative to OECD countries.
And then there’s also a degree of just mismanagement and lack of imagination, which means, you know, there isn’t that much money in the first place to go out and build new bridges, new roads, new ports. It’s a massive issue. The infrastructure deficit across the continent is no secret.
So why don’t people just go and do it? I think it’s twofold. I think one, it’s capital constraints. And then two, if you want to actually be somewhere where you don’t have to build a new road network, a new rail network, i.e., somewhere that’s already pretty urban or close to the city, it’s likely super congested and just not really feasible from a population density point of view. Just to illustrate the issue I was describing about the level of investment required, there’s a place about 40 minutes from Lagos that would be pretty good for a brand new port, but it’s like, it’s the bush. It has very, very deep draft, as the crow flies, it’s very close to Lagos and it makes total sense, but you would have to be building a port from scratch. You’d have to build a road into town. You’d have to build rail into town. And once you just look at those costs, it quickly becomes very expensive. And then you couple that with the fact that you are doing something disruptive or trying to do something, quote-unquote, disruptive, where there’s no certainty that the traffic is going to be exactly what you think it is. There are very few investors that are gonna want to put money into that. And also even as a government it’s a massive undertaking.
But I mean, on the positive side, a recent story you can reference. CDC is the UK’s development finance institution. The largest investment they’ve ever made was made last week and they just put $700 million into DP World or $700 million into a JV joint venture with Dubai ports, a global port operator, to invest in new port infrastructure across the continent. But the idea is that this capital raise from CDC will turbocharge that and CDC has a development slant. So I think the way that’s been thought about it in the context of AfCFTA, you know, logistics being such an issue, cost of end logistics being such a high percentage of the end price of goods and so on and so forth. I think that’s how the UK government, the CDC have thought about this. And I think it’s an excellent initiative that can be super, super impactful because you need super-duper long-term money.
So they could, that sort of partnership they’re looking for 10, 15 years, so they could go to this place 30, 40 minutes from Lagos as the crow flies and start building and put together the right partnerships for road and rail and so on and so forth, and make it happen.
Now, when you think of the fact that they’re putting $700 million to solve the problem, I guess it, to me, it shows the relative importance of doing that, to tech trying to disrupt something where there’s at least a $700 million deficit. It’s actually a much larger deficit.
Sayo Folawiyo: I think that thing of like the minimum deficit of at least 700 million, that’s a really important point. I think thinking about the nature of returns with these tech companies versus an infrastructure company and obviously the investment needed, is really important point. The one bit that you touched on a little bit, but interested to see if you have any more thoughts on it, the value of that increase in transparency?
Dami Agbaje: I mean it’s valuable. It’s just greater efficiency. So, right now, there are more containers that can come out in a single day. They’re more trucks that can go in in a single day. And it’s just simple economics, capitalism.
Justin Norman: Now with that context, Sayo and I had two questions for our retrospective. Number one, considering this infrastructure deficit, what roles should tech companies play, if any, in building physical infrastructure? And number two, how do you solve this vested interest problem that exists around inefficient markets? Which Sayo and I talked about in the context of a challenge he’s facing as the co-founder and CEO of home service marketplace Kandua. Take a listen.
Justin Norman: Do you know what’s interesting? So I’m thinking about this in the context of Sokowatch building out its own fleet because they decided that they couldn’t be asset-lite and in order to actually get products to the last mile, they needed to build the infrastructure themselves.
And I’m thinking of it in the context of like the development of the US where the oil guys and the Vanderbilts and the Rockefellers, and there’s a Singer railroad station, right these industry titans not only had a product, but they built the infrastructure to move the product. But I wonder to what extent Socowatch, these companies perhaps should have a role in building infrastructure, as well. It’s the same thing we talked about with fintech, where they go up or down the stack and they build a full-stack thing. Like for these logistics companies, are they going to have a role to play in building roads?
Sayo Folawiyo: I suspect they should do. It’s an input, a strong input. It was actually one of the things that I was thinking about was like mapping, for instance, that came up in the episode. Mapping is kind of an infrastructure layer. And I think about open source and guys building out strong mapping data that should be open source that anyone else can use, a railway, right? And to what extent can they be supported in that? Because again, it’s probably not going to be the most, they might actually end up making strong business sense.
Justin Norman: So should these B2B commerce companies that map out their routes and map out the location of all of these stores open-source that, or sell that to Google maps or something? Cause I guess that’s, yeah when we talk about like public goods, right, a road as a public good. Is this data public good?
Sayo Folawiyo: And that’s an example of how in providing their product, service, whatever it is, they can contribute to the building of the necessary infrastructure. It seems like very different capabilities when you start talking about building railways. But I know you can be smart about how you, at the very least, make sure the right information is flowing in the right direction so that the right people are doing the right work.
Solar is interesting, right? A lot of the business model is around solar is kind of, it’s like software business models. Like they’ve quite SaaSy, when you think about it. This kind of like solar PV stuff, they’re quite SaaS business models, right? Can we save you this much? You pay this much every month or we take a clip on everything we save you, blah, blah, blah, right? But they cannot exist without strong infrastructure know-how. So in my experience, I’m seeing a lot of really good collaboration between the technology side of a product and then the infrastructure kind of capability, know-how thinking, right? Even in how solar companies are funded, right, it’s very infrastructurey, but their business models are very softwarey.
Justin Norman: So are you saying middle-mile logistics software company should actually play a role in building the roads?
Sayo Folawiyo: I don’t know what I’m saying, but I’m saying there must be the right information flowing to the right people with the right skills to make the right shit.
Justin Norman: I guess that’s the point though, is just like data decisioning. And that is kind of the takeaway, I suppose, when you look at physical supply chains, is not like how technology can fix them, but how it can improve them. And, I’m worried to overstate the role that it’s playing, but…
Sayo Folawiyo: So that was the thing for me kind of reading the transcripts. I was like, yes, but you know what percentage, like if you could draw like a little impact score or like how much of it is technology, how much of it is just, you know, infrastructure, like building real things, and then that improvement that we get from technology, like in a world without the infrastructural improvements, how impactful can they really be?
This isn’t to me a case for their existence versus not, I think they will be extremely useful and I’m sure extremely successful. I think the conversation I’m looking at it more from that premise that we started, right, which is that price, the consumer price level, like what is the impact that you can really have?
Justin Norman: Yeah.
Sayo Folawiyo: But another kind of thing, kind of linked, but that I was thinking about is like who benefits from disorganization and inefficiency? Because the secondary markets that are created from… look how polite I’m being, the secondary markets… If your truck is going to stay there for two days and you have the plug to make the truck come now, there’s a price you have to pay for that?
Justin Norman: But do you think those guys have a role in the prevention of infrastructure being built?
Sayo Folawiyo: Of course. Isn’t that how things work?
The certain ways to profit that come from inefficiencies and the more you can profit from them, the more you’re self-interested for those inefficiencies to stay. And the more money that you’ve made, the more power that you have, and the more you’re able to lean on the people that might make it more efficient. That’s just how things work.
Justin Norman: Okay. That’s not unique to Africa.
Sayo Folawiyo: It’s not unique to Africa at all.
Well, then it becomes interesting how you manage that kind of stakeholder, right? How do you make it in people’s best interests? I think an interesting example, right now, for instance, we’re working with a lot of property managers at Kandua.
And we’re like, okay, here’s a solution that’s gonna give you cheaper work, more transparency, better work because we’re also monitoring what’s happening. It’s everything you should want for your incentive is for your tenants or whatever, to have good, good experiences. And it’s also good for the business’s bottom line, but we get a lot of pushback and so no one will adopt the solution. Like there’s actual barriers to adopt the solution and then you think about, okay, how can I incentivize you? Can I make the informal, secondary market thing that’s happening more formalized? So, can you look at affiliate kind of whatever for introductions and revenue shares and things like that. Or you also think about, can I completely remove this thing from happening by appealing to someone higher up that actually only cares about the business’s bottom line, right? And so it’s like it’s interesting how you solve against those things. There’s lots of different levers you can push, then sometimes you can’t even, as too costly to do it.
Justin Norman: Yeah, this inertia is so boring though.
Sayo Folawiyo: That’s life.
VO: That’s it for this week’s episode of The Flip. Next week, as we mentioned earlier, we tackle B2B commerce. Until then, if you liked this episode, please do consider sharing with a friend. You can also follow us on social media @theflipafrica or subscribe to our newsletter on our website, theflip.africa for more insights from our interviewees show notes updates, and our weekly newsletter The Flip Notes sent every Sunday. Thanks so much for listening and we’ll see you next week.