FROM MAGAZINE - Kenya Setting its pace in the logistics race

Kenya’s growing importance as a global hub for trade explains why the nation has been experiencing the fastest rise in foreign direct investment in the continent. Speaking specifically about the logistics sector, a number of international companies acquiring local players in Kenya is a clear indication of the lucrative nature of the business here, particularly with perishables. That apart, the Kenyan government has initiated a wide number of infrastructural projects to set the ball rolling, Surya Kannoth reports.

One of Africa’s most developed nations, Kenya moved up 21 places in the 2017 World Bank report on ‘Ease of Doing Business Index’ to position 92 globally, making it the third most improved economy in 2017. This jump in ranking came following a similar improvement of 21 slots in 2016.
This speaks volumes about how the country has emerged from its days of political instability and economic downturn. Initiating a broad range of business reforms, the Kenyan government is leaving no stone unturned to attract more investments into the country.

Recently, Nairobi Governor Mike Sonko promised international investors at global forum facilitation to acquire land for setting up special economic zones. The Nairobi County government has announced plans to reduce levies for foreign investors as it seeks to transform the city into a global investment destination.

“The national government in conjunction with my office is working towards ensuring Nairobi becomes a logistics hub for both imports and exports,” he announced. “A lot of infrastructure developments have been undertaken, including major road bypasses, the standard gauge railway, and the upgrade of Jomo Kenyatta International Airport.”

A number of multinational freight forwarders are acquiring Kenyan companies to tap into the lucrative perishables market. Recently, the world’s third largest logistics company, Japan’s Nippon Express, launched a subsidiary office in Kenya. Nippon Express has been making use of local agents for the export of home-grown (Kenyan) cut flowers and roses.

The firm announced that it will be putting in place a structure to meet the needs of customers in Kenya and the rest of East Africa, where sustained growth is expected.

“A standard-gauge railway connecting Nairobi with Mombasa was opened in June 2017 and, with transport by freight train now available, logistics demand is expected to rise due to the reduction in time and cost for transport inland from Mombasa Port,” the firm said in a statement.

Meanwhile, Africa Logistics Properties (ALP), a specialist integrated property investment company that develops, acquires and owns class-A industrial and logistics properties in principal cities across Africa, have stepped up the construction of Kenya’s first international standard grade-A logistics warehousing on two sites in Nairobi by drawing in Copia Global, the fast growing e-commerce FMCG distributor that specialises in supplying rural Kenya.

ALP North, ALP’s first project, is a 50,000sqm logistics and distribution complex at Tatu Industrial Park in Northern Nairobi due for completion in September. ALP West, which is ALP’s second project, is in the process of building road infrastructure on its 49-acre site on the A104 highway to Limuru. It has also planned for a 100,000 sqm logistics and distribution warehousing complex.

Copia’s ALP North lease will enable the company to operate from ALP’s 12 metres high warehousing and to benefit from the highest pallet densities in the market and therefore the lowest pallet storage costs per square metre. Copia will be able to run thousands of deliveries a day from the e-commerce company’s new central distribution centre to its agent network across the regions.

Meanwhile, DOB Equity, a leading Dutch family office, is investing up to $4 million in Africa Logistics Properties Holding (ALP), a developer and manager of modern grade-A warehousing. The investment will allow ALP to build developments in Nairobi. Saskia van der Mast, Investment Manager at DOB said, “We believe Kenya is ideally located as an entry point and hub for Eastern and Central Africa to benefit from the region’s industrialization, growing trade and expanding consumer markets. DOB is investing in a team led by Toby Selman, with extensive emerging market experience in warehouse development, which we believe will be able to execute successfully on this opportunity.”

The e-commerce sector is expanding rapidly in Africa with revenues last year of $16.5 billion projected to reach $28.9 billion by 2022, according to international statistics portal Statista. In this, East African e-commerce sales are set to surpass West African e-commerce sales for the first time in the first quarter of this year, according to JLL’s Africa Prime Industrial Report.

Thrust on perishables exports
According to a recent report, Kenya earned much more from fish exports in the last three years than it paid for imports despite rising volumes shipped in and an outcry over foreign sea food flooding the local market.

The country earned Sh8.5 billion from its exports, higher than the Sh4.03 billion paid for imports in the period under review, according to official figures. Export volumes in the last three years stood at 16,429 tonnes compared with 40,991 tonnes imported in the same period.

“The earnings from exports were higher compared to imports because of the high value that Kenya’s fish earned in the world market,” said the Department of Fisheries. The country exports frozen Nile Perch, tuna, octopus, frozen whole tilapia and lobsters caught in the lakes and the Indian Ocean notably to the EU.

Tapping into the vast potential in the Kenyan perishables market, global freight forwarder and logistics group Panalpina acquired Kenya-based Air Connection last year, this follows Panalpina’s acquisition of another Kenyan perishables forwarder, Airflo, which was completed in 2016. Air Connection’s perishables business has operations near Jomo Kenyatta International Airport in Nairobi and in Mombasa, and is now merged with Panalpina Airflo. With this acquisition, Panalpina Airflo’s combined cold-storage capacity will increase to 4,200 square meters as the combined business expects to handle about 70,000 tonnes of perishables airfreight per year. The company has also begun construction to increase its cold-storage space in a project that should be completed by 2018, according to the company statement.

Green signal for KQ for direct US flights
Now that Kenya Airways (KQ) has finally been cleared to make direct flights to the United States, the move is expected to help the airline grow revenues as well as enable local industries increase exports to the American market and boost tourist numbers from the key source market. Direct flights between the two countries will open a window of opportunity, especially to Kenya, with the US being one of Kenya’s largest trading partners. Last year, Kenya exported Sh43 billion worth of goods to the US. In return, America imported Sh47 billion worth of goods. Kenya hopes to increase the amount of goods exported to the US market, especially through the African Growth and Opportunity (AGOA) window, which exempts from taxes, certain goods from some African countries including Kenya.

Rail infrastructure gains steam
Kenya Railways Corporation, a government-owned rail operator, launched its cargo service on the new Standard Gauge Railway (SGR) in January 2018. The new Standard Gauge Railway (SGR), also called the Madaraka Express, connects Mombasa Port, the largest port in East Africa, and Nairobi. This 472km-long line is the first phase of the SGR project that aims to connect Kenya, Uganda, Rwanda and South Sudan and created around 30,000 jobs during construction.

The Mombasa-Nairobi SGR, the heaviest infrastructure project in Kenya in the last five decades, aims to not only shorten passenger travel times from Mombasa to Nairobi but also to substantially improve the effectiveness of the country’s commercial freight service. Indeed, the designed freight carrying capacity of the railway is 22 million tons per annum. There is currently one daily train available with plans to increase to 8 in the future and each train has a haulage capacity of 54 double stack flat wagons carrying 4,000 tons (216 TEUS) with a designed speed of 80 km per hour.
As the leading freight forwarding player in Kenya, Bolloré Logistics provided the inaugural commercial consignment of 52 containers transported on the SGR. Since then, Bollore’s teams in Kenya introduced the service to their clients and have transported over 360 containers to date, for export, local imports to Kenya and transit imports to Uganda.

Because of the speed and reliability of the SGR, the service is included as a mode of transport in its specialized commodities and exports such as coffee, tea, beans, hides and skins among others.
Clearing and documentation services is handled at the main port in Mombasa or at the customs-controlled ICD Facility in Nairobi. The SGR has also been beneficial for both local imports and transit imports, cutting down transit times from Mombasa to Nairobi by 24 hours.