Light at the end of the corridor for trade in Africa
One of the keys to unlocking efficient and cost effective trade in Africa lies in striking the correct balance between the transportation of goods via road, rail and sea. This can be achieved through the development of multi-modal corridors in Africa.
Africa has the highest logistics costs per kilometre in the world as the majority of goods intended for trade are trucked over long distances on poorly maintained roads. The efficiencies of rail simply outweigh the costs and speed of road haulage, but what little freight rail infrastructure has been developed has been poorly maintained.
The use of rail in Africa has largely been in relation to single commodity lines developed by mining companies to transport commodities from the mine to a dedicated port for export. Single purpose rail lines don’t easily facilitate multi-uses and they are unlikely to promote the growth of intra-African trade, or trade in general. For these and other reasons, Africa needs to focus on corridors that support a variety of transport modes which can be used for the trade of all goods as well as the transportation of people –particularly metro transport.
Costs of transport can be drastically reduced if road and rail are combined efficiently. With goods reaching the ports more swiftly and at a lower cost, this will ultimately boost Africa’s export trade. Governments and large companies are starting to realise the need for beneficiation and two-way goods movement to make rail and road corridors sustainable. Corridors that promote intra-African trade can also be used to create production lines with beneficiation occurring in different regions along the corridor, with the final product reaching the port for export.
There is currently no coherent regional policy in place that governs multi-modal corridor development. If corridors are to become the next “big thing” in Africa, the economic and operational policy driving the expansion of rail through the development of corridors will need to ensure uniformity in the regulation of road, rail and ports as well as in the customs and tariffs charged between regions.
But who will drive the expansion of rail in Africa, and who will ultimately pay? If private investors are to pioneer the project, they would need to ensure that their contracts are well drafted and drawn up in consultation with an expert in the region. A local expert will be aware of any territorial circumstances that may arise and could hinder any of the parties performing their side of the bargain. This could be dealt with in the contact by an appropriate force majeure clause.
Insurance is critical for an investor in order to mitigate the risk of other parties not performing. The management of uninsurable risks and taking steps to mitigate potential losses is key.
Some of the other issues impacting private investment in shared infrastructure have been explored in our article here: Sharing mining infrastructure across the African mining sector
Investors hold the key to unlock the enormous potential of African trade, both within the continent and further afield, through the development of multi-modal corridors. With the size of the African population growing rapidly and trade in Africa booming, the development of corridors can truly benefit Africa and her people. Investors will reap great rewards from a project of this nature, as long as they are able to keep their feet on African soil and understand the local environment.
The Inside Africa team would like to thank Paula Dollman, Candidate Attorney, for her contribution to this blog post.