pwc report-transport & logistics industry

8/13/2019 PWC Report-Transport & Logistics Industry

1/96

www.pwc.com/africagearingup

Africa gearingup

Future prospects in Africa for the

transportation & logistics industry


2/96

Africa gearing up

Contents

Foreword 1

The bigger picture: Transportation andlogistics across Africa 2

Methodology 15

A deeper dive: 10 countries in prole 18

Algeria 19

Angola 25

DRC 31

Egypt 37

Ghana 43

Kenya 49

Mozambique 55

Nigeria 61

South Africa 67

Tanzania 74

Appendices

Key gures 82

Acknowledgements 88

Contacts 89


3/96

Foreword

Klaus-Dieter Ruske

Global LeaderTransport & Logistics

Peter KauschkeDirector

Transport & Logistics

PwC 1

More than a billion people, 54countries, a continent bigger thanthe USA, Europe, China and Indiacombined. Yet Africa is barelypresent on the map of world trade.The continent still isnt a majorsource of exports and its consumermarkets are tiny in comparisonto Asia, Europe or the Americas,despite its enormous size. So Africaseems relatively unimportant for

the transportation and logisticsindustry.

Or is it? Theres no doubt thatAfrica faces huge challenges arguably bigger than any otherregion. Recent news about growingflows of refugees from Africa toneighbouring continents shows usquite plainly how desperate livingconditions are for many in their

African homeland. Not surprisingly,

for many the phrase Africanlogistics currently brings to mindhumanitarian logistics.

But the situation is changing fast.African logistics stands for muchmore namely the chance to buildtomorrows markets. And whiletomorrow is still uncertain, logisticsstrategists cant afford to ignorethe African market of the future.

And the global transportation andlogistics industry can play a vitalrole in Africas efforts to gear up building its infrastructure, enabling

supply chains and distributionnetworks, providing mobility andultimately helping create jobs for itspeople.

In this report, we focus ourdiscussion on ten selectedeconomies on the African continent.We shed light on their demographicand economic situation, theframeworks in each country fortrade and business and their

transport infrastructure.

Were hoping that our assessmentswill help you better analyse theseimportant future markets andunderstand both relevant marketrisks and key opportunities.

Klaus-Dieter Ruske Peter Kauschke

Global Leader DirectorTransportation & Logistics Transportation & Logistics


4/96

The bigger picture:

Transportation and logistics

across Africa

2 Africa gearing up


5/96

PwC 3

Per capita GDP in SouthAfrica vs in the DemocraticRepublic of Congo (2012)

US$230

Africas growth prospects vary, but theres reason for optimism

In 1960, Africa was stepping outof the shadow of colonialism. Thetransition wasnt without violence that year the United Nations(UN) Peacekeeping Force was sentto the Congo to maintain order as

the country sunk into civil war andchaos. And in South Africa, policekilled anti-apartheid demonstrators.But many had high hopes. TheWorld Bank predicted a bright futurefor sub-Saharan Africa, with grossdomestic product (GDP) projected toincrease more than 7% per year.i

40 years of falseexpectations

That growth failed to materialise;indeed, life got worse for Africaspeople, with HIV/AIDS, malaria,and natural disasters plaguingthe continent. Forty years later,debt levels were still high, whilecorruption and civil unrest

were rampant. In May 2000 theEconomist famously called Africathe hopeless continent.

Wrong again. Corruption is still abig issue, and areas facing armed

conflicts remain. But from 2001 to2010, six of the worlds ten fastest-growing economies were in Sub-Saharan Africa. Thats partly dueto natural resources; top-ranking

Angola and fourth-ranking Nigeriahave both benefitted significantlyfrom oil exports. But other factorsare at work, too, especiallyincreasing government stability.

Is the new optimismjustified?

In March 2013, the Economistpublished a new special report onemerging Africa. Their title this

time: Africa rising. Many otherobservers are also now predictinggreat things for Africa. In thesame month, PwCs own economicintelligence unit predicted that nine

African economies would join the7% growth club, although they alsonoted that Africa can be a hard placeto do business in.ii

What does this mean fortransportation and logistics (T&L)

companies? Is Africa the next landof economic opportunity, or will thecurrent bullish predictions turn outto be yet another miscalculation?

More than 50 differentanswers

In our view theres no single answer.Africa is one continent, but its madeup of over 50 countries with verylow connectivity between them.In 2011, total intra-African trade

represented only about 11% ofAfrican trade with the world.iii

Levels of development also varyenormously. While South Africaalready has a nearly US$400 billioneconomy, the Democratic Republicof Congo (DRC), despite significantmineral resources and the fourth-largest population in Africa, has anestimated GDP of less than US$18billion.

With young, growing populationsin most countries, the chance fora demographic dividend looksgood. But a growing population canonly drive growth if enough peopleare above subsistence level. Thats

a question mark in some countrieswhere the distribution of wealth isstill very unequal.

Take Nigeria, Africas most populouscountry. According to the WorldBank, 84.5% of Nigerians livedbelow the US$2/day poverty line in2010, up from 83.1% in 2004. Andin Mozambique, only 2.6% of thepopulation is considered part of thestable middle class (per capita

consumption level of US$4-20/ day).But the situation is already verydifferent in Egypt, where around30% of the population has made itinto the stable middle class.

Africas terrain also varies widely,from desert to rain forest. That hasa big impact on critical transportinfrastructure in countries like

Algeria and the DemocraticRepublic of Congo, making it morechallenging to build road and railnetworks, not to mention muchneeded bridges and tunnels. Buteven without extreme geographicconditions, theres a huge range ofmaturity in terms of infrastructure.

Angola has just 4km of roads per 100square kilometres of land; Ghanasroad density is more than 10 timesas high, while the leader, South

Africa, has 62km of roads per 100square kilometres. To put this inperspective, Ghanas road density

is similar to the level in China,while South Africa comes close tomatching the USs road densityof 67km of roads per 100 squarekilometres.

US$7 525


6/96

Thebigg

erpicture

4 Africa gearing up

Smart investing in Africa means youllneed to understand key regions andlocal markets. Africa is not just huge,its hugely diverse.

What about the softer factors of

promoting trade, like customs andtrade facilitation? Here, again,South Africa stands out, ranking #1in Africa in logistics performanceand 23rd in the world (out of 155countries). Egypt scores well too,coming in at #57 worldwide. On thedownside, the DRC scores amongthe worst of all nations regardingits logistics performance, ranking143rd.

These differences in infrastructure

and logistics performance translateinto real costs for supply chains.

According to the World Bank,it takes just 12 days to export acontainer from Egypt, at a cost ofUS$625. The journey lasts fourtimes as long over a month anda half to export a container from

Angola, at nearly triple the cost. Andit can get even trickier if you needto cross borders within Africa. Incontrast, at the worlds largest ports

in Hong Kong and Singapore it takesjust five days to export a containerat a cost of US$575 and US$456respectively.

Seeing the (rain) forestthrough the trees, deserts,and savannahs

Clearly, smart investing in Africameans doing your homework.This report aims to give interestedinvestors insight into the keyeconomic regions and countries in

Africa. In particular, weve analysedfactors that are most relevant to themarket potential for transportationand logistics. Weve focused on 10of the most important nations outof the more than 50 countries in

Africa to provide a snapshot of therange of business conditions andopportunities. Some countries werechosen based on their significantcurrent GDP, while others are

expected to grow strongly. Our listincludes all major regions North

Africa, and the east, west and southern regions of sub-Saharan Africa. We

also looked at countries that are particularly relevant for the transportationand logistics sector as potential gateways.

Certainly there are other countries not highlighted in our study whichare also critical for Africas future economic growth. And in some casesour analysis also includes discussion of issues relevant for neighbouringcountries too.

Ten African countries profiled

Nigerians living onless than US$2/dayin 2010

85%

Algeria Egypt

Kenya

Democratic

Republicof Congo

Nigeria

Ghana

Angola

Mozambi

que

SouthAfrica

Tanzania

GDP(US$ bn)

GDP Growth(y/y 10-12)

GDP Growth(y/y 12-17)

Algeria 209.3 3.2% 3.6%

Angola 115 4.2% 5.7%

DRC 17.2 7.1% 8.6%

Egypt 256.7 3.0% 3.4%

Ghana 40.4 10.3% 5.9%

Kenya 40.7 4.9% 6.2%

Mozambique 14.2 7.3% 8.0%

Nigeria 270.2 7.3% 6.8%

South Africa 384.3 3.0% 3.0%

Tanzania 28.2 6.8% 7.0%

Source: International Monetary Fund


7/96

PwC 5

Growth sectors drive demand for transportation and logistics services

Retail logistics companiesshould keep an eye on SouthAfrica, Nigeria and Kenya.

Much of our analysis takes a closerlook at Africas countries andregions, but its also important tounderstand the particular patternsof specific industries. Weve singledout a few sectors that are mostrelevant for T&L investors: retail andconsumer, agriculture, raw materialsand manufacturing.

Retail is growing along withincomes

More than 70% of the worldsbiggest consumer goods companiesare already operating in Africa, andthere are a number of high-profilecompanies making big bets in theregion.iv

Observers say that African retailmarkets will grow significantly overthe next decade. In most countriesthe demographics are favourablefor increased consumer demand.

Populations are generally growing athealthy rates, and in many countriesthe middle class is growing too. Thatsaid, in many countries most retailtrade takes place in semi-formal orinformal settings, e.g. groceries arebought at informal or semi-formalmarkets rather than in supermarketchain stores. The development offormal retail drives the highestgrowth rates, but some consumergoods companies are finding

potential in less formal markets too.Micro-distribution strategies arepopping up as a way to reach Africanconsumers, despite less-developedsupply chains.v

What are some retail hot-spots?South Africa has the most developedretail sector, with most consumersshopping in formalised retailsettings. It also has some majorlocal players expanding throughoutthe continent, like supermarketchains Shoprite and Pick n Pay.Nigerias large urban population is

Agricultural production is alsodependent on weather conditions,

which can make it more erratic.In 2011, for example, Kenyas teaproduction was hard hit by drought.That had an impact on the countrystrade balance. And one estimatesuggests that 90% of agricultural

jobs are vulnerable.viii

Still, countries currently dependenton minerals or fossil fuels for

exports, like Angola, see agricultureas a way to diversify. Nigeria hasalready started down this path; 42%of the countrys GDP comes fromagriculture. The government hasambitious plans to expand, but here,too, infrastructure deficiencies areconstraining growth.

Getting the most of naturalresources

The energy sector has been

particularly critical to the economiesof Nigeria and Angola, both of

which have become major oilexporters over the past decade. Oiland particularly natural gas arealso important to Egypt. But energyexports look likely to shift a bit in thecoming years. Angola and Nigeria

will to a different extent need tocope with decreasing demand fromthe US, where the shale gas boomhas started to impact oil imports.

While the US is Nigerias maintrading partner, Angolas oil exportshave been directed to China ratherthan America in recent years.

And new players may emerge in EastAfrica. The IMF believes that Kenyawill begin producing commercialquantities of oil in six to seven

years. ixTanzania has natural gasreserves too. And Mozambiquehas massive reserves of both coaland natural gas. But accessing thecountrys coal is proving to be verychallenging.

The biggest agricultural producers areEgypt, Kenya, and South Africa, buttheres huge room to expand modernfarming in Tanzania and the DRC.

an attractive market that can standalone and also serve as a gateway toWestern Africa.

Kenya is also emerging as a strongchoice for retail companies lookingto set up in eastern Africa.viWith itslarge population, growing middleclass and central location, thecountry is well positioned both asa point of entry and as a gatewayto other markets. The primary

challenges are around securityissues, as the September 2013 attackon a shopping mall demonstrates.

Will the DRC or Tanzaniabecome Africas breadbasket?

Overall, agriculture is Africassecond-largest contributor to thecontinents GDP, after mining andquarrying.vii Egypt, Kenya and South

Africa have significant agriculturalexports, but much of the agriculturalproduction across the continent issubsistence farming. Agricultureplays a huge role in employment inmany countries, with 60-80% of the

workforce employed by the sector inGhana, Tanzania and Kenya.

For some countries like the DRC,agriculture already plays a majorrole in employment and foodsecurity, but production is still far

below potential. The DRC only farms10% of its arable land, and irrigationis practically non-existent at 0.4%.That means there is room formassive improvements. The WorldBank estimates that the DRC couldfeed a billion people if farming weremodernised, potentially turningthe country into the breadbasket of

Africa.

Similarly, 20% of Tanzania is

suitable for farming, but only5% is cultivated. Poor rural roadconditions, limited irrigationand limited power supplies areconstraining growth.


8/96

Thebigg

erpicture

6 Africa gearing up

Indeed, Mozambique is a case in

point of how inadequate transportinfrastructure can stall growth.Infrastructure improvements arent

yet keeping pace with the countrysresource potential. Improvements toits Sena rail line have been behindschedule and more investment isneeded. Flooding on the rail lineinterrupted coal shipments for two

weeks in February 2013, hitting coalproducers hard.xAnd in July 2013,the line was closed again after atrain derailed.

But questions remain about whowill pay for and run the newinfrastructure needed. Privatecompanies are already makingmajor investments, but far moreneeds to be done. In additionto its coal, Mozambique mayalso have the potential to be the

worlds third-biggest liquefiednatural gas exporter, after Qatarand Australia but again, massive

investment is needed, includingthe development of an entirely newport. Mozambiques own ports andrailways company, CFM, estimatesit will cost US$20-US$25 billion tobuild the infrastructure it alreadyhas planned.xiThats far more thanMozambiques entire 2012 GDP ofUS$14.2 billion.

Africa has other important naturalresources too, like timber andminerals. For example, South Africa

exports significant quantities ofgold and diamonds. Ghana hassome significant minerals as well,ranking second as Africas largestgold producer, right behind South

Africa. But other countries withless developed transportationnetworks arent yet capitalising onmineral wealth. For example, theDRC has massive reserves of copper,cobalt, diamonds, coltan, andgold. And Tanzania has significant

underdeveloped deposits of gold,diamonds, gemstones, industrialminerals, coal, kaolin, tin, gypsumand phosphate. For both countries,

>US$20

billion

Estimated cost

of improving

Mozambiques

ports and

railways

infrastructure

US$14.2

billion

Mozambiques

estimated

GDP in 2012

mining has the potential to growsignificantly.

Industrialising Africa

Historically, sustained economicgrowth has been linked toindustrialisation. Chinas rapid

growth is a case in point. But inAfrica, industrialisation has actuallydeclined over the past severaldecades. In 2012, manufacturingcontributed less than 10% to overallGDP, while resources accounted formore than 20%.xii

In fact, Africas share of globaloutputs actually declined from 1970to 2010, while East Asias more thandoubled. That has a major impact onincome levels.

In its 2013 Economic Reporton Africa, the UN argues formaking more of the continentscommodities. Rather than exportingraw materials, the continent shouldlook to develop the industries thatadd value to them. The UN authorsbelieve that increasing commodity-based industrialisation can serveas a launching pad for long-termdiversification and competitiveness

in new and non-commoditysectors in Africas commodity-richcountries.

The World Banks AfricaDevelopment Forum agrees aboutthe need for industrialisation,but sees strong potential in lightmanufacturing.xiiiThey see potentialcomparative advantage for Africain low-wage, less-skilled labour,particularly as wages in China

rise. And sub-Saharan Africa alsoenjoys duty-free and quota-freeaccess to the US and EU marketsfor light manufacturers under the

African Growth and OpportunityAct (AGOA) and the CotonouAgreement.

Where is it already happening?Although some manufacturingutilises less-skilled labour, countries

with better-educated populations

seem to have an edge. South Africaalready has 1.2 million citizens

working in manufacturing. Ghanahas a small manufacturing industry,but its share of GDP has declinedover the past decade.xivThat maychange if government plans toimprove links to higher education

work out. There are some positivesigns: in September 2013, IndiasMahindra announced plans to buildan auto assembly plant in Ghanatogether with a local partner.xvKenya also has a manufacturingsector producing mostly food andconsumer goods, and Tanzania isstarting to manufacture similar typesof products.

Source: International Monetary Fund, Allafrica.com

Funding infrastructure will be challenging


9/96

PwC 7

Coping with the African business environment

Many companies that arentconsidering investments in Africacite the business environment as toorisky. Certainly there are big issuesaround security, corruption, and the

workforce. But thats been true inChina, too.

Security and corruptionrisks are still issues

It cant be denied that there arestill significant security issues ina whole range of countries. In

Algerias south, terrorism includesbombings, false roadblocks,kidnappings and ambushes. Othercountries are facing this threat as

well. The legacy of war lingers inAngola, where landmines and highlevels of crime make business aproblem. And continuing conflict inthe Democratic Republic of Congo

has led some countries to takestrict actions to avoid subsidisingmilitants, like the Dodd-Frank Actin the US. In Mozambique, threatsby dissidents to derail trains forcedcoal producers to suspend shipmentsfor two weeks in June and early July2013.xvi

Even where the situation isntviolent, theft is often an issue. Fromour interviews we learned, for

example, that some companies avoidusing rail, because containers areopened on the route and then thereis no accountability.

Bribery and corruption area problem too. According toTransparency International, a scoreof under 50 on their corruptionperception index (CPI) suggests ahigh level of corruption. None ofthe countries we surveyed madethe 50 cut in 2012. Some of the

executives we interviewed expressedfrustration.

Better education will help Africa grow

Africa needs more manufacturing tohelp drive growth. As wages go up inChina, new opportunities are beginningto open up.

By 2035, Africas labour force willbe larger than Chinas.xviiThats ahuge opportunity for a demographicdividend but its also a significantrisk. Africas population is growingfaster than the continent is creating

jobs. Unemployment rates are highin many countries. For example, in

2011, nearly a quarter of Nigeriasworkforce didnt have a job. And themajority of Africas workers are stillemployed in the informal sector,

where jobs are more vulnerable.Youth unemployment is also linkedto civil unrest, so theres an impacton overall stability.xviii

Education and literacy levelshave been increasing in manycountries, but there are still huge

variations. While more than half

of the populations in Egypt, South

Africa and Ghana have a secondaryeducation, the rate is under 10% inMozambique and Tanzania. Literacyrates range from a poor 57% inMozambique to a considerable 89%in South Africa. Education needs tobe a government priority across thecontinent.

However, as the chart below shows,public expenditures on education aspart of GDP vary significantly.

But education isnt the only areawhere the government can make adifference. Labour regulations arealso critical. Africa includes some ofthe most inflexible labour markets inthe world. In Angola, for example,fixed-term contracts arent allowedand firing an employee meansgetting approval from a third party.

0%

20%

40%

60%

80%

100%

Angola*

Nigeria*

Mozambique*

Tanzania

Algeria*

DRC

Kenya

Egypt*

Ghana

SouthAfrica

0%

2%

4%

6%

8%

10%

Adult literacy rate (% ages 15+, 2005-11)

Population with at least secondary

education

Public expenditure on education % ofGDP (2012)

* Nigeria, Angola: No data available on secondary

education

Egypt, Algeria, Mozambique, Nigeria:

No data available on public expenditure oneducation

Source: World Bank/United Nations, PwC analysis

South Africa, Ghana and Egypt lead when it comes to secondaryeducation


10/96

Thebigg

erpicture

8 Africa gearing up

Transfer knowledge andunderstand the local culture

When we spoke to T&L executivesoperating in Africa, we asked abouttheir approach to staffing. Theiranswers varied; some rely primarilyon expatriates. But others say theyare working with the local talent andalso working to increase knowledgetransfer within Africa, for exampleby bringing in skilled Kenyans to

help train local staff in other Africancountries.

What about some of the mostimportant professions intransportation and logistics? Withmost goods in Africa carried asroad freight, truck drivers areespecially critical. When South

African truck drivers went onstrike for three weeks in 2012,food shortages were just one of theresulting disruptions.xixAs in many

other parts of the world, Africa isfacing a pilot shortage. In 2012,the Association of African AviationTraining Organization was foundedto help standardise training acrossthe continent.

Trading within Africa

Each of the more than 50 countriesin Africa needs to find its ownsolutions locally to many ofthese challenges. But by workingtogether, governments can do a lotto encourage and facilitate cross-border collaboration and expandedtrade. That helps all the countriesinvolved. At the moment, only about11% of Africas trade is with other

African trading partners.xxComparethat to Asia, where half of trade isbetween countries in the region.

There are some infrastructurebarriers to intra-African trade which

will be discussed in the next section.And while regulatory obstaclesstill exist, there has been progressin crafting trade agreements to

Express and logistics services are the engine of economic growth in Africa. Despitechallenges like the under-developed infrastructure, we extended our international ExpressNetwork to all countries in Africa. We provide our customers access to the African marketsand help African manufacturers develop their exports. Compared to other regions, our

Africa business is still small, but growing above average.

Dr Dirk Baukmann, CFO, DHL Express Sub-Saharan Africa

help overcome these and stimulatecross-border trade on the Africancontinent. African countries havesigned a number of regionalagreements, including COMESA,SADC, EAC, ECOWAS, ECCAS,IGAD and AMU (see table). Theseaim at promoting cooperation oneconomic, political and securityissues and ultimately to make freecross-border trade possible. Mostof these regional agreements dateback to the last quarter of the 20thcentury, but significant progress

was made after 2000. All of the 10countries analysed in this report aremembers of one or more trade blocs.

In 2008, three key trade blocsin southern and eastern Africa,COMESA, SADC and the EAC,announced their intention to join

together in a much larger trade bloc,the African Free Trade Zone (AFTZ).The AFTZ would represent a major

step in the process of integrationon the African continent and wouldbring together nearly three-fifths of

Africas population and GDP.xxiIn2011, South Africas trade ministersaid the first phase of negotiationson trade of goods and the removal oftariff barriers would be completedby 2014. Talks around services andintellectual property would thenfollow.xxiiIn 2012, an African Unionofficial predicted the zone would beoperational by the end of 2017.xxiii

Some leaders are sceptical aboutthe African Unions 2017 goal andit remains to be seen whether and

when the AFTZ will fullyintegrate.xxivIf it happens, it will bean important step towards increasedtrade within Africa and that meansopportunities for transportation and

logistics service providers on theAfrican continent.

Trade agreements stimulate cross-border trade

Trade agreement Member states

COMESA Common Market for Eastern andSouthern Africa

19 East and Southern Africanstates, including DRC, Egypt andKenya

EAC East African Community 5 East African States, includingKenya and Tanzania

SADC Southern African DevelopmentCommunity

15 Southern African states,including Angola, DRC,Mozambique, South Africa andTanzania

AFTZ African Free Trade Zone COMESA, SADC and EACmembers

ECOWAS Economic Community of WestAfrican States

15 West African states, includingGhana and Nigeria

ECCAS Economic Community of CentralAfrican States

10 Central African states, includingAngola and DRC

IGAD Intergovernmental Authority onDevelopment

8 East-African countries, includingKenya

AMU Arab Maghreb Union 5 North African states, includingAlgeria

Source: Websites of listed trade agreements


11/96


12/96

Thebigg

erpicture

10 Africa gearing up

Connecting within and

across AfricaOne of the most important factors in

Africas future development will beincreasing cross-border trade, both

within Africa and with the rest of theworld. That means solid road andrail networks that span regions, andindeed, the continent.

There are already a number oftrans-African highways, and several,like the Lagos-Abidjan highway

through West Africa, already includeexpansion plans. A quick look atthe map suggests that the highwaynetwork provides good access forroad travel all across the continent.

But appearances can be deceiving.Road quality is very patchy on thesehighways. While some offer a goodtransport route, others are in suchbad repair that they are essentiallyunusable. One example is the Beira-Lobito corridor. In the view of ourexperts this stretch of road isnt anavailable freight route at present,

with some sections unfinished andothers frequently subject to floods.However, in the future it coulddevelop into a viable corridor.

What about rail? Regionalintegration with new rail lines andthe extension of existing tracks hasstarted in southern and eastern

Africa. South Africa is collaborating

with Swaziland on a joint railproject. In the East, Tanzania is

working with neighbours Rwandaand Burundi on plans to link thegateway city of Dar es Salaam withKigali in Rwanda and Musongatiin Burundi. And Kenya is alreadyconnected to neighbouring Uganda

via rail. But rail integration in thewest is nearly non-existent.

Gateways to the rest of the

worldWhile transport within Africais important, so is getting thecontinent connected to the rest ofthe world. Thats where gateways ports and airports come in. Portsare by far the most important entrypoint to the African continent withmost goods travelling by ship, butthere arent enough ports to handleexisting traffic, much less allow forgrowth.

Thats set to change. Thereare currently plans to build orsignificantly expand five ports inthe west at Barra do Dande (northof Luanda) and Lobito in Angola,and Lekki in Nigeria, and in theeast at Lamu in Kenya and Musomain Tanzania (see map on page 11).While these projects will be a bigstep in the right direction, demandis rising even faster and congestion

will remain.

In the South, Durban is indisputablythe number one port not only insouthern Africa, but the whole ofthe continent. In North Africa, byfar the most important shippingroute is the Suez Canal in Egypt. Thetranshipment centre of Port of Saidhas emerged as a state-of-the-artfacility since it began operations in2004, serving the Mediterraneanas well as the entrance of the Suez

Canal.xxvii

East and West Africa have a numberof competing ports, but there are bigissues with capacity and efficiency.While the western African coastincludes several larger ports, it stilllacks a clear maritime hub. Onestrong contender for the role wasthe Port of Abidjan in the IvoryCoast, but a local political crisis in

2011 has had a negative impact.Another competitor, the Lagos PortComplex, offers direct access tothe large Nigerian market, but it ismassively congested. This picturecould shift after 2016, when a newdeep-sea port at Lekki in Nigeria isdue to be completed. The Port ofTema benefits from Ghanas politicalstability, but it currently has severecapacity constraints. Long waiting

times pose security risks for ships.As Africa grows, all of these portswill need to decrease congestion andbecome more efficient.

On the east coast, Mombasain Kenya and Dar es Salaam inTanzania compete as the preferredmaritime gateway into East Africa.Congestion in Mombasa has led tosome shippers shifting to Dar esSalaam, but the port is now alsocongested and faces issues aroundclearing through customs efficiently.New railway connections betweenDar es Salaam and Rwanda, Burundiand Uganda are planned, whichcould help goods move throughfaster. Similarly, in Kenya there areplans to build a new access road andrailway link to better connect thePort Mombasa container terminaland existing port network to thehinterland.

Africa has a number of internationalairports for passenger traffic acrossthe continent. The busiest ones areOR Tambo International Airportin Johannesburg, South Africa(capacity of almost 21 millionpassengers annually) and CairoInternational Airport in Egypt (13million passengers annually).xxviii

Africas trans-continental highway networklooks better on paper than on the ground. Itsa real constraint for T&L companies.

Rail connections are lacking too,but a number of projects to improveregional connectivity are underway.


13/96

PwC 11

Algiers

Lagos Port

Complex

Cairo

Dakar

Tripoli

Port of Lobito

extension

Port of Mombasa

Addis Ababa

Damietta Port

Port of

Alexandria

Azew PortSkikda Port

Port of Abidjan

Port of Tema

Port of Luanda

Casablanca

DjiboutiPort

Suez Canal

Luanda

Port of Lamu

Lekki Port

Lagos

Abuja

Musoma port

Port of Barra

do Dande

Cape TownPort of Port Elizabeth

Port of Durban

Port of

Beira

Port of Dar es Salaam

Railpr

oject

Johannesburg

Port of Saldanha Bay

Road

Port

Airport

Planned project(in surveyed country)

Walvis Bay

Beira-Lobito

Highway

Railprojectplans

Lagos-Mombasa Highway Nairobi

NDjamena

NDjamena-DjiboutiHighway

Cairo

-Cap

eTownHighway

Trip

oli-

Cap

eTow

nHighway

Trans-SaharanHighwa

y

High-speed

rail

Cairo

-Dakar

Highw

ay

Dakar-NDjamena Highway

Dakar-L

agosH

ighway

Key:

Major port projects are a big step in theright direction, but Africa will need to doeven more to get goods flowing smoothlyby sea.

Trans-African corridors, gateways and infrastructure projects


14/96

Thebigg

erpicture


Transporting air freight is moredifficult, in large part due to securityissues. And West Africa still lacksa strong hub-and-spoke structure.Two new international airportsare already planned at Angolascapital, Luanda, and in Abuja,Nigeria. Luanda, for instance, isexpected to have capacity for over13 million passengers and a cargoterminal with an annual capacityof 35 000 tonnes. The large size ofthe West African market and therising consumer demand in the West

African economies suggest that morespokes will develop around thesefuture hubs.

Such a structure has alreadydeveloped in the east and south ofthe continent. Hubs at Nairobi inKenya, Addis Ababa in Ethiopia inthe East and Johannesburg, South

Africa, in the South are starting toincrease connectivity there.

Improving logistics performance

East and southern Africa already haveair infrastructure, and two new airports

planned in the west have the potential to beimportant hubs. But air freight wont takeoff in a big way unless security issues can beaddressed.

Among the 10 countriesanalysed, South Africa andEgypt top the list on logisticsperformance.

It is common sense that high-performance transport and logisticssystems are a key locational factorfor a country or a region. Yet,achieving excellence in logistics isa herculean task that requires hugefunds, political consent, planningcapacity, and subject-matterexpertise. It takes collaborationbetween government and the privatesector. Some countries have naturalgeographical advantages. Whenthis is combined with high logisticsperformance, they can becomegateways for neighbouring, oftenlandlocked countries and thusevolve into the continents logisticshot spots.

There are a wide range of factorsthat go into smooth shipment ofgoods. The World Banks logisticsperformance index (LPI) includes

six main component indicators:infrastructure, internationalshipments, logistics competence,tracking and tracing, customs and

timeliness. The LPI summarises theperformance of countries in thesesix areas. It uses standard statisticaltechniques to aggregate datafrom interviews with nearly 1 000logistics professionals.

According to these measures, SouthAfrica is the continents clear leader,coming in 23rd worldwide. That

puts it on a par with industrialisedcountries. Egypt and Tanzania havelower scores, but both are currentlyperforming well in comparison topeers. In its Connecting to competereport, the World Bank analysescountries LPI against their incomelevels, measured by GDP per capita,and identifies South Africa as one ofthe overperformers, along withcountries like China, Malaysia andTurkey, while Angola is the onlycountry from our sample thats

mentioned as an underperformer.xxixHowever, while logisticsperformance in South Africa is good,costs of rail and port services remainhigh.

Selected 10 average

Middle East & NorthAfrica averageSub-Saharan Africaaverage

2.0

2.5

3.0

3.5

4.0

Mozambiq

ue

Tanz

ania

South

Afric

a

Nig

eria

Ken

ya

Gha

na

Egypt

Con

go,

Dem

.Rep

.

Ang

ola

Alg

eria

No

dataavailable

Sources: World Bank, PwC analysis

South Africa and Egypt top the list on logistics performanceIndex value (minimum = 1, maximum = 5)


15/96

PwC 13

In another report, the AfricaDevelopment Forum singles out fourfactors contributing to poor tradelogistics in Africa: higher inlandtravel costs, higher port and terminalhandling fees, higher customsclearance and technical controlfees, and higher costs to preparedocuments and letters of credit.xxx

Long dwell times of importcontainers are a major problem formost of Africas ports. When ports

work efficiently, containers only facetwo or three days delay betweenthe time theyre unloaded and

when they exit the port. The sub-Saharan Africa average is 14 days.Poor connections to the hinterlandand red tape at customs are at play,but there are other reasons too, likecollusion. Terminal operators mayearn large revenues from storage,giving them little incentive toimprove.

When we acquire a domestic business, we are able to link it to our international expressnetwork and transfer knowledge around freight forwarding, so you will see an evolution

of the business model. It might start with one service, but eventually you have the fullservice. We all know the potential is just massive. Its about how quickly it will happen.

Hussein Hachem, CEO, Aramex

There are many challengesto operating in Africa, andone can only operate withinthis reality. Investors aredefinitely starting to showa greater interest in Africa.From Shoprites perspective,we see a lot of promise inAfrica and were in it for thelong term.

Photios Tzellios, Supply Chain

Director, Shoprite

Building your Africastrategy

T&L companies have a vital role toplay in putting Africa in motion.Better transport and logisticscapacity has a profound impacton economic growth potential. Byhelping Africa grow, T&L operatorscan also secure future growth fortheir own companies. But whilemany are taking first steps, very

few companies are forging acomprehensive strategy aroundbuilding their presence in Africa.

When we spoke with executives fromlogistics companies with operationsin Africa, 10 out of 16 named Nigeriaas one of the African countries withthe most potential for their business.

Yet only four are already operatingthere. Thats a vivid example of thegap between todays reality and

future prospects.

Africa probably isnt the bestdestination for companies justlooking for quick revenue boosts.The continent needs better transportinfrastructure, more connectivityacross borders, and an improvedbusiness environment to reach itspotential.

But for companies willing to makelong-term investments and work

together with local governments, thelong-term pay-off may be huge. If

you make the decision to expand inAfrica, youll need a solid long-termstrategy.


16/96


17/96

Methodology

PwC 15


18/96

Methodo

logy


In this report, we focus on 10 ofAfricas leading developing nations:Algeria, Angola, the DemocraticRepublic of Congo (DRC), Egypt,Ghana, Kenya, Mozambique,Nigeria, South Africa and Tanzania.The countries were chosen based ontheir economic significance, theirstrong growth in recent years and

their potential as transportation andlogistics gateways.

The content of this publicationdraws on the expertise of specialistsin a broad range of areas. Ourteam comprises PwC industryprofessionals from PwCs globaltransportation and logistics groupand from PwC Southern Africastransportation and logistics groupas well as from economic researchpartners, Econometrix, and

independent industry experts.

We worked closely withEconometrix, South Africas leadingindependent economic consultants.The country profiles featured inthis publication are a summary ofextensive research carried out byEconometrix and evaluated by ourspecialists.

As Africa has risen to prominence as an investmentdestination over the past few years, so the role of

transportation and logistics has taken on greater

significance. Whether moving resources off the continent

or bringing goods and services into its burgeoning

economies, Africas future growth and development

will depend on the quality of its infrastructure and the

efficiency of its transport networks.

Algeria Egypt

Kenya

Democratic

Republic

of Congo

Nigeria

Ghana

Angola

Mozambi

que

South

Africa

Tanzania

Ten African countries profiled


19/96

PwC 17

or unattractive, if only this singlecharacteristic was taken intoaccount.

Evaluations of future prospects takeinto account concrete measures forgrowth in each country that are setto improve its performance.

Visual icons depicting theassessments are shown here:

Icon colours depict the currentstate (2013)

Arrow orientation shows futureprospects

Assessments are based on:

Key statistics for all five pillarsof analysis gathered from third-party sources;

Broad research on each country,

done by Econometrix and PwC; Real-life experience of people

who work in Africa; and

Expert opinions from our team ofspecialists.

These investment assessmentswere prepared to help potentialinvestors get to know the risksand opportunities of the maintransportation and logisticsmarkets in Africa. They should

not be regarded as investmentrecommendations.

Key: Attractive

Average

Unattractive

Key: Strong improvement expected

Some improvement expected

Stagnation/marginal change

expected

Research sources

The research results were drawnmainly from five sources:

Business Monitor International(BMI),

NKC Independent Economists,

Africa Infrastructure CountryDiagnostic (AICD),

International Monetary Fund(IMF),

The World Bank, and

The World Economic Forum.

Commentary in the text that hasnot been taken from these sources,and that is not our own opinion, isreferenced in the endnotes at theend of each section.

The accuracy and completeness ofinformation obtained from third-party sources, and the opinions

based on such information, cannotbe guaranteed.

Model of analysis

Following a five-pillar model,all countries profiled here

were analysed in terms of fivecharacteristics and their impacton the transportation and logisticsindustry:

1. Demographics and resources;

2. Economics;

3. Business environment;

4. Trade and logistics; and

5. Transport infrastructure.

The first pillar is focused on theresources of a country, both humanand natural, while the second

analyses how the country makes useof its resources and turns these intoan economic output.

Pillar three includes not only acountrys business environment,but also political stability andsecurity issues. Within pillar four, acountrys trade activity and its tradefacilitation logistics (for instance,its customs clearance processes) areanalysed.

Finally, pillar five is dedicatedto each countrys transportinfrastructure, which is fundamentalto the business of transportation andlogistics companies. Here we take acloser look at the capabilities of thecountries ports, airports, railways,roads and other infrastructure.

All findings noted in the countrychapters were supported by

interviews with executives fromcompanies operating in Africa.

A total of 17 interviews wereconducted between May and July2013.

Investment potentialassessment

We assessed the 10 countriessurveyed against each other in termsof the five pillars mentioned above.

No other country was included inthe assessment.

Each assessment was made onthe current state and the five-

year medium-term prospects.Current-state assessments examine

whether investment into the localtransportation and logistics sectortoday would be attractive, average,


20/96

A deeper dive:

Ten countries in prole



21/96

Algeria

PwC 19

To Warry

MoroccoTunisia

Libya

NigerMali

Mauritania

Tamanrasset

To Almeria,

Spain

To Cordoba

Spain To ItalySkikda

Tenes

Annaba

Constantine

Hassi RMel

Algiers-La

gosHighwa

y

Tra

n s-Sah ara

n P

i p e l i n

e

Djen Djen

PortAzew Port

GemPipe

line

Algiers

Oran

Cairo-Da

karHighw

ay

M

edgazPipeline

GPDFPipeline

Foreign direct investment (FDI)inflows to Algeria tend to be belowthe countrys potential consideringits substantial natural resources,strong macroeconomic indicatorsand favourable demographic factors.This is amongst others due to achallenging business environment,new investment laws introduced bythe complementary finance bill for2009 and the existing tax regime.

In its current five-year plan (2010-2014), the Government madecommitments to invest US$286billion to improve the countrysinfrastructure and human

development and to diversify thecountrys economy.i

However, with declining oil demandfrom the US and decreasing oil andgas production affecting foreignearnings, the liberalisation ofeconomic and investment policiesis set to become an increasinglypressing issue.

Algeria is a big player on the African continent, not only

because of its substantial land area, but also because of

its sizeable GDP.

These bubbles represent the cities of Algeria and the size of the bubbles indicates the population size of the city

Airport Port Future Airport Future Port Future Railway Future Road Railway Road

Plannedinvestment of

US$286bnon infrastructure


22/96


23/96


24/96

Algeria


Transport

infrastructure

Civil war in the 1990s leftAlgeria with a substantialinfrastructure backlog.

Investment in infrastructure cameto a virtual standstill in Algeriabetween 1991 and 2001, due to civil

war. This led to a significant backlogin infrastructure maintenance and

improvement. Meanwhile, thecountrys vast desert geographyposes a permanent challenge toinfrastructure developments.

In addressing these problems, theGovernment has made transport apriority with major upgrades andexpansions in progress as part ofits extensive public investmentprogramme.

Most of the population, and hencethe bulk of economic activity,is located along the northerncoastal strip. Road connectionsfocus primarily on long-distanceconnectivity on both the east-westand north-south axis.

In addition to the four main modesof regional and internationaltransport air, shipping, roads andrailways pipelines are of specialimportance in Algeria, as they

connect the Algerian oil and gasindustry to Europe.

The country has threetranscontinental export gaspipelines; two transporting naturalgas to Spain and one to Italy. Thelargest pipeline runs from Algeria

via Tunisia to Italy. One to Spainpasses through Morocco and thenewest pipeline to Spain, whichcame online in 2011, stretches across

the Mediterranean.ix

Ports

Algerias economydepends on its congestedMediterranean ports.

Shipping is essential to the nationaleconomy with the vast majorityof Algerias commercial trademoving through the national portnetwork. The most significant portin terms of traffic is Arzew in Oran,

followed by Skikda. Arzew has beendeveloped with a special focus onpetrochemical exports.

For container traffic, Algiers isthe most important port after

Arzew, handling almost 60% ofthe countrys container traffic.

Algiers is a congested port andcongestion surcharges are regularlyimplemented by shipping lines.Delays are common.

In general it would appear that portcongestion is problematic at mostmajor Algerian ports. Although thereare significant levels of private sectorinvolvement at some ports, reportson physical constraints at ports suchas Algiers imply that private sectorinvolvement is unlikely to resolve theissues. An example of private sectorinvolvement would be the landlordport model in Algeria, where DPWorld (Dubai Ports World) isresponsible for port operations in

Algiers as well as Djen Djen.

In October 2011, the AlgerianTransport Ministry announced plansfor a new port to be located between

Algiers and Tenes. This will be builtto relieve congestion at ports such asTenes, Bejaia and Oran.

Key indicators

Population size (million, 2012) 38.5

Population growth (2012-2020, avg p.a.) 1.6%

GDP (US$ billion, 2012) 209.3

GDP growth forecast 2012-2017 (avg, y/y rate) 3.6%

GDP per capita (US$, 2012) 5 582

Global competitiveness index 2012 (global rank/144(score 1-7)) 110 (3.72)

Corp. Income Tax (CIT) rate 25.0%

Top exports Petroleum oils and oilsobtained from bituminousminerals, crude (45.0%);Natural gas, in gaseousstate (20.0%); Naturalgas, liquefied (8.7%)

Logistics Performance Index 2012 (global rank/155(score 1-5))

125 (2.41)

Global Competitiveness Index 2012 Infrastructure

(global rank/144 (score 1-7))

100 (3.16)


25/96

PwC 23

US$87bninvestment in high-speedline crossing the country

from Tunisia to Morocco

US$520mcommitted to airportinfrastructure & technology

Air transport

Airports and air transportare on the Governmentsagenda for furtherexpansion projects.

Algeria has 52 airports with pavedrunways. The primary airportis Houari Boumediene Airportin Algiers and Air Algrie is thenational flag carrier. The domestic

market is served primarily by AirAlgrie, although there are alsoother airlines.

The international air transportmarket is well served with regularscheduled flights to Europe (mainlyFrance). The Middle East and otherhubs in Africa are also served withregular flights.

The amount of funding earmarkedfor airport infrastructure and

technology indicates that therewill be a considerable focus onairport investment in the nearfuture. The Government is currentlycommitted to spending US$520million on airport infrastructure andtechnology modernisation.

Rail

A future rail line will connect

Africas northern coast andlink Tunisia to Morocco.

The decade-long civil war in the1990s left the rail network in ruins.Today, rail network upgrading,renewal and expansion are majorpriorities and there is a strong focuson the alleviation of congestionin urban areas. Algerias railwaysare heavily concentrated along thecountrys northern coast.

The last year has seen a significantinvestment in rail infrastructure

with a number of major routesbeing commissioned or upgraded.This is part of the Governmentslong-term railway developmentand modernisation plan for thestate-owned rail company, Socit

Nationale des Transports Ferroviaires

(SNTF).

Long-distance connectivity alongthe north coast is also high onthe agenda with the AlgerianGovernment investing US$87 billionto develop a 1 300-km high-speedeast-west line that will cross thecountry from Tunisia to Morocco.xThe line will include branches that

will connect with major ports andcities.

Roads

Road corridor prioritiescould change in the futurefrom east-west to north-south.

Roads are the main mode oftransport in Algeria. It is estimatedthat 85% of goods and passengersuse road as their primary modeof transport. Road developmentessentially follows human

settlement patterns and the networkis much more developed in thenorthern coastal region whereeconomic activities and populationconcentrations are heaviest.

The south is served by a limitednumber of national roads linkingthe few densely populated areas.Road conditions can be variable,particularly in the south on thetrans-Saharan corridor, as even

newly paved portions of the roadoften disappear under immense

drifts of sand that block the route fordays at a time.

The east-west highway project,which is partly under completionat the moment, is vastly changingthe highway profile in the country.It is Algerias most important roadproject and is now near completion.

The only pending section is a150-km stretch of highway betweenConstantine and Skikda. The1 216-km highway, which runs

between Morocco and Tunisia, willconnect Algerias major coastalcities.

Construction of the US$11-billionhighway began in 2009, withcompletion scheduled for thefourth quarter of 2013. However,deadline delays led to urgent callsby the Algerian Government in May

2013 for the Japanese constructionconsortium, COJAAL, to finish theproject as soon as possible.xiIt isconsidered one of the largest public

works projects in the world and itis envisaged that the project willcontribute significantly to alleviatingthe isolation of the eastern and

western provinces as well asfacilitating better connections withMorocco and Tunisia.

The other major axis in the country,the Trans-Saharan Highway, passesthrough Algeria, Niger and Nigeria.Development has been strong inthe north of the country, with thefocus on the east-west highway.Future development will, however,focus on the north-south highwayin an attempt to realise greaterconnectivity for the more remotelysituated populations in the south.


26/96

Algeria


Conclusion

Based upon our analysis, we haveassessed the investment potential for

Algerias transportation and logisticssector as shown in the graphicalongside.

Algeria Investment potential assessment

End notes

i Dialogue Note 2011-2012, African Development Bank Group, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Algeria-%20Dialogue%20Note%20%202011-2012%20(01%20juin%202011)%20Revised%20English%20final.pdf

ii Algeria: 2011 Article IV ConsultationStaff Report; Public Information Notice, InternationalMonetary Fund, http://www.imf.org/external/pubs/ft/scr/2012/cr1220.pdf

iii Algeria: Country Specific Information, Bureau of Consular Affairs, US State Department,http://travel.state.gov/travel/cis_pa_tw/cis/cis_1087.html

iv Africa Competitiveness Report 2013, World Economic Forum, http://www3.weforum.org/docs/WEF_Africa_Competitiveness_Report_2013.pdf

v Algeria analysis brief, US Energy Information Administration, http://www.eia.gov/countries/cab.cfm?fips=AG

vi Algeria analysis brief, US Energy Information Administration, http://www.eia.gov/countries/cab.cfm?fips=AG

vii Algeria business forecast report, Business Monitor International (BMI) (2013)

viii Trade Logistics in the Global Economy 2012, World Bank, http://si teresources.worldbank.org/TRADE/Resources/239070-1336654966193/LPI_2012_final.pdf

ix Algeria analysis brief, US Energy Information Administration, http://www.eia.gov/countries/cab.cfm?fips=AG

Key: Attractive Strong improvement expected


Stagnation/marginal change expected

Average

Unattractive

1. Demographics and resources

2. Economics

3. Business environment

4. Trade and logistics

5. Transport infrastructure


27/96

Angola

PwC 25

3rdlargest economyin sub-SaharanAfrica

An abundance of natural resourceshave made Angola one of the leadingdestinations for FDI in Africa. MostFDI is directed into Angolas coresector: oil. Huge oil resources haveput the country in a strong fiscal

position. While this favourableeconomic climate presents anideal opportunity for the AngolanGovernment to make decisiveinvestment decisions, the currenttransport and logistics infrastructureremains a major challenge forbusinesses in Angola.

The Angolan Governmentestablished a sovereign wealth fund,the Fundo Soberano de Angola

(FSDEA), in 2012 and has ring-fenced the equivalent of 100 000

barrels per day of oil revenues(about US$5 billion by October2012i) for priority projects andessential infrastructure.

In addition, government reforms aretargeting the improvement of theprivate sector in Angola. With regardto monopolised sectors, Angolais one of the least competitive

Sub-Saharan Africas third-largest economywill stay

on a fast growth path. Key drivers will be further rises in

oil production, recently announced reform programmes

and political stability.

These bubbles represent the cities of Angola and the size of the bubbles indicates the population size of the city



28/96

Angola


economies in sub-Saharan Africa.

Reforms will hopefully offerpromising opportunities.

Angola is well aware of its currentbusiness challenges. It also has thefinancial potential to overcomeobstacles in the long run and putitself in a strong position in theregion.

Oil resourcesboost growth and

government spending

Due to rising oil prices and atighter monetary policy, Angolagrew its current account surplus to7-10% between 2010 and 2012.Oilaccounts for nearly 98% of totalrevenues, according to the WorldBank, andAngolas main tradingpartners are China and the USA,followed by France and South

Africa.

Angola is a member of the SouthernAfrican Development Community(SADC) and this should see anincrease in regional trade. Angolasregional integration will be offurther importance as it hopes tobecome an important supplier to itslandlocked neighbouring countries.

A liberal trade regime with lowtariffs provides low barriers to trade.

Although the government has notyet established foreign trade zonesor free trade zones, it has indicatedits intention to create three freetrade zones in Luanda, Catumbelaand Cabinda.

The country is rich in naturalresources. While oil still makesup the lions share, rising non-oilexport earnings (diamonds andgas in particular) provide furthersupport for export receipts. This

development is welcome and inaccordance with Luandas objective

of reducing Angolas dependence

on the oil sector by diversifying theminerals sector.

The impending commissioningof the countrys US$10 billioniiliquefied natural gas (LNG) plantnear Soyo will provide a furtherboost to economic growth, inaddition to plans to commence ironore production.

GDP has grown eightfold since2003 and growth is projected

to remain above the 5% levelover the next five years. This willbe supported by infrastructurespending and increased oilproduction. At the same time, percapita income has grown sixfoldsince 2003 to reach US$5 700 in2012. But despite aggressive incomegrowth, extreme inequality remains,

which limits growth prospects forlarge-scale investments in the retailmarket in the near future.

Government expenditure is set toincrease by 14% in 2013, based on amajor scaling up of capital spending,

which will impact positively oneconomic growth. Following the endof the civil war in 2002, inflationfell from hyper-inflationary levels tosettle at 12-15% during 2006-2011.

Business environmentand security a big

challenge

While an inadequate institutionalframework is hinderingdiversification in the economy, the

weak business environment is alsoimpeding industrial growth. Angolais rated as the most difficult countryin which to do business in the SADCregion, having the lowest ranking inthe Ease of Doing Business Index.

This rating is attributable to a poor

contract enforcement environment,inefficient tax bureaucracy anddifficulties encountered in openinga new business. Government isalready countering the latter

with planned reforms to simplifyprocesses.

Angola has been stable since the27-year war ended in 2002, andalthough there is unlikely to beany change in the general thrustof policy, security still remains

an issue. Levels of crime are highacross the country, especially inLuanda. Ground travel in some partsof Angola can be problematic dueto landmines and other remnantsof war. The northern province ofCabinda, as one of the countrysmost dangerous places, presentsdistinct safety and security-of-transitrisk. Armed groups specificallytarget and attack expatriates there.

Frequent electricityoutages

Angolas power sector is amongthe least efficient in Africa. A 2010World Bank survey found that

Angolan firms endured six poweroutages a month lasting on average14 hours, and that overall, 36 days

were spent without electricity. Inthe same year businesses reported

waiting an average of seven days

for a new electricity connection.To a large extent businesses have torely on private diesel generators.

These problems have beenrecognised by the governmentand it has committed to investingapproximately US$16 billion in theenergy sector between now and2015.iii

98%Oil accounts for 98%of total revenues.

7Days for anew electricityconnection

Smallpopulationof

20m


29/96

PwC 27

Workers need training

In relation to its size, Angola hasa small population of around20 million. However, populationgrowth is high at 3.1% per year.Levels of urbanisation are also high

with more than half of Angolansliving in cities.

There is a large surplus of labourand a massive unemployment rategiving employers easy access tolabour resources. Although thisoffers some potential, workers aremainly unskilled and the labourmarket is heavily restrictive toentrepreneurs and employers, asfixed-term employment contractsare disallowed by law and thelegislated minimum wage of $126 isamong the highest in Africa.

Dominance of oil andgas

Oil and gas are by far the mostimportant industries in Angola.Given the reliance on exportearnings from the dominant oilindustry, most economic activity islocated in this sector. Even thoughoil export earnings will remain

the countrys dominant source offoreign income for years to come,its share will decrease and othersectors will advance, pushed by thegovernments plans to diversify theeconomy.

Mining, along with thediversification of the mineralssector, offers significant newgrowth opportunities. Over theshort to medium term, the energy,transportation and constructionsectors are expected to all benefitfrom a scaling up of public

investment programmes. Despitethese programmes, it will be a long

way to go to diversify Angolas highlyoil-dependent economy.

Patchy improvement

in logisticsperformance

Logistics Performance Index

Source: World Bank

According to the 2012 LogisticsPerformance Index (LPI) releasedby the World Bank, Angola is one of

the worlds worst performers when itcomes to trade facilitation logistics,ranking 138th out of 155 countriesincluded in the Index, and 30th outof 42 African countries.

The latest LPI shows there has beena slight improvement since 2010,although the 2012 assessment stilllags the level recorded in the firstLPI in 2007. While internationalshipments and logistics quality

and competence remain more orless stable compared to Angolas2010 ranking and value, timelinessand track & trace capabilities are

1

0

2

3

4

5

Timeliness

Tracking andtracing

Logistics quality and competence

Internationalshipments

Infrastructure

Customs

Angola Top performer (South Africa)

declining (evidenced by the highlevel of goods lost in transit).

In contrast, the ratings ofAngolas customs procedures andinfrastructure have made significantprogress, rising up the ranks

an impressive 50 and 57 placesrespectively. Reforms are gatheringpace. Since 2001, the governmenthas been taking steps to updatecustoms legislation and modernisethe customs administration. Thishas achieved good results and whileallegations of corruption remainfrequent, trade laws and regulationshave been promulgated, importdocumentation requirementshave been simplified and customs

clearances at all borders have beencomputerised.

Transportinfrastructure andoperations

A major obstacle for investmentsinto industries other than oilis the poor quality of Angolastransport infrastructure. Overall,infrastructure was severely damaged

by the 27-year-long civil war thatended in 2002, while periodicflooding during the rainy seasonalso takes its toll.

In the Global CompetitivenessReport 2011/2012, Angola ranks141th of 142 countries regarding thequality of its overall infrastructure.

Angolan manufacturers stand at avery high risk of losing their goodsin transit.

Despite the weakness of thecountrys infrastructure, Angola isone of very few African countries

Transport infrastructure has a big inf luence on reliability and the abilityto deliver on time. A trip from Luanda to Soyo (450km) usually takes twodays, but during the rainy season, the delivery can be four or five daysdue to the poor road conditions and poor telecommunication signals.Sometimes the rain floods can destroy the bridges, which may even bringtransportation to a halt for many days.

Zhou Chuncheng, General Manager, Sinotrans Angola LDA


30/96

Angola


95%of imports aredependent on ports

that do not face a significantinfrastructure funding gap. Thanksto its large oil reserves, Angola hasthe financial resources to addressstructural issues and to rebuild thecountrys shattered infrastructure,expand the economy and moderniseand better connect its cities.

There is not only the potential, but

also the political will to addressinfrastructure needs. Accordingto the countrys president, JosEduardo dos Santos, rehabilitatingand expanding the nations ports,highways and railways will beessential to transforming Angolainto a logistical hub of considerableimportance in Southern Africa.iv

Another key factor in infrastructurefunding is Chinese investment in

Angola. Thanks to an infrastructurefor oil trade agreement, China hasbeen making significant strides inchanging the Angolan infrastructurelandscape, via the construction oflarge railways, roads, and housingprojects in areas like the city ofKilamba Kiaxi.

In return, Angola became Chinasmain supplier of oil and evenovertook Saudi Arabia in 2010.China will continue to be a key

investor in Angola as one of itsbiggest trading partners.

Transport infrastructure in Angolais mainly concentrated around thecapital Luanda and along the coast.While roads connect the threeport cities of Luanda, Lobito andNamibe, railway lines should beconnecting the port cities with thehinterland. However, railway lineshave just recently been rehabilitatedand rebuilt or are still underconstruction, so the transport ofgoods continues to congest Angolasroad network, especially aroundLuanda.

New ports and

capacity needed

Angolas international tradeis entirely dependent on thecountrys ports, which accountfor 95% of imports. Ports willbe essential for Angolas plans tobecome an important regionalsupplier to its landlockedneighbouring countries. The countrycurrently has four important ports oftrade: Luanda, Cabinda, Lobito and

Namibe. These are all deep-waterports and open to internationalshipping.

The port of Luanda servesas the nations main conduitfor international trade,handling about 80% of thecountrys imports. It is one ofthe fastest-growing ports inAfrica and already working as

a gateway to the surroundinglandlocked countries, namelythe DRC, Zimbabwe andZambia.

In spite of rapid growth, the Port ofLuanda has become notorious forlengthy delays and has tremendouscapacity constraints. The port hasan excessive general cargo vesselpre-berth waiting time of 144 hours the sub-Saharan African averageis about 18 hours. To save costs,

Angolan traffic is frequently beingdiverted to the Port of Walvis Bay

in Namibia, some 2 000km south ofLuanda.

To reduce traffic at the Port ofLuanda, the Government of

Angola gave the go-ahead for theconstruction of a new commercialport at Barra do Dande (north ofLuanda) in 2011. Additionally, thePort of Lobito, about 500km southof Luanda, is to be extended. TheGovernment also plans to spendUS$1.25 billion on the rehabilitationof the Port of Lobito. Thisprogramme will extend the berthingarea to a total of 7.8km and increasecapacity to a total 11 million tons ofgeneral merchandise and 700 000

TEUs/year.

Key indicators

Population size (million, 2012) 20.8

Population growth (2012-2020, avg p.a.) 3.1%GDP (US$ billion, 2012) 115

GDP growth forecast 2012-2017 (avg, y/y rate) 5.7%

GDP per capita (US$, 2012) 5 700

Global competitiveness index 2011 (global rank/144(score 1-7))

139 (2.96)

Corp. Income Tax (CIT) rate 35.0%

Top exports Petroleum oils and oilsobtained from bituminousminerals, crude (97.3%)

Logistics Performance Index 2012 (global rank/155

(score 1-5))

138 (2.28)

Global Competitiveness Index 2011 Infrastructure(global rank/144 (score 1-7))

140 (1.89)


31/96

PwC 29

US$3.3bnspent to rebuild railwaylines

Landmines andflooding remain keysecurity issues

Reasonable

roads Dilapidated

roads

Despite these ambitious projects,productivity, infrastructure andoperational equipment also requireattention and new investment.Significant further investment willalso be necessary to improve bothcoastal and inland infrastructure.

Inland water transport is hardlypossible in Angola. The CuanzaRiver, south of Luanda, is navigable

by ship 200km inland, but most ofAngolas rivers are not suitable fortransportation.

Aviation

Capacity does not appear to bea major issue in the Angolan airtransport system. There are 31airports in Angola with pavedrunways. The Quatro de FevereiroInternational Airport just outside

Luanda is the countrys busiestairport and serves internationaland domestic airlines. TAAG Angola

Airlines is the national flag-carryingairline of Angola and one of the mostsuccessful airlines in Africa.

The major challenge facing theaviation sector is safety, which is aGovernment priority. All Angolanairlines are on the European Unionblacklist, with the exception ofspecified Boeing 777s and Boeing737s operated by TAAG.

New airport

Notwithstanding capacity issues,the construction of Luandas newinternational airport, which is tobe completed in 2014, will createthe largest airport in Africa. It willoffer capacity for over 13 millionpassengers per yearv, and will havea cargo terminal with an annual

capacity of 35 000 tonnes.

Three rail lines, no

network

The rail system in Angola consists ofthree main railways that were builteastwards from the coast duringcolonial times, linking Angolas key

Atlantic ports to the interior. Manyof these lines were destroyed duringthe 27-year-long civil war, but aprogramme of rehabilitation hasbeen ongoing since 2005.

The rehabilitation or rebuilding ofAngolas current rail infrastructureis a huge task, since in many cases itrequires expensive works to removemines and complete the replacementof obsolete or deteriorated rails.

Still, the speed at which the Angolanrailroad system has been rebuiltis a first for the African continent.In just a few years, 2 700km ofrailroads were rebuilt and morethan US$3.3 billion was spent on

the three main lines.

The three railway lines are:

Caminhos de Ferror de Luanda(Luanda Railways)This links Luanda to Malanje innorthern central Angola. Freightrail from the port of Luandabegan in March 2013. It ishoped that the construction of arailway at the port will motivate

companies to use the railways asa means of transport instead oftrucks.

Caminhos de Ferro de Benguela(Benguela Railways)This links the Port of Lobito andLuau on the eastern border of theDRC. Plans to connect this line

with the railway networks of theDRC and Zambia will facilitategreater intra-African trade.

Caminhos de Ferro Namibe(Momedes Railways)This links the port of Namibe tothe southern provinces of KuandoKubango and Hull (town ofMenongue) and on to the borderof Namibia. It was officiallyreopened in August 2012, butclosed again for work to improvethe line and is due to reopen inthe second half of 2013.

A feasibility study for a fourthrailway line linking Luanda withCabinda is being undertaken. Theline will cross the Congo River and40km of the DRC to enter Angolanterritory again in Cabinda. InDecember 2012, the constructionsof a 300-km branch line linkingMomedes Railways and theNamibian railway system wasannounced.vi The project was due

to commence in the first quarter of2013.

Regional cooperation is essentialto the joint plan to repair, maintainand operate the Lobito Corridorrailroad linking Angola, the DRCand Zambia. Utilising this rail line,

Angola now has the opportunityto play an important role in theoutflow of the minerals comingfrom the Copperbelts in Zambiaand Katanga (DRC), which would

further increase the countrys profilewithin SADC.

Roads

Most of the freight in Angola istransported by road on trucks,since inland water navigation isnot an option and the few railwaylines have just started operations.

According to the World Banks AICD,transportation causes a significant

bottleneck in Angolas economy.


32/96

Angola


Various role players are involved in road rehabilitation, notably:

The Government in the form of public-private partnerships; Chinese investments; and

Natural resource companies.

With Angola being one of the highest spenders on roadsin Africa, infrastructure development is expected to be theessential driver of economic growth over the next few yearsand this can be expected to have a positive impact on thegrowth of the transport and logistics industry in Angola.

Conclusion

Based on our analysis, we have assessed the investment potential forAngolas transportation and logistics sector as shown in the graphic below.

Angola Investment potential assessment

1. Demographics and resources

2. Economics

Key:

3. Business environment

4. Trade and logistics

5. Transport infrastructure

Attractive Strong improvement expected


Stagnation/marginal change expected

Average

Unattractive

Poor road infrastructure andtransport logistics inhibit Angolas

overall economic development. WithWorld Bank and AICD estimatesof paved roads ranging between10.4% and 17%, four-wheel driveis generally necessary for traveloutside of major towns.

The poor condition of the roadnetwork is in no small part dueto the civil war, when much ofthe network was destroyed, andthe impact of periodic torrentialflooding. Still, the main transportroutes are traversable. Specifically,the main links in the western halfof the country appear to be inreasonable condition, while roadson the eastern side are sparserand more dilapidated.

Safety is a big issue on Angolasroads. Landmines remain a problemoutside major urban areas. Thereis extra risk during Angolas rainyseason, which runs from November

to April, as mines may becomedisplaced and end up outsiderecognised minefields. In addition,roads and bridges are often washedaway by sudden floods during therainy season.

Angola is part of two major trans-African corridors. The first runsfrom North to South, linking Tripoliin Libya with Cape Town in South

Africa. The second one, running

from East to West, links Beira inMozambique with Lobito in Angola.Despite these noble aspirations,the quality of both these trans-

African corridors and Angolasregional roads is inferior. Thissituation makes it more difficult for

Angola to develop regional tradewith surrounding countries anddiscourages surrounding countriesfrom making greater use of Angolasports.

End notes

i Sovereign Wealth Fund Institute, 24 Oct. 2012, online: http://www.swfinstitute.org/tag/angola/

ii Angola Quarterly update from NKC also states $10bn, as well as the following two articles:http://www.energyglobal.com/news/liquid-natural-gas/articles/Angola_LNG_commences_production_197.aspx#.UgCyr-waJMs //

African Development Bank report: http://www.afdb.org/fileadmin/uploads/afdb/Documents/Evaluation-Reports/Angola%20%20-%20Private%20Sector%20Country%20Profile.pdf

iii African Economic Outlook: Angola (2012): http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Angola%20Full%20PDF%20Country%20Note.pdf

iv Global Finance, online: http://www.gfmag.com/archives/134-february-2011/11059-country-

report-angola.html#axzz2ZxvjuZriv http://angolaairport.net/airport/vi Railways Africa, http://www.railwaysafrica.com/blog/2010/11/angolan-railways-complete-

by-2012/


33/96

DemocraticRepublic of

Congo

PwC 31

Congo

Central African RepublicSouth Sudan

Uganda

Tanzania

Zambia

Angola

Atlantic

Ocean

Gabon

Kinshasa

Kisangani

Ilebo

Lobito

Port of

Matadi

Port of

Banana

(extensions/deepwater port)

Pointe

Noire

North Kivu

Province

Lagos-MombasaHighway

Congo River

Trip

oli-Ca

peTownHighwa

y

Katanga Province

SNCC

SNCC

Beira-LobitoH

ighway Kolwezi

Matadi

Lubumbashi

Burundi

Rwanda

If it were not for the numerousobstacles, the Democratic Republicof Congo (DRC) would be a highlyattractive investment location. Itis the second-largest country andhas the third-largest population in

Africa. Most significantly, theDRC

is considered to have among thelargest endowments of mineralson the continent.

Social and economic conditionsare very challenging and theDRC is recognised as one of themost difficult places in whichto do business in the world.Inaddition to these factors, transportinfrastructure is a major impedimentto economic growth.

An escalation in conflict in theeastern DRC also stands to impactgrowth prospects, but not as severelyas a commodity price crash scenario,given the countrys high dependenceon the mining sector.

Notwithstanding the challenges itfaces, the DRC should see sizeableeconomic growth over the shortto medium term, while remainingan extremely challenging place in

which to do business.

The Democratic Republic of Congo has immense

potential but remains a risky investment location.

Main hurdles include pervasive poverty, political

turmoil, security issues, vast land area and inadequate

infrastructure.

These bubbles represent the cities of the DRC and the size of the bubbles indicates the population size of the city


2ndlargest country inAfrica


34/96

DemocraticRepublicofCongo


The country has significant offshore

oil and gas reserves. Angola andthe DRC are negotiating a newproduction-sharing agreement in theso-called zone of common interestoff the West Coast.

The DRC has a relatively smallmarket size, with GDP estimated atUS$17.2 billion in 2012. With percapita GDP of just US$230, onlyBurundi and Malawi rate worse thanthe DRC globally.

Coming off an extremely lowbase, the country has neverthelessexperienced strong economicgrowth, estimated at 7.1% annuallybetween 2010 and 2012. The IMFexpects this to increase to an annualaverage of 8.6% between 2012 and2017. The economy is dominated bythe agricultural sector, contributingaround 39% of GDP and employingover 60% of the labour force.

The DRC has historically sufferedhigh levels of inflation, butauthorities have recently managedto moderate price inflation and itis expected that it should remain

within the single-digit range overthe IMF forecast period until 2018.

Risk to business

The greatest impediment toeconomic development in the DRC

has been the political turmoil inthe country. The unsettled socio-political environment is a key riskfactor for businesses.

High political risk has severelyundermined prospects for diversifiedgrowth, while protection of propertyrights is hampered by dysfunctionalpublic administration. Furthermore,enforcement of the complex legalcode is selective. Another challengeis the local financial sector, which

remains fragile and underdeveloped.

Conflict minerals

Conflict minerals areminerals originating fromthe Democratic Republicof Congo or neighbouringcountries. They includetantalum, tin, gold, andtungsten.

Companies are required to

publicly disclose the use ofconflict minerals if thoseminerals are necessary to thefunctionality or productionof a product.

U.S. Securities and Exchange

Commission (SEC)

A campaign similar to the one

established to control the spreadof blood diamonds, but focusingon conflict minerals, is gainingmomentum. Section 1502 of theDoddFrank Wall Street Reformand Consumer Protection Actrequires electronics companies to

verify and disclose their sources ofcertain minerals that are used in themanufacture of electronics such assmartphones and computers.

This was reinforced in 2012 when

the US Securities and ExchangeCommission (SEC) passed rulesrequiring companies to disclosethe purchase of tin, tantalum,tungsten and gold from the DRC.iIt is thought that making it moredifficult to export conflict mineralscould decrease the level of conflictin some areas and perhaps allow thecountry as a whole to benefit fromits mineral resources.

The DRC has made distinct effortsto improve its integration withworld trade. In the aftermath ofa diagnostic study to draw up theDRCs trade policy conducted in2010 with the aid of the World Bank the DRC set up a steering group tointroduce a one-stop-shop reform tosimplify foreign trade operations.

The country is also a member ofseveral African trade communities,including the Common Market

for Eastern and Southern Africa(COMESA), the Southern AfricanDevelopment Community (SADC)and the Economic Community ofCentral African States (ECCAS).

It is not only the recent issue ofconflict minerals that is holdingthe DRC back from fully utilisingits massive mineral reserves. Forexample, decades of conflictand turmoil have kept the gold

industry largely underdeveloped.

Gold industrylargelyunderdeveloped

The economy and

resourcesInternational trade activitycontributes significantly to domesticeconomic growth in the DRC, withexports and imports accounting for68% and 78% of GDP respectively.There was notable growth in exportsand imports between 2001 and2011, estimated at 8.6% and 12.3%per annum respectively.

Over 90% of exports are in the

form of extracted commodities.This fragility was exposed in 2009

when a crash in commodity pricescoincided with an escalation inconflict in the eastern region,revealing the countrys dependenceon external demand and financialflows.

Despite exports being expected toincrease, there could be temporarydrops in volumes as a result of

international developments.


35/96


36/96

DemocraticRepublicofCongo


Around2/of the countryis by navigablewaterways

Resources sector

While the DRCs economy iscurrently dominated by theagricultural sector, mining will bethe main driver of economic growthin the medium term. Copper, thecountrys largest export product,

will play a key role in medium-termeconomic growth. In 2011, mineproduction of copper in the DRCincreased by an estimated 28%,reaching 440 000 tonnes. This is

equivalent to around 2.7% of globalcopper output.

The large population, coupled withrobust population growth, implieshigh potential for the retail sector.However, given the low per capitaGDP, this is likely to be concentratedin the area of basic consumer goods.

Logistics

Logistics performance hasdropped significantly in thelast two years.

Logistics Performance Index

Source: World Bank

Poor trade facilitation infrastructureand inefficiency limit growthprospects for transport and logisticsbusinesses in the DRC. Logisticsperformance fell significantlybetween 2010 and 2012, with the

1

0

2

4

5

3Timeliness

Tracking

and tracing

Logistics quality and competence

International

shipments

Infrastructure

Customs

DRC Top performer (South Africa)

country declining from 85th to143rd out of 155 countries on theLogistics Performance Index.

All indicators of logisticsinfrastructure worsened duringthis period: logistics competence,timeliness, customs, internationalshipments, infrastructure, andtracking and tracing. The DRCsperformance in terms of the numberof documents