How port investments catalyse economic growth

African geography is amazing for tourists, but horrible for commerce. Its coastline has really beautiful beaches, but terrible natural harbors. Its rivers are a wonder to behold, but rubbish for transporting anything commercially significant.

Take the mighty Zambezi for example, 1,600 miles, fourth longest African river.

It flows through 6 countries, dropping 4,900 feet to sea level by the time it reaches the Indian Ocean in eastern Mozambique. While it gives us the stunning Victoria Falls, you would not transport cargo through Zambezi. It is constantly interrupted by rapids, and the few parts that are navigable by shallow boats do not actually interconnect.

Compare that to the Rhine (12 million tonnes of cargo every year) and you have a huge geographical dividend Europe has that Africa is just not blessed with.

Ports are therefore undoubtedly the gateway for African exports, and imports. Because of the nature of the commodity driven African economies, these ports are key to unlocking Africa’s economic potential.

Countries in other continents may afford to have underperforming ports, Africa cannot. This is especially true for the 16 landlocked countries that depend on their neighbours for access to the sea.

Last month, PwC released a study entitled ‘Strengthening Africa’s gateways to trade’. The report analysed port developments in Sub-Saharan Africa.

In addition to highlighting some key statistical insights, the report makes some interesting, forward looking observations. Before considering these, it is worth putting regional port performance in context so that we know where it stands and what we learn from the data.

The report indicates that in West and South Africa, the ports have the most spare capacity; that is their design capacity is more than the current volume throughput.

Durban for example has a design capacity of almost 3.5 million TEUs per annum but its volume throughput is less than 3 million TEU per annum.

On the other hand, the Dar es Salaam port has a design capacity of under 500,000 TEUs per year with a throughput volume of over 600,000 TEUs per year. This trend is similar in Mombasa, indicating the underinvestment that has occurred over time in both countries. (TEU stands for Twenty-Foot Equivalent Unit and can be used to measure a ship’s cargo carrying capacity.

The dimensions of one TEU are equal to that of a standard 20-foot shipping container.)

We also learn that there is so much room for improving efficiencies in the ports. This includes not only the port infrastructure, but also the landside transport connections and operational performance. For example, Durban handles 30 containers per hour less that Rotterdam, but still is Africa’s best performing port.

No East African port makes the list of the best performing ports that handles more than 30 TEUs per hour. The point of efficiency is to cheapen the cost that a transporter would have incur for the movement of goods.

The customer process is also key. The time for landside connections and charges that freight forwarders impose on customers increase if the customs process is inefficient.

There also needs to be great road and rail infrastructure between the ports and the hinterlands, particularly the landlocked countries.

To this end, new rail and road projects (for example between Isaka and Kigali (Rwanda-Tanzania), Masaka and Kumunasi (Uganda-Tanzania) and Djibouti - Addis Ababa (Djibouti - Ethiopia) are welcome given the fact that 67 per cent of terminal operators interviewed in the survey expressed concerns over the road networks around the port.

We also learn that given the volumes in these regions, it is likely that a few dominant ports will eventually emerge as major hubs.

Durban is a clear hub for the Southern African region, Abidjan looks like it will be the hub in West Africa, and at the moment, Mombasa seems to take the lead in the East African region despite its capacity lagging behind its throughput volumes.

But here a few forward looking insights for the region and Tanzania specifically.

We learn that port investment cannot continue to lag behind demand. Ports expansion, both physical infrastructure and technology takes long periods of time and considerable financial investment to complete.

Many African countries remain dependent on port infrastructure built before the 1960s. Accordingly, investments in port expansion should always precede volume growth so as to avoid capacity challenges when volumes grow. In other words, this is a long term venture in which port capacity should always be ahead of demand.

More importantly, government needs to see ports as economic facilitators, not just revenue generators. Traditionally, ports were viewed as revenue collection posts. This one sided view of the role of ports may have caused them to not focus on the wider catalytic impact of these ports in their countries and region’s economy.

In that vein, competition between ports have been viewed as competition between countries rather than between commercial entities. In so doing, the potential for collaboration and between countries may have been sidelined. It may be time to acknowledge the role of specialised ports, whether container hubs, feeder hub or bulk terminal.

Lastly, it is important to integrate ports into logistics supply chains to improve port performance. Ports are only one part of the value chain. To this end, rail and road infrastructure has to meet the demand that comes with ports.

There is, therefore room for greater private sector involvement in raising capital, owning and operating other ports and related infrastructure while at the same time giving governments the ability to protect strategic resources to further developmental goals.

Interestingly, the PwC report highlights that a key reason why West African ports have spare capacity (in contrast to East African ports which do not) is the greater involvement of private sector investment in their ports.

The writer is a Tax Manager – International Tax Services, PwC Tanzania. Samwel spent two years working on secondment with PwC Switzerland. The views expressed do not necessarily represent those of PwC.