What can African countries learn from China about transport and logistics?

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Qiulongpo Port Container Terminal in Chongqing. Photo: Li Wenyong/World Bank

The 2018 Forum on China-Africa Cooperation (FOCAC) held in Beijing concluded on a high note with a pledge of $60 billion of development assistance from China to countries in Africa – together with the $60 billion pledged 3 years ago, it means China is investing $120bn over 6 years in Africa. Most of this assistance is directed at financing infrastructure. Several African leaders were featured on local and international media, and policy makers are no doubt contemplating the various dimensions of the China-Africa relation.

China’s economic progress over the past decades is indeed remarkable! More than 800 million people – about 75% of the population in Africa - have been lifted out of poverty over the past 30 years in China. In this period, China has progressed from one of the poorest to an upper middle-income economy. According to the IMF, China’s share of global GDP increased from 1.8% in 1980 to about 18.7% in 2018 (making it the second largest economy). It is therefore unsurprising that policy makers from Africa – indeed many emerging economies - see China as a model of development to emulate.

The details of how this outstanding development outcome was achieved are evolving. For example, some of the world’s leading scholars have reflected on China’s growth path and lessons. In a nutshell, the reforms which led to dramatic growth included experimentation in policy and institutional design, along with gradual opening of the economy to market forces, foreign direct investment and targeted initiatives.

As the backbone for many sectors, lessons from the transport and logistics sectors in China also form an important part of China’s growth story. The period of economic transformation and sustained reforms coincided with changes in global changes in manufacturing and logistics which positioned China as the world’s largest exporter of goods and a central hub in global supply chains. The government established Special Economic Zones on the East Coast which created conditions for industrial activities and investments. To keep pace with the export-led growth, China expanded its sea ports and significantly improved their efficiency. Each of these ports was linked to the Special Economic Zones and provided the means for importing raw materials and exporting processed goods.

In brief, the economic reforms in China came at the right time in the context of global trade. The structural changes in the economy were accompanied by concurrent improvements in port-centered logistics catering to an export-led economy. In fact, the first World Bank transport project for China was in the port sector to improve the ports of Tianjin, Guangzhou and Shanghai, all ports which have anchored China’s export of goods. The lesson for African policy makers is that timing and context are critical. Going forward, African countries will also need to consider current realities and the competitive advantage of respective countries or indeed groups of countries.

Growth patterns have shifted, with emerging megacities in Asia and new trade routes have dramatically affected global supply chains. Keeping up with a trend of growing middle class and the number of cities with GDP over $100 billion expected to exceed 80, most of the production will be focused on meeting this demand in Asia.
The implication for Africa? Asian countries such as Vietnam, Malaysia, India, Thailand, Bangladesh and of course China are much closer geographically to these emerging consumption centers and have more developed manufacturing and logistics advantages to meet the demand from Asia. African economies that seek to compete with the Asian countries will have to focus on niche areas which will require specialized logistics. For example, the potential opportunities to export food products for the megacities requires specialized intermodal logistics which allows for easy road-rail-maritime transfer and investments in temperature-controlled warehousing, sorting and grading facilities, reefer containers and crucially for this time sensitive logistics; improved checking, inspection and clearance procedures. In the last cycle of shifting global patterns, China was successful in making the right investments and interventions, African countries need to make similar assessments and choices in the new context.

The shifting center of gravity towards Asia also creates space for African countries to meet regional demand in Africa - rather than global demand. While companies in North America are under pressure to produce closer to consumers at home, and products from Asia become more expensive due to increasing labor and long-distance maritime costs, targeted investments to meet regional demand within the continent creates opportunities for African countries. This highlights the need to overcome transport and logistics barriers to regional trade.

Policy makers from Africa will also need to consider the impact of disruptive technologies and changes in manufacturing while designing interventions and planning logistics infrastructure investments. Various technologies are proving a threat to previously ‘unchangeable’ sectors at a pace that cannot be ignored. Also, the geographical locations where this technology will cause the most disruption are difficult to predict. The example of how advancements in mobile technology and platforms like ‘M-pesa’ in Kenya or ‘WeChat pay’ and ‘Ali-pay’ in China enabled entire populations to by-pass traditional banking and payment serves as a cautionary tale.

For example, advanced robotics is making it possible for manufacturers in Europe and the US to re-shore production activities which had previously migrated to low cost labor destinations. The obvious implication is that development of logistics infrastructure to support labor-intensive industries will require substantial rethinking. Will expansion of major railways, expressways and ports in Africa prove to be stranded assets? At a time when digital platforms, autonomous vehicles, capacity sharing and trading or indeed the scope of services by large technology companies is reframing modern logistics, it would be prudent to consider the implications of current investments.

During China’s export-led growth, ports were rapidly expanded, followed by an outstanding development of the main road, rail and waterways transport infrastructure. Despite this rapid development of trunk infrastructure, China’s logistics costs as a percentage of GDP is 15-17%; almost double compared with the US, Germany and Canada. The cost of individual components of logistics (transport, warehousing and management costs) are lower than in developed countries. The high overall logistics costs are partly due to inefficiencies in logistics chains. As cost of labor rises and China pivots towards high value manufacturing and services, inefficiencies in logistics will become much more critical to competitiveness in sectors higher up the value chain. To address this reality, the Government of China has prioritized a different type of transport and logistics infrastructure program as part of the 13th Five-Year Plan for Economic and Social Development.  This includes much more holistic and multimodal networks, focused investments in logistics hubs, intelligent transport systems, and better links between transport networks and selected industries.

Finally, China’s rapid economic development was concurrently followed by reforms in institutions and markets. This was true for national governance but also for critical transport and logistics infrastructure. For example, individual ports were given autonomy and status to raise funds for infrastructure expansion and to enhance efficiency. Recently, the opening of parcel delivery services to the private sector has created the world’s largest e-commerce market.

The question for policy makers in Africa is whether to integrate into blocks of countries with the economies of scale to compete, or open to free markets and allow market forces to drive consolidation. All options will have implications for logistics and transport infrastructure, and African countries and others seeking to emulate China should weigh all options.

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Bernard Aritua

Senior Infrastructure Specialist

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