The role of technology in unlocking trade value in East Africa
By Pedro Guerreiro, Managing Director for Central Africa at SAP
Is it too soon to be optimistic about an economic revival in East Africa following the devastating impact of COVID-19 on the global economy?
The latest data - and the region's continued focus on transforming its key industries, sectors and infrastructure through technology - is giving me hope that the economic outlook is brightening.
Trade in East Africa has already picked up: according to the Brookings Institute, after an initial drop in trade in Kenya during the early months of the pandemic, by July domestic exports were already 12.7% higher compared to the year before.
That is not to say the pandemic did not have a significant impact on regional trade. For example, Kenya's highly lucrative cut flower industry was brought to its knees earlier this year. When Europe locked down, it forced the closure of hotels and severely restricted public gatherings including weddings and funerals.
Demand for Kenya's cut flower exports plummeted from a high of 17,600 tons in February 2020 to a low of 8,000 tons in April. Kenya is the world's third-largest exporter of cut flowers. The industry employs 150 000 people and contributes 1% of the country's GDP.
Flower-only export farms changed their business models by switching to growing vegetables - another of the country's major horticultural exports - and could generate some revenue by exporting to the country's European trade partners. Local food security was also improved, as produce could be used to feed vulnerable communities struggling with the impact of the pandemic.
Tea exports, Kenya's second-largest earner of foreign exchange after horticulture, also declined due to the pandemic. Recent data suggests a drop in tea exports from Kenya in the period January to June 2020 compared to the same period in 2019.
However, that sector is arguably better equipped to adapt to the immediate challenges.The Kenya Tea Development Agency, an industry body that supports more than 600 000 smallholder tea farmers, has been on a sustained digital transformation journey to achieve greater automation in its factories.
The cost-savings and improved revenue resulting from greater efficiencies in the KTDA's operations is helping it secure local jobs and support the local economy despite the impact of the pandemic. This type of technology-enabled resilience is more important now than ever, when an uncertain global outlook means organisations need the agility to adapt to changes in their operating environment.
New agreements, investments unlock trade value
Broader initiatives are likely to further support growth in trade in the region. The African Continental Free Trade Area, the world's largest free trade area by number of countries involved, will eventually connect 1.3 billion people commanding $3.4-trillion in GDP.
The World Bank estimates that trade measures that cut red tape, simplify customs procedures and make it easier for local businesses to integrate into global supply chainscould drive $292-billion of the expected $450-billion in income gains from the agreement.
For countries and ports of trade that have updated their infrastructure through investments into new technology, these income gains will be easier to realise.
The Mombasa Port, East Africa's largest and oldest sea port, is still the main conduit for global sea trade in the region, but a new port in Lamu will further expand the region's trade capability. The new port will form part of a transport corridor that will connect Kenya to South Sudan and Ethiopia and greatly assist with boosting regional trade.
Ambitious investments into new rail infrastructure also hold immense promise. The East African Railway Master Plan aims to rejuvenate the railways serving Kenya, Tanzania and Uganda, and will add railways serving the rapidly-developing economies in Rwanda and Burundi.
The application of technology in each of these major infrastructure projects will be crucial to their success in the decades ahead.
Key technology priorities for regional trade
What should regional trade authorities and organisations prioritise in terms of technology investments to ensure positive growth in trade in East Africa?
Efficiency should be a top priority. Increasing the volume of containers passing through regional ports could hold huge financial benefits. PwC estimates that sub-Saharan Africa could save $2.2-billion in costs per year if container throughput is doubled at major ports. In addition, improving port performance by 25% can reduce the price of imported goods in the region by $3.2-billion per year while adding $2.6-billion to the value of exports.
Automation is also key. Africa's long-term reliance on slow, manual processes has stunted the growth of trade at its ports. The turnaround time for vessels at African ports - the time it takes to port, offload cargo, reload and depart - averages five days. In Asia, where port infrastructure is more modern and automated, that time drops to as little as seven hours.
The productivity gains from the use of automation means Asian ports are able to process more goods quicker, with direct revenue increases as a result.
In addition, deploying new technologies could help solve efficiency and productivity issues at key ports of trade. After investing in an Internet of Things platform that connected its entire fleet to a central system, the Port of Hamburg in Germany now has full, real-time visibility over truck positions, congestion at cargo terminals, raised bridges and accidents.
This enables port authorities to make accurate decisions to ensure a smooth flow of goods at all times, boosting the efficiency and productivity of the port.
Africa's lack of legacy infrastructure could be an advantage as it builds out its ports of trade. With less historic technology to adapt or work around than the more developed regions, African ports have a blank slate to implement the latest technology and realise the immense gains promised by the likes of IoT, AI and machine learning.