🚛 Transporting goods costs 50% more in Sub-Saharan Africa than in the developed world

Welcome to Sati - Sourcing Africa to Invest

👋🏾 I’m Marge… ethnically Ugandan 🇺🇬 raised in the US 🇺🇸 and a dreamer 💭 

I’m joined by Ona…also Ugandan 🇺🇬 studying in the UK 🇬🇧 and honestly, she’s a rockstar! This publication could not take place without her.

Here at Sati, we’re on a journey to uncover Africa’s history of tech and private investment to understand the present and predict the future.

Join me; let’s see where this ride takes us 🚌

Welcome back to our veterans!

To our newbies, we’re happy to have you here!

Our series on market disruption is on pause ⏸

A few weeks back, Ona and I decided that Sati would run two series.

One on market creation and another on market disruption.

Our first issue on market creation unpacked how Celtel (now Airtel) helped Sub-Saharan Africa leapfrog over the landline to mobile.

This is relevant today because a large majority of Africa’s digital solutions are built to be mobile-first.

Our next few pieces will highlight a mobile-first logistics company, Kobo360, which we chose to explore because, similar to Celtel, they blitz-scaled into several markets in under 5 years.

Kobo was supposed to be our debut piece on market disruption…

But unfortunately, it is not.

We’ll explain why.

We realized our conceptual thinking on market disruption was all wrong

Disruption describes a process where a smaller company with fewer resources is able to successfully challenge an established incumbent.

Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others.

Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—often at a lower price.

Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously.

Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require while preserving the advantages that drove their early success.

When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

Kobo360’s story technically doesn’t fit the guardrails for market disruption

Kobo uses a mobile-first digital platform to connect cargo owners with truck owners, truck drivers, and cargo recipients to move goods seamlessly across the continent.

In the pieces we write about Kobo, we will get into how and why their technology is so impactful.

But what we want to get across now is that their technology is not disruptive.

When Kobo entered the market, its offering was immediately superior to incumbents’ (e.g., DHL) and their innovation will create new markets for several sectors.

We don’t want to give everything away now, but if you ask Kobo’s co-founder, Obi Ozor, he’ll tell you that there isn’t much to disrupt on the continent in the first place.

He believes that they’ve built a market creating innovation.

So Kobo is the second company we’re featuring as part of our series on market creation

We know some of you have likely read Kobo’s story (multiple times) before.

But this time, it’ll be different, we promise.

Now buckle up, hold on to your seat! 💺

We’re in for a bumpy ride.

Just a moment though…

If you’ve read our work before, you know we can’t jump in without context.

And as we mentioned above, Kobo connects truck drivers to loads, meaning they are focused on the movement of goods over roads.

So let’s reverse to the beginning and understand what broke the transport system in Sub-Saharan Africa.

The historic movement of goods

Transportation networks pre-colonization

Before the first Europeans arrived in 1400, Africa's transport infrastructure consisted largely of tracks, footpaths, and natural navigable waterways.

Pan-African trade occurred, as ideas, technologies, and goods moved across trade routes.

Evidence suggests that over time, several ancient empires and city-states developed well-aligned roads and streets. But these systems were built for intra-African commercial activities.

They weren’t designed to handle the colonial economic motive of mass exportation.

Colonization spurred the need for a more sophisticated transportation system

Colonizers made African colonies export-based economies, with the sole objective of extracting goods to distribute to the West.

They initially introduced more efficient transport systems at slave trade posts, like Accra, Lagos, and Cape Town which became colonial capitals.

Waterways that flowed inland from posts were developed to ensure adequate movement of mainly cash crops and minerals in and out of the continent.

But it became clear that waterways weren’t enough.

Railways, and later roads, were constructed to cut costs and access produce centers that were far from rivers.

However, some locations were too far inland, and transportation networks were never established.

Why have countries continued to develop outward-oriented road infrastructure around colonial capitals?

50% of all road infrastructure was built during colonization

When colonizers left, private sector financing dried up

Several newly-independent countries didn’t have enough savings to spend on development and were on the brink of bankruptcy.

In came the call for foreign aid.

Foreign investment was easy to obtain for telecom because there was a clear path to monetization.

This wasn’t the case for roads (a public good).

Aid allocated to roads couldn’t meet all development needs. Therefore, the public sector had to step in.

But when the majority of your inhabitants live on less than $5 per day, there’s only so much tax that can be collected.

In summary, funding hasn’t been enough.

Returning to a state of diversified production and Pan-African trade would be expensive

Colonies were designed for single cash crop production to reduce costs and export in bulk.

Also, trade across borders was discouraged.

Therefore, a reliance on imported goods from Europe arose.

Most food imports were distributed in colonial capitals, leaving rural areas in chronic malnutrition and famine.

Post-colonial nations could not or did not produce the range of agricultural goods that they used to because diversified production would only make sense on a commercial scale.

This would involve significant investment in roads and facilities.

Therefore, with the funds available it made sense to further develop established trade centers.

But also, funding hasn’t been efficiently deployed

There isn’t an adequate excuse for the state of roads in capital cities today.

Last month Ugandans got the government's attention on Twitter with the #Kampalapotholeexhibition.

We’ve talked a lot about roads.

But roads are only a fraction of the issue with transporting goods.

Let’s look at everything else

All things considered, transport costs are ~50% more expensive than in developed economies.

Here’s an example of truck drivers in the DRC explaining why:

The above depicts the struggles a truck driver faces when transporting minerals from Eastern DRC, to a port in Dar es Salaam.

On the way, they cross the Zambian border.

When leaving the DRC, a driver has to pay $200 at the parking lot, $50 for the visa, and $300 at the border toll in Zambia. The same fees apply on the way back.

This is a $1,100 round trip before accounting for labor, fuel, and other expenses 💸

We know you’re busy and have to get back to your day/evening, but if you have a few extra minutes, check out this video, which gives a more robust view of the challenges.

The highlights are:

Trade Agreements intended to foster cross-border trade have been difficult to enforce

For example, the Economic Community of West African States (ECOWAS), maintains protocols on the transportation of goods in its 15 member states to promote trade.

But there are several official and unofficial barriers that breach these protocols affecting inter-regional and international trade.

Other challenges include:

• Regional conflicts

• Old fleets operated by inexperienced drivers

• Delivering payments to unbanked or underbanked drivers

• Etc.

The consequences of these challenges

Africa has a wealth of natural resources and agricultural products.

But transport inefficiencies hamper their accessibility.

The continent’s merchandise export contribution to the global market has steadily declined since 1948 from 7.3% to about 2.2% in 2016.

Africa could spend billions to, at a minimum, improve road quality and density to emulate that of more developed nations.

But that would be a herculean task.

And wouldn’t solve all of the problems outlined above.

Digitization is currently the most practical solution to reduce the costs of transporting goods via road

In 2016, Kobo set out to solve 40% of the problem with technology

We’ve laid out the benefits that could be achieved for each party

• Ability to re-route and reduce time on road

• Unbanked or underbanked drivers could access seamless and assured payment

• Instead of incurring two way cross-border costs for a one way trip, a return load is guaranteed

• Clarity on contents of cargo and volumes being delivered

• Visibility to truck driver locations online and offline

• Access to rural populations

• Access to financing to expand fleets and grow

• KYC (background checks) and formalized onboarding to ensure quality drivers

• Transparent pricing

• Formalization of suppliers and networks

• Data on customer demand for specific goods and other management insights

• Full integration for seamless communication from production, to the warehouse, through carriers and shippers, to the end user

You now have the context and a clear perspective of the problem

We told you this ride would be a bit bumpy, but we’ve made it to a rest stop.

We’re at the point where we’ve laid out the past so that we can understand our present.

Next week we will tie our present to the future.

While there are several players solving to cut transport costs, Kobo will be our focal point.

As indicated above, they are growing exceptionally fast.

And we plan to dig into how…

Interesting Reads This Week

Yesterday, Ona sent me a screenshot of this piece by Ephraim Modise of Tech Cabal on the evolution of tech media in Africa. As writers, we look up to publications that have set the foundation and are changing the status quo.

Future Events

It’s been an absolute blast hosting office hours with Jasiel this past quarter. We have one session left this Thursday, May 18th, before we take a month off and start back up in July.

We’d love to see you this week. But if you can’t make it, sign up to join us in July.

That’s all we have for you this week!

Thanks so much for making it to the end!

Look out for our newsletter in 2 weeks where we dig into Kobo’s story.

If there’s anything else you’d like us to explore, send me a note. I’d love to hear from you! You can find me on:

• Twitter

• LinkedIn

• Email (Reply to this email)

If you enjoyed this piece, make sure to sign up to get more like this in your inbox soon!

Until next time!

👋🏾 Ona and Marge