• Wednesday, February 21, 2024
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How Dubai’s logistics company cracked Africa’s toughest market

How Dubai’s logistics company cracked Africa’s toughest market

The bustling streets of Lagos, Nigeria, thrum with the energy of a continent on the rise. But for logistics companies, navigating Africa’s vast and complex landscape can be a daunting task.

Yet, amidst the challenges, Dubai-based DP World has emerged as an unlikely pioneer, successfully cracking what many consider Africa’s toughest market – Nigeria.

DP World is one of the world’s biggest operators of marine ports and inland cargo terminals, with gateways from London and Antwerp and hubs in Africa, India, Russia and the Americas.

Read also: DP World expands logistic foothold across Africa, prioritising Nigeria

The Dubai-based company has been on an acquisition spree as it attempts to become a more diversified and integrated logistics company.

DP World’s Nigerian foray began with cautious optimism. The company, known for its expertise in the Middle East, recognised the immense potential of Africa’s growing economies.

However, Nigeria presented a unique set of hurdles – underdeveloped infrastructure, fragmented regulations, and fierce local competition.

Moreover, the high incidence of theft and insecurity in some regions of Nigeria poses a significant risk to logistics operations.

This not only affects the safety of goods but also increases the cost of transportation and insurance.

Yet, DP World has not only navigated these complexities but has also thrived and gradually emerging to become a key player in the country’s logistics sector.

DP World-owned Imperial acquired a controlling stake in Africa’s fast-moving consumer goods Distribution in Nigeria, last June as the global ports operator continues to expand its presence in the continent.

“This transaction is aligned with our ambition of becoming the leading market access and logistics partner in Africa by connecting trade flows into and out of Africa,” Sultan bin Sulayem, group chairman and CEO of DP World said.

He added, “AFMCG offers strategic value to DP World from a supply chain and fintech perspective, in line with our strategic objective of leveraging assets and logistics to create an integrated global supply chain – from the factory floor to the customer’s door”.

AFMCG represents FMCG companies and their brands and distributes various products across the African continent.

Read also: DP World accelerates Africa coverage as Imperial acquires stake in Nigeria’s AFMCG

For Mohammed Akoojee, chief operating officer of DP World Logistics and group CEO at Imperial, “Being one of the largest economies on the African continent with attractive demographic and macroeconomic fundamentals, Nigeria boasts a significant consumer market”.

Akoojee added, “AFMCG presents an ideal opportunity with the necessary scale for us to leverage to sell truly pan-African solutions to our principals and clients”.

Subodh Chanrai, chairman of AFMCG, said: “This strategic transaction further enhances our foothold in this significant market and allows us to offer further benefit to our principals and keep pace with the evolving needs of the African consumer”.

This strategic acquisition isn’t the only piece of DP World’s African puzzle. The company recently secured approval to acquire a 30-year deal with the Tanzania Ports Authority to take over the operation and modernisation of four berths at the Dar es Salaam Port.

Details of the agreement seen by BusinessDay showed DP World aims to invest more than $250 million to upgrade the port through projects such as improving rail-linked logistics operations and installing temperature-controlled storage to support the local agricultural industry.

Global power competition

The UAE is the fourth-largest investor in Africa, after China, Europe and the US. In the last decade, it has invested nearly $60 billion in infrastructure and energy sectors across the continent.

DP World – established in 1999 and owned by Emirati ruling families – has increased those inroads with port operations in Angola, Djibouti, Egypt, Morocco, Mozambique, Senegal and Somalia.

The company signed agreements for the development of a deep water port at Ndayane in December 2020, approximately 50km from the existing port and near the Blaise Diagne International Airport. The new agreement is on top of DP World’s current plans to build and run a 300-ha container terminal in the Port of Dakar and positions Senegal as a major regional logistics hub.

In 2021, DP World pledged to invest $1 billion in Africa over the next several years.

DP World announced the launch of the first dedicated container train service in June 2021 connecting Maputo, Mozambique and Harare, Zimbabwe. The rail link is designed to enhance Maputo’s position as a gateway to Zimbabwe. DP World has the concession to manage, develop and operate the Maputo container terminal.

In May 2021, DP World announced that it would begin the development of a deep-sea port at Banana in the Democratic Republic of Congo. In January 2021, DP World agreed on a 20-year concession agreement with Angola to operate a multi-purpose terminal (MPT) at Luanda port.

These investments have at times sparked tensions, tested geopolitical relations and – more crucially – intensified competition for infrastructural development in Africa.

Like China, Turkey and Russia, the UAE is increasingly becoming a political and economic counterweight to the West in Africa.

Abu Dhabi’s diplomatic presence has been boosted by humanitarian support and defence cooperation, particularly in the Horn of Africa.

It brokered a peace deal between Eritrea and Ethiopia in 2018 and delivered thousands of tonnes of food aid to Somalia in 2022 amid warnings of a looming famine.

These relationships have given DP World a near monopoly in the Red Sea region, just north of Tanzania. They have also allowed the UAE to consolidate defence interests in the Gulf of Aden as part of an almost decade-long military offensive in Yemen.

As a result, the UAE – despite its size – has an edge over other Gulf nations as the Horn of Africa is a strategic route for crude oil exports.

DP World’s developments in Somalia’s Bossaso port and Berbera in the self-declared republic of Somaliland amount to almost $1bn. The agreements caused a row with the Somali federal government, which considers Somaliland to be part of its territory and has often had a turbulent relationship with the semi-autonomous Puntland region, which includes Bossaso.

But DP World appears to have shrugged off political pressure to continue operations in both regions.

DP World’s operations in Africa

In Africa, DP World has operations in Angola, Senegal, Egypt, Mozambique, Somaliland, Rwanda, Algeria and the Democratic Republic of Congo.

DP World acquired Imperial Logistics in March 2022, which is a growing connection between GCC-based FMCG companies (including multinationals whose Africa & Middle East offices are based in Dubai) and Nigeria.

The company in a statement, said its acquisition of both companies, is in line with its plan to expand its footprints across the African continent leveraging a potential-filled industry as it eyes a larger market with increased trade activities and more distribution channels such as the FMCG industry and other opportunities.

According to Mordor Intelligence, the Nigerian logistics industry is valued at around $60 billion, with e-commerce significantly boosting the economy. In 2023, the Nigerian e-commerce market generated USD 10.11 billion in revenue. Its revenue is expected to register a 10.79 percent CAGR between 2023 and 2027.

Although the logistics market is one without its hicks, according to Mordor Intelligence, the Nigerian logistics industry has grown slowly due to persistent infrastructure challenges.

Instead of the murky webs of Nigerian distributors with Dubai ties, DP World’s acquisitions shed light on the distribution process with established companies like Imperial, AFMCG, and Fareast Mercantile. This offers a straightforward and reliable path to success in one of Africa’s most complex markets.

In April 2022, Suntory Beverage & Food Limited (SBF) sold its Nigerian business, Suntory Beverage & Food Nigeria (SBFN), to Africa FMCG Distribution Ltd for $14 million. Suntory, the owner of popular brands like Ribena and Lucozade, transferred the manufacturing and distribution license for its brands in Nigeria to AFMCG through this transaction.

Imperial Logistics had already acquired ACP Holdings Limited (aka Far East Mercantile Ghana) in January 2020 and a controlling stake in pharma distributor World Wide Commercial Ventures Limited (WWCVL) in Nigeria in February 2014. Both were part of the Chanrai Group of Companies.

The AFMCG acquisition reflects a growing trend in Nigeria, where major multinational FMCG, OTC, and pharma brand owners are entrusting manufacturing or co-packing responsibilities to local partners. This approach aligns with Imperial Logistics’ “market access” division.

Notably, brand owners such as P&G, Unilever, Henkel, and now Suntory, have opted to collaborate with domestic Nigerian manufacturers for certain aspects of their portfolios

Recently, P&G Nigeria said it would import its products owing to macroeconomic conditions.

Another multinational, GSK, announced plans last year to exit Nigeria after 51 years. It said it would use an import-driven model, in which Imperial Logistics transports its products, making it a win-win for DP World.