- Africa has some of the worst physical infrastructure in the world, particular in terms of roads, air traffic, energy, and telecommunications.
- Fragmented industries also add to Africa’s infrastructural woes, with supply chains that are weak in logistical strength driving high shipping and distribution costs.
- Because of infrastructural challenges, businesses have focused on wealthier cities, which causes infrastructural issues in poorer rural areas to only intensify.
Africa has the worst physical infrastructure and the most fragmented markets of any continent. Let’s start with the infrastructure.
When it comes to roads, Africa has only 200 kilometers of roads per thousand square kilometers. That’s one third of the world average. And although it has 12% of the world’s population, it accounts for only 3% of the global passenger air traffic, making it very hard to get around this vast continent. To illustrate the great lack of direct intercity flights, just note that the travel from Abidjan in Côte d’Ivoire to Kampala in Uganda, you would have to fly via Istanbul.
Now when it comes to energy, more than 640 million Africans — that’s 40% of the total — have no access to energy, and that is the world’s lowest access rate.
The picture is slightly better in telecommunications. Unique mobile subscriber rates are roughly comparable to the levels in the developed world in the early 2000s. However, the launch of a handful of key submarine cables connecting Africa’s eastern and western coastlines to Europe and the Asia-Pacific via India has triggered a rapid drop in prices and mass coastal availability of the Internet.
Industries also tend to be very fragmented in Africa, with most sectors suffering from poorly integrated supply chains. As an example, 85% of Africa’s farms occupy less than 2 hectares, whereas in the U.S., Germany, or Brazil, only 11% of farms operate on this scale. And in most African countries, the percentage of groceries bought in supermarkets is in the low single digits, and there are no national or even regional distributors.
Now a key problem underlying the supply chain problems in Africa is logistics. Boston Consulting Group estimates that the average cost of shipping and distributing goods to markets in Africa is 320% of the cost of the goods themselves. This compares with 200% in South America and 140% in East Asia and North America. To put things in perspective, it costs less to ship a car from Paris to Lagos in Nigeria than from Accra to Lagos, and Accra is just in the next country over in Ghana.
To beat the challenges of poor infrastructure, many businesses choose to focus on cities where wealthier consumers live and where the infrastructure is better. However in 2015, Africa only had six cities with more than 5 million residents, which explains the lack of priority Africa has had for most multinational corporations. However, this is likely to change with 24 million Africans moving to cities every year. The growth opportunity in African cities is likely to swell quite considerably in the coming decades.