Gravito: Infrastructure and Logistics Challenges are Major Causes of Fragmentation in Nigeria

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Chairman, BCG Nigeria and Senior Partner at The Boston Consulting Group, Luis Gravito, spoke with Nosa Alekhuogie on the firm’s recent report and fragmentation in Africa. Excerpts:

Could you tell us about your background and your firm?
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Founded in 1963, BCG is a private company with more than 90 offices in 50 countries.

We are an independent trusted advisor which works to the highest ethical standards and puts its clients’ interests first. Our presence in Africa includes four permanent offices in Casablanca, Lagos, Luanda and Johannesburg, and 7 research centres. BCG projects on the continent cover a large spectrum of Industry sectors including Financial Institutions, Energy, Industrial Goods, Consumer Products, Healthcare, Technology, and the Public Sector. Our mission in is clear and is to create positive economic, social, and environmental impact on the continent.

We opened the BCG Lagos office in 2015 and as a founder; I have led our operations in Nigeria as BCG’s Chairman for Lagos since the opening. Prior to Lagos, I worked across the continent and Iberia region formulating and implementing strategies and managing complex changes in a variety of industries and geographies. I also founded, developed and managed our Lisbon office until 2011. My direct experience is in Financial Institutions, Energy and Utilities, Consumer Goods, Telecommunications (both in fixed and mobile operations), Healthcare and the Financial Sector. I also have vast experience working closely with governments, ministries and regulators, in areas such as sector restructuring, tariff design, and complex multiparty sector negotiations.

What prompted the study on your recent report; ‘Pioneering One Africa: The Companies Blazing a Trail across the Continent’?
BCG has been tracking business and economic development in Africa, with particular focus on the respective roles of leading African companies, as well as Multinational Companies (MNCs), since 2010. Our first report examined the new global competitors that were emerging from long-dormant countries. (It could be found in the African Challengers, BCG report, 2010.) The second looked at the economic development of Africa and how companies needed a new approach in fast-changing business environments. The most recent reported on how nimble and fast-growing African companies were often beating MNCs at their own game in variety of industries.

We continuously hear from our clients the challenges they’re facing to expand geographically in Africa, do business in other countries and win new markets. So, it became natural to highlight the fragmentation challenges and more importantly the beginning of integration that we see happening in the continent and the role of Africa entrepreneurs in driving this integration.

A lot of emphasis was made on fragmentation in Africa in the report; can you speak more on this specifically as it relates to Nigeria and other countries?

Fragmentation in Africa is much greater than anywhere else in the world, and for countries that typically lack the critical mass to compete globally, it adds significantly to their economic challenges.

Africa is big with only a handful of cities with populations of 4 million or more, and these cities are dispersed across the continent. Direct flights are few, and flight times are long, the longest in the world; an average of 12 hours between cities, including connections. From any city in Europe, you can reach the countries aggregating 70 per cent of the region’s GDP in three hours or less in South-East Asia or Latin America, it takes eight or nine hours. In Africa, a similar journey requires 15 hours, one full working day.

Then there’s geopolitical and economic fragmentation. Africa has 54 countries compared with 12 in South America and 17 in East Asia. Most African countries are small in terms of population and economic activity, if not land mass. It takes 24 African nations to aggregate $1 trillion in GDP, far more than any other region of the world. Europe has 28 countries, but it takes only 1.7 nations to aggregate $1 trillion in GDP.

Africa has sixteen trade zones. South America has six and East Asia, one. Four fifths of African nations require a visa to visit. The Abuja Treaty, signed in 1991, contemplates an African Economic Community, but the process toward continent-wide free trade is slow, uncertain, and involves multiple steps, which include the creation of multiple regional economic communities in 1991, a continent-wide customs union in 2019, a common market in 2023, and projected economic and monetary union in 2028.

Despite many new infrastructure initiatives, Africa lacks the major road and rail networks to connect the continent and many of the roads and rail lines that do exist are in poor repair and end at the frontier. This results in an enormous cost of doing business. We calculate that the cost of shipping goods to market in Africa is on average 320 percent of their value, compared with 200 per cent in South America and 140 per cent in East Asia and North America.

What is the primary cause of fragmentation in Nigeria today?
The main cause for fragmentation in Nigeria relates to infrastructure and logistics, which makes the process of reaching the end consumer very challenging especially in remote places. In 2017, in a joint effort with the African Finance Corporation, we published a report entitled Infrastructure Investing in Sub-Saharan Africa, covering the logistical, financial, and socio-political challenges of infrastructure investment in each country; key considerations and strategies for governments to take into account in pursuing such investments; and corresponding considerations and strategies for private investors to weigh in doing the same. The other cause for fragmentation in Nigeria today is the challenge of the sheer diversity of populations with diverse tastes and habits.

What can be done to enhance intra-Africa trade?
Africa needs to trade with itself. Movement from political will to policy action as far as improving regional cooperation is ongoing but remains slow to materialise. Customs procedures are onerous, visa restrictions are high, while failure to produce value-added goods and to diversify from natural resources and goods different from neighbouring countries continues to stifle trade.

The African Continental Free Trade Area (AfCFTA), an agreement cast in the mold of the European Union’s version was recently signed in Kigali by 44 countries. The creation of a free trade area billed as the world’s largest comes after two years of negotiations, and is one of the African Union’s flagship projects for greater African integration. The agreement will still have to be ratified at a national level, and is only due to come into force in 180 days.

The trade zone will help lower/remove the barriers but a huge effort will be needed to develop a better infrastructure as well as diversify production. African countries should produce what matter for African in order to foster more intra- trades.