Data Collection Survey for Value Chain Analysis for Retail Business in Africa Final Report

Africa

Data Collection Survey for Value Chain Analysis for Retail Business in Africa

Final Report

August 2020

Japan International Cooperation Agency

Deloitte Tohmatsu Financial Advisory LLC IM JR 20-014 Table of Contents

Background, Objectives, and Methodology of this Survey ...... 1 Overview of this Survey ...... 1 Identification of the Target Items ...... 4 Value Chain Analysis Methods and Tools ...... 8 Overview of Corridor Master Plans and Filed Survey Results ...... 11 Structure of this Chapter ...... 11 Northern Corridor ...... 11 Nacala Corridor ...... 19 West Africa Growth Ring ...... 27 North-South Corridor ...... 33 Macro View of Retail and Distribution Industry ...... 41 Structure of this Chapter ...... 41 Kenya ...... 41 Zambia ...... 47 Mozambique ...... 52 Cote d’ivore...... 55 Analysis of Value Chain in Food and Distribution Sector ...... 57 Structure of this Chapter ...... 57 Kenya ...... 58 Zambia ...... 86 Mozambique ...... 107 Cote d'Ivoire ...... 111 South Africa ...... 114 Case Study: Business Overview at an African large retailer ...... 127 Structure of this Chapter ...... 127 Business Model of an African Large Retailer ...... 127 Business Strategy ...... 133 Value Chains of Major Products ...... 135 Case Study Results ...... 138 Recommendations for Promoting Corridor Development ...... 140 Structure of this Chapter ...... 140 Recommendations on Measures for Promoting Corridor Development in Africa ...... 140 Future Corridor Development Measures from the Retail Business Perspective...... 173 Appendix: Reference Materials ...... 177 Appendix 1. Macroeconomic data etc...... 178 A-1.1 Kenya ...... 178 A-1.2 Zambia ...... 187 A-1.3 Mozambique ...... 190

i A-1.4 Côte d'Ivoire ...... 195 Appendix 2. Overview of Major Retailers in Each Country ...... 199 A-2.1 Kenya ...... 199 A-2.2 Zambia ...... 202 A-2.3 Mozambique ...... 204 A-2.4 Côte d'Ivoire ...... 206

ii Table 1 Abbreviations

Abbreviation Full Name AEO Authorized Economic Operator BoZ Bank of Zambia COD Cargo Oriented Development CPI Consumer Price Inflation CPS Country Partnership Strategy CPT Cape Town DC Distribution Center DRC Democratic Republic of the Congo DUAT Direito do Uso e Aproveitamento da Terra EAC The East African Community ECTS Electrical Cargo Trucking System FBH Fashion Beauty & Home division FESTRA Federation of East and South African Road Transport Association GBJ Good Business Journey GDP Gross Domestic Product GPS Global Positioning System GRDP Gross Regional Domestic Product GTL Gas to Liquid IBRD International Bank for Reconstruction and Development ICD Inland Container Depot ICT Information and Communication Technology IDA International Development Association IFC International Finance Corporation INE National Statistics Agency IS Islamic State JHB Johannesburg JICA Japan International Cooperation Agency KEBS Kenya Bureau of Standards KES Kenyan Shilling KPA Kenyan Ports Authority LNG Liquefied Natural Gas MGC Matola Gas Company MIGA Multilateral Investment Guarantee Agency MZN Mozambican metical NBO Nairobi NEC Northern Economic Corridor

iii

Abbreviation Full Name NEDO New Energy and Industrial Technology Development Organization NEPAD New Partnership for Africa's Development The Project for Nacala Corridor Economic Development Strategies in the Republic PEDEC-Nacala of Mozambique PEDSA Strategic Plan for Agricultural Development PF Patriotic Front PIDA Programme for Infrastructure Development in Africa PLR Performance and Learning Review PPECB Perishable Products Export Control Board PPP Public Private Partnership SA South Africa SADC The South African Development Community SCT Single Customs Territory SEZ Special Economic Zone SGR Standard Gauge Railway (build and funded by the Chinese) SME Small and medium-sized enterprises TBL Through Bill of Lading TEU Twenty Foot Equivalent Unit TICAD Tokyo International Conference on African Development TVET Technical and Vocational Education and Training VGGT Voluntary Guidelines on the Responsible Governance of Tenure WAGRIC West Africa Growth Ring Corridor WBG World Bank Group Y-o-Y Year on Year

In this report, "dollars" refer to "U.S. dollars" unless otherwise noted.

[Source: MAPS KENYA (https://ja.maps-kenya-ke.com)] Figure 1 Maps across Kenya [Source: MAPS KENYA㸦https://ja.maps-kenya-ke.com㸧] Figure 1 Map across Kenya

[Source: MAPS ZAMBIA (https://ja.maps-zambia.com)] Figure 2 Map across Zambia

[Source㸸MAPS Mozambique㸦https://ja.maps-mozambique.com㸧] Figure 3 Map across Mozambique

vii

[Source㸸MAPS Côte d'Ivoire, Nations Online Project (https://www.nationsonline.org/oneworld/map/cote-dIvoire-political-map.htm 㸧] Figure 4 Map across Côte d'Ivoire

viii

[Source㸸MAPS South Africa, Nations Online Project (https://www.nationsonline.org/oneworld/map/south_africa_map.htm㸧] Figure 5 Map across South Africa

ix Background, Objectives, and Methodology of this Survey

Overview of this Survey

1.1.1. Background and objectives of this Survey JICA has promoted the development of economic corridors in Africa and the development of strategic masterplans in priority corridors so far based on the African Support Policy of the African Development Conference (Tokyo International Conference on African Development: TICAD 5) held in 2013. Specifically, the Strategic Master Plan was formulated for three priority corridors: the Northern East Africa Corridor (Northern Corridor), the Nacala Corridor (Nacala Corridor), and the West Africa Growth Ring (hereinafter referred to as the "Three Priority Corridors")1. These are wide-area plans, including medium-and long-term business plans, aimed at improving the business environment through strengthening the economic foundation, promoting private investment required for sustainable growth in Africa, and widely spreading development effects.

North South Corridor

[Source: JICA Survey Team] Figure 6 Position of Strategic Corridors

In order to promote the development of the Three Priority Corridors and promote their spread and deployment to other corridors, TICAD 7 hseld in August 2019 disseminated information on the implementation of the Strategic Master Plan for the Three Priority Corridors, as well as on development effectiveness, with a view to reflecting the policies of the countries concerned and increasing the interest of development partners. In

1 In addition to the Three Priority Corridors, the North-South Corridor is also mentioned as needed, and its position is shown in Figure 6.

1 particular, in order to promote Africa's development, it is important to promote the development of industries and logistics in each region. At the same time, both the development of infrastructure and the growth of the industry as a whole are focused. JICA's overall vision is to capture market-driven momentum while removing infrastructure and logistical barriers. In addition, JICA conducted a survey from 2019 to 2020 to measure the effectiveness of the Corridor Master Plan in identifying implementation requests and impacts of the Master Plan.2 The survey confirmed the effects of reducing transport costs and time, especially in the Northern East African Corridor, as the expansion of the Mombasa Port between countries and the development of access roads to ports and the main trunk roads connected to them were steady and the transport volume of corridors also increased substantially. However, it takes time to measure not only the direct effects but also the indirect development effects associated with this survey. Further promotion and assessment are therefore needed to reduce inequality and achieve inclusive economic growth. JICA's Corridor Development Strategy has already entered the implementation and monitoring phase and will be implemented through the AUDA-NEPAD "African Union Development Agency (AUDA) - New Partnership for Africa's Development (NEPAD)”, we believe it is important to share achievements and past experiences on platforms at the continental and regional levels through appropriate advisory bodies such as the NEPAD. In particular, the study considers it significant to develop a local production and consumption logistics network within the country and promote cross-border logistics within the corridor region in order to facilitate the specific distribution of commodities first, such as agricultural and food products, and to conduct a retail distribution and logistics study focusing on the three priority corridors and the logistical aspects of the corridor development. The main objective of this study is to propose measures to promote the development of corrdiors. In light of the above, this study will provide an overall picture of the value chain (VC) of agricultural and food products, especially in African countries, all the way from suppliers to the local supermarkets. In particular, the study will focus on the linkages between food producers and consumers to clarify the distribution structure, and at the same time, to identify a wide range of logistical disincentives and challenges, such as physical logistics infrastructure, customs and clearance procedures, logistics technology, market access and business feasibility, and the policy and regulation, that hinder the promotion of efficient logistics. It also aims to understand the efforts made to date to address the challenges and make specific recommendations to promote the development of the African corridors from a logistical perspective.

1.1.2. Countries Covered by the Survey

This study was conducted mainly in two countries, Kenya and Zambia. Kenya was considered important as a gateway to the Northern Corridor because it was an important part of the East African countries in terms of their economic influence. Then, it was judged that Zambia is an inland country located along the Nacala Corridor and is an important country from the viewpoint of examining the possibility of promoting inland logistics in the future of the Nacala Corridor. In addition, Zambia is one of the countries in which many retailers have entered the market from South Africa, where there are many advanced food retailers. It is considered to be important

2 JICA,” Data Collection Survey on Impact Measurement of the Corridors – Northern Corridor, Nacala Corridor, and West Africa Growth Ring in Africa” (April 2019)

2 for grasping the distribution and logistics structure from South Africa to Zambia, and the country was selected as the target country. In addition, general surveys were also conducted in Mozambique and Cote d'Ivoire. Mozambique is expected to act as a gateway to the Nacala Corridor, and because Cote d'Ivoire plays an important role as a logistics hub for West Africa Growth Ring. The Republic of South Africa has a large presence in the African food retail market, and their expansion into other African countries is also popular. Therefore, information on the Republic of South Africa is provided in some chapters for the purpose of analyzing advanced cases, mainly in distribution and logistics.

1.1.3. Survey Flow and Structure of the Report

Basically, this survey was conducted in accordance with the major flow of "Identification and Grouping of Target Items", "Organizing and Analyzing Value Chains", and "Grasping Actual Conditions and Challenges", after specifying the target countries. Of these, the selection of countries and the identification and grouping of target items will be carried out in this chapter. The organization and analyzing value chain will be discussed mainly in Chapter 4 for each group. The following diagram shows the basic flow.

Item Overview Survey method

Identify target items Identify specific items to be investigated in each country Desktop survey

Grasp the Step1: Grasp the overall flow of the value chain of the target value chain of items at the interviews with grocery retailers Interview with a personnel from grocery each item Step2: Identify details of the value chain (payment terms, retailers delivery locations, etc.), and map out key challenges

Understanding Stake holders of the value chain of each bottlenecks Step3: Deep-dive the issues and confirm the actual situation of products - Producers, logistics the challenges mentioned in “Step 2” above. companies, and distributors etc.

[Source: JICA Survey Team] Figure 7 Value Chain Analysis Flow and How to Identify Issues

The structure of this report is shown in the table below. Chapter 2 will first confirm the Master Plan for the Three Priority Corridors, provide an overview of the plan, and analyze the current state of logistics. Chapter 3 focuses on the food retail/distribution industry and provides an overview of the industry from a macro perspective, particularly in Kenya, Zambia, Mozambique, and Cote d'Ivoire. In light of this, Chapter 4 presents a detailed analysis of the value chains, particularly in Kenya and Zambia, and identifies issues related to them. A similar analysis was also conducted for South Africa, because of advanced efforts by its retailers in the distribution and logistics industries in Africa. In Chapter 5, we conduct case studies focusing on specific

3 companies based on the results of the analyses in Chapters 3 and 4. Chapter 6 summarizes the major Findings identified through the survey and presents policies for measures to promote corridor development.

Table 2 Structure of this Report

Chapter Title Contents number Chapter 1 Background, Objectives, and Methodology of this Survey Overview of the Survey Chapter 2 Overview of three corridor master plan and field survey Logistics Overview of the Three results Priority Corridors Chapter 3 Macro View of retail and distribution industries Grasping the Overview of the Food Retailing and Distribution Industries Chapter 4 Value Chain Analysis in Food and Distribution Sector Identification of Issues of the Food Retailing/Distribution Industries Chapter 5 Case Study: Business Overview at an African large retailer Advanced Case Studies of Specific Companies Chapter 6 Identified logistics issues and recommendations for Same as left promoting corridor development [Source: JICA Survey Team]

Identification of the Target Items

1.2.1. Review Procedures

The flow of specific processes for the commodities (agricultural commodities and foods) subject to be surveyed is shown in the figure below. First, as shown in the figure below, we conduct patterning based on the characteristics of each commodity common to all countries. Based on the characteristics of each country and the actual conditions of distribution, we selected the items that should be surveyed with priority in each country.

4 2. Identify item patterns to be 1. Categorization of survey items 3. Identify items to be investigated investigated by region

Create the list of criteria Identify item patterns based on the Create a list of the grocery items that • Processed vs non-processed characteristics of each region are applicable to the target category • Dry cargo vs Reefer cargo of each region • Cross-border vs domestic Characteristics of the each region • 3rd party distribution vs direct • The West Africa Growth Ring has a distribution etc. strong growth potential in agriculture sector • South Africa's domestic cold chain Categorization of survey items has room for future improvement Cross- Non Perishable • Fresh food from Uganda and border Perishable No cross- Non Perishable Rwanda has potential be exported to border Perishable Kenya etc. Dry cargo A B Example: 䇾 The West Africa Growth Ring has a strong growth potential in F (ex. Apples Reefer cargo C D agriculture sector䇿 ->Crossborder + Dry Dry cargo E cargo + Perishable (item pattern F) and oranges)

Cross- Non Cross- Non Perishable Perishable border Perishable border Perishable G Dry cargo E F Dry cargo E F Reefer cargo (ex. Cheese H and yogurt) Reefer cargo G H Reefer cargo G H

[Source: JICA Survey Team] Figure 8 Flow of Survey from Selection and Distribution Structure Analysis of Target Items to Extraction of Barriers in Logistics

1.2.2. Identifying and Grouping Items on a Target Date

The grouping and the target items included in each group are shown in the following table.

Table 3 Grouping and Target Item Group Definition and Description Target Items Perishable foods Perishable foods (fruits, vegetables, fresh meats, fresh fish, etc.) ࣭Fresh fish and cold-chain were once one of the first commodities transported at normal ࣭Orange products temperatures. Under high temperature and high humidity, these ࣭Banana goods deteriorate over time and must be treated with care using ࣭Fresh meat cold chain technology and special packaging. This category (chicken, etc.) explores the characteristics and issues of the entire value chain for fresh foods that require 2-8°C temperature control during transportation. Perishable foods Perishable products degrade over time at high temperatures and ࣭ Egg products and non-cold-chain humidity. Therefore, these products need to be handled with special ࣭ Corn products care. However, fresh foods in this group are transported from the ࣭ Wheat neighborhood, mainly as dry containers, from farmers' producing ࣭ Fresh rice areas to retailers. This category explores the characteristics and issues across the value chain of fresh foods that do not require temperature management or special handling techniques during transport. Non-Perishable This category explores the characteristics and typical issues of the ࣭ Frozen foods and cold- entire value chain of non-fresh foods that require cold chain vegetables chain products technology for transportation. It includes several categories, such ࣭ Frozen meat as dairy products, frozen foods, and quick frozen foods. According (chicken, etc.) ࣭ Yogurt and other dairy products

5 to CODEX standard3, "quick frozen foods" are defined as "foods ࣭ Other frozen processed in a rapid freezing process and maintained at low foods temperatures of-18°C or higher at all transportation and storage locations in the cold chain, consistent with acceptable temperature and tolerance." Non-Perishable This category describes any type of food that does not require a ࣭ Fish products foods and non-cold- specific temperature control. It includes long-life milk, a variety of cans chain products edible oils, spices, beverages, and processed foods that can be ࣭ Tomato cans stored for long periods of time. ࣭ Fruit juice ࣭ Palm oil ࣭ Pasta ࣭ Coffee products ࣭ Tobacco products Cash crops Cash crops are crops that are not used for food by growers or by ࣭ Soybeans people living in growing areas, but are mainly exported and sold. ࣭ Coffee beans This survey independently analyzes this category because cash (raw beans) crops generally have foreign markets, and unlike other ࣭ Unprocessed commodities that are consumed primarily domestically or locally, tobacco they are traded and transported globally. ࣭ Milled rice [Source: JICA Survey Team]

The groups shown in the above table are organized on the basis of the following criteria. Basically, on the vertical axis, the necessity of cold chain technology and the existence of corrosiveness on the horizontal axis or the speed of the progress of corrosion of foods were set as standards, and the classification was carried out to four quadrants. In particular, for items belonging to the second group (fresh food and non-cold chain products), only cash crops were extracted to make the fifth group. The reason for this is that in developing countries such as Africa, commodities for local production for local consumption and crops for export have different distribution channels and the physical distribution of commodities differ in nature, therefore these commodities are grouped in different groups.

3 The only globally adapted food standard as defined by the Food Standards Commission (Codex Alimentarius Commission)

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[Source: JICA Survey Team] Figure 9 Criteria for Grouping

1.2.3. Target Items Surveyed by Country

In light of the characteristics of and the actual conditions of distribution of the target countries surveyed, the following items were selected as important target items surveyed for each country.

7 Domestic Non-Perishable food Perishable food Cross-Border Non-Perishable food Perishable food Dry ABDry EF Reefer CDReefer GH

Key hypothesis and categories to focus on by region

Status of Major Related logistics Initial hypothesis in commodity Country categories in Major Food Products Corridor infrastructure distribution the survey development • High potential for future export of F(Cross-Border: fruits, fish, processed foods, etc. Perishable and Egg, Wheat, Maize, and Raw Rice from landlocked countries such dry) Northern as Uganda and Rwanda Kenya • Fair Corridor • Kenyan products are superior in H(Cross-Border: Raw meat (chicken, etc.), fresh fish, packaging and processing Perishable and banana, orange technology to other countries Reefer) located in the same corridor

• Mozambique imports large amounts F(Cross-Border: of grain (rice etc.) from countries Perishable and Egg, Wheat, Maize, and Raw Rice Zambia Nacala produced in Zambia and Malawi dry) • Low Mozambique Corridor • Nacala Corridor's logistics B(Domestic: Raw rice, Soybeans, Wheat, Maize, Raw infrastructure is fragile and not used Perishable and tobacco, Egg, Polished rice for commodity distribution Dry) E(Cross-Border: Fruit Juice, Palm Oil, Canned fish and • Côte d'Ivoire is one of the Non-Perishable Canned tomato, Coffee Products, Pasta, West Africa countries with high logistics and Dry) Côte d'Ivoire Growth • Low potential that can export H(Cross-Border: Ring agricultural products produced in Raw meat (chicken, etc.), fresh fish, Perishable and landlocked countries banana, orange Reefer) • Cold chain has been established H(Cross-Border: Raw meat (chicken, etc.), fresh fish, and is a base for exporting Perishable and 5 banana, orange North- perishables to Southern African Reefer) South Africa South • High countries Corridor • Beit Bridge has become an G(Cross-Border: Dairy products (yogurt, etc.), Processed important logistics hub for African Non-Perishable meat products (chicken, etc.), Frozen countries adjacent to South Africa and Reefer) vegetables

[Source: JICA Survey Team] Figure 10 Focused Target Items Surveyed by Country

Value Chain Analysis Methods and Tools

1.3.1. Value Chain Matrix Framework

The purpose of the value chain analysis is to get an overview of the distribution channels for agricultural and food products, and then first identify the current logistical barriers and bottlenecks, and if they exist, outline them.Therefore, this value chain analysis will focus particularly on what kind of logistical barriers and bottlenecks exist for the purpose of promoting and expanding the logistics of each corridor. The ultimate objective is to clarify the logistical barriers and bottlenecks in the future logistics promotion and expansion in other corridors, with suggestions from logistical barriers and bottlenecks in their expansion of food and distribution, taking as an example of leading retailers in the Republic of South Africa who have contributed to the expansion of food and distribution in African countries. The analysis of the value chain conducted in this survey is presented in Chapter 4 of this report, but the method (tool) is based on the “Value Chain Matrix” developed by the research group. The matrix framework is shown in the table below. It should be noted that a matrix has not been prepared for groups in which barriers and bottlenecks in logistics have not been clarified when analyzing each target country by group items.this survey, a value chain analysis was conducted for each of the target products, with the focus to identify challenges

8 and factors that hinder expansion of distribution channels related to these products. To achieve this, the survey takes three steps as described in the figure below.

Table 4 Value Chain Matrix Framework (Example in Kenya)

Country: Kenya VC Patterns: Locally-produced/locally-consumed type/Import model type Procurement Local source: Basic Region of origin: Kenya (or EAC countries) Information Perishable or non- Perishable foods perishable: Temperature Dry logistics control: Item: Egg products, wheat, and Maize Wholesale э (import) э Distribution flow Producers Retailers (Transportation) businesses (Transportation) /Broker Scope of Value chain Production ― Procurement ― Purchase/sales (Distribution responsibility Means of ― Truck ― Truck ― structure) transportation Western Kenya Location (partially ― Suburb of Nairobi ― Nairobi Uganda/Tanzania) Payment terms ― N/A ― N/A ― First, some road conditions, from Tanzania/Uganda to Nairobi, are poor, impacting on egg product transport and even causing cracking of some products. Also, many production areas in Kenya producing wheat and corn are Physical located in western Kenya. The main roads to Nakuru and infrastructure Eldoret, which are main cities of the country, are developed, but small roads to farms are not necessarily developed. Institutionalization and efficiency of distribution/procurement from micro farmers who produce wheat and corn are required. No major problems concerning import Customs/Border procedures from Uganda or Tanzania are found.

Logistics Regarding packaging techniques of eggs, more sophisticated packaging techniques are required technology to maintain quality. Barriers and Eggs at affordable bottlenecks prices are easily in logistics imported from Tanzania and Uganda, and Kenya imports as much as 40% Market access/ from neighboring Business countries. feasibility However, import of a large volume of eggs to Kenya has caused trade conflicts with Uganda and other countries. The purchasing Due to trade price of corn is friction in milk, the decided by the import volume of Policies and government, eggs from Uganda regulations making an effort to is decreasing. stabilize farmers' incomes. [Source: JICA Survey Team]

9 The vertical axis of the table shows basic information, agricultural and commodity value chains (distribution structures), and logistical barriers and bottlenecks. The horizontal axis indicates the flow of distribution of agricultural products and commodities. There are four main patterns of product flow. For example, the above table shows examples of value chains for local production for local consumption model (producers -> wholesalers (importers and exporters) /brokers -> retailers). Since the value chain is categorized as follows, the value chain analysis sheet was created based on the following types. In this survey, it is also necessary to (2) promote local production for local consumption in each country. However, in the future, in order to focus on the promotion of logistics and expansion of exports within Africa, the emphasis will be placed on (3), (4), and (1).

(1) Import model: To research and analyze the overview of players involved in the distribution of goods from African countries/overseas markets to target countries, i.e. from African countries/ imports and procurement from overseas to retail distribution in target countries, as well as barriers and bottlenecks in logistics.

(2) Local production for local consumption model: To investigate and analyze the overview of players involved in the distribution of products in the target country, i.e. from domestic procurement of products (agricultural products and foodstuffs) to retail distribution, as well as barriers and bottlenecks in logistics.

(3) Export model: To investigate and analyze the distribution and logistics of products from target countries to markets of countries in the African region and especially those located in the same corridor, i.e. the overview of players involved in the distribution of products from domestic procurement to the retail in other African countries, as well as logistical barriers and bottlenecks.

(4) Import of raw materials/export of processed products model: This is a model in which raw materials are imported from overseas to the target country, processed and manufactured domestically, and the processed goods are sold again to the overseas market. It is to survey and analyze the overview of players engaged in the distribution, as raw material suppliers in countries in the African region and along the corridor to target countries, and up to the retailers in countries in the African region and along the corridor, as well as logistical barriers and bottlenecks.

1.3.2. Value-Chain Analysis Results and Relationship to Measures to Promote Corridor Development in the Future

Regarding the logistical issues and barriers identified in the value chain analyses for each country and product, whether measures planned in the Master Plan have been implemented and their attribution analyses will be conducted in consideration of consistency with the Master Plan formulated by JICA, etc. Based on the results, Chapter 6 discusses and proposes measures and policies for promoting the development of these corridors for each of the main corridors in the future.

10 Overview of Corridor Master Plans and Filed Survey Results

Structure of this Chapter

In this chapter, the outline of the master plan that JICA has developed so far in the three priority corridors will be summarized based on existing literature. In addition, the results of the actual field survey of physical distribution in the target corridor, which was conducted based on the information obtained from the desk research conducted in this study and the field survey, are shown. Furthermore, due to the characteristics of South Africa's retail/distribution industry, it was confirmed that South Africa has a large amount of exports to other Sub-Saharan African countries. Therefore, the main corridor, the North-South Corridor, was also subjected to a field survey and a field survey on it. The survey results are also described in this chapter.

Northern Corridor

2.2.1. Background, Overview, and Development Vision of the Master Plan

The Northern Corridor stretches from Mombasa Port in Kenya, passing through Nairobi and Uganda, and leads to Rwanda and Burundi, or the Democratic Republic of Congo. The Corridor consists of multiple modes of transportation such as roads, railways, pipelines, and inland waterways, and is an important corridor for the East African logistics. While its importance is increasing, many bottlenecks still remain. One of the bottlenecks is the high transport cost, which prevents the development of the regional economy, especially for inland areas. Therefore, the corridor master plan on Logistics in Northern Economic Corridor was formulated with the target to be achieved by 2030. It includes comprehensive regional economic strategies consistent with national plans and regional plans of each country, supported by JICA. The support project was implemented from March 2015 to August 2016, and the report was finalized and released in March 2017.

[Source: Project for Master Plan on Logistics in Northern Economic Corridor, JICA] Figure 11 Future Image of the Northern Corridor Area Space Planning

The key concepts of the Northern Corridor Master Plan are as follows:

x Leading: to be the leading, most efficient and reliable corridor in Africa and the success of NEC can be disseminated to other African regions x Economic Corridor: that stimulates regional economic development in the area surrounding the corridor through the development of transport infrastructure and logistic facilities and creating industries x Integrated: to be an integrated transport and logistics system, which offers diversified and multimodal options (road, rail, waterway, and pipeline), facilitating regional integration in East Africa, and connects and promotes industrial areas

Their overall structure of the master plan is shown in the following figure.

[Source: Project for Master Plan on Logistics in Northern Economic Corridor, JICA] Figure 12 Structure of the Northern Corridor Distribution Network Development Master Plan

Under these key concepts, a development vision titled as: "To be the Leading Economic Corridor with Integrated Transport and Logistics Systems in Africa” is proposed. Based on the vision, three strategies are defined: regional strategy, industrial strategy, and transportation strategy. The main contents of those strategies are as follows:

Regional Strategy: Linking Production Center and Corridors

This strategy aims to improve the distribution network of agricultural products and mineral resources with added value, by improving the transportation infrastructure between major cities through trunk roads and developing secondary cities; as well as the development of distribution bases and the better connectivity between networks.

Table 5 Target of "Regional Strategy" and Specific Programs Target Specific Program Linking ¾ Strengthening urban functions combined with regional industrial systems agricultural x Achieve balanced growth and efficient logistics network in the Northern productive areas Economic Corridor Region through strengthening of the urban functions of 12 and mineral secondary cities resources through x The secondary city, which is the centre of the region, serves to provide urban development of services and logistic hub functions to the region, as well as linking the regional secondary cities production base to the metropolitan area. Linking with ¾ Main infrastructure contributing to consolidation: LAPSSET, Central x Inland water transportation on Lake Victoria Corridor, and x Ring road around Lake Victoria Kampala-Juba- x Connected infrastructure from Eldoret to LAPSSET Corridor Addis Ababa- x Corridor connecting Mombasa and Lamu Djibouti Corridor x Kampala-Juba (South Sudan)-Addis Ababa (Ethiopia)-Road improvement in the Djibouti Corridor and connection with the Northern Economic Corridor in both Kenya and Uganda

13 Major Suggested ¾ Urban and regional development projects in Kenya Projects for x Preparation of strategic urban development plans for metropolitan regions Regional Strategies x National land information management x Preparation and implementation of integrated land use framework and plan ¾ Urban and regional development proposal project in Uganda x Preparation of strategic urban development plans for regional cities x Preparation of strategic physical development plans for strategic cities x National Land Information Management x Preparation and implementation of integrated land use framework and plan ¾ Corridor linking project x Improvement of Lake Victoria Circular Road and Mt. Kilimanjaro foothill road x LAPSSET (The Lamu Port Southern Sudan-Ethiopia Transport) Corridor and the Kampala –Juba (South Sudan) – Addis Ababa (Ethiopia) - Djibouti Corridor should be upgraded and connected to NEC in both Kenya and Uganda [Source: Project for Master Plan on Logistics in Northern Economic Corridor, JICA]

Industrial Strategy: Effective and Efficient Logistical System for Industry and Trade

This strategy aims to promote industries that will be growth drivers to reduce trade deficits, and to support development of distribution infrastructure by promoting businesses with aligned focuses.

Table 6 Targets of "Industrial Strategy" and Specific Programs Target Specific Program ¾ 35 growth drivers have large potentials for: i) increasing the export to East African region or international market, ii) decreasing the import through expansion of domestic production, and iii) large contribution that adds value to the local economy x Expansion of export in Kenya: x Reduction of Import (Kenya): Rice Tea, Coffee, Cut Flower, x Reduction of Import (Uganda): Processed Fruits and Palm Oil, Rice, Petroleum Vegetables, Crude Oil, Niobium x Value Addition to Local Economy and Rare Earth Elements, (Kenya): Meat Production, Coal, Construction Materials (e.g., Natural Gas, Tourism, Logistic iron and steel, glass), Consumer Service Promotion of growth Goods (e.g., soaps and x Value Addition to Local Economy drivers to increase export, detergents, processed foods), (Uganda): Meat Production, Coal, reduce import, and Textile and Apparel Cement, Leather articles, Tourism, economic development x Expansion of export in Uganda: Logistic Service Coffee, Oil Seeds, Crude Oil, Phosphate, Other Minerals (e.g., gold, iron ore, wolfram, tin, tantalite, copper etc), Leather, Construction Materials (e.g., iron and steel), Consumer Goods (e.g., soaps and detergents, processed foods) ¾ Infrastructure development to support growth drivers (power, water supply, ICT, etc.) Connecting industrial ¾ Establishment of logistics hubs at standard gauge railway(SGR) stations, areas to logistic hubs in strategic cities, important industrial areas, etc; at least three in Kenya through Cargo Oriented and four in Uganda Development (COD)

14 Establishment of logistic ¾ Multi-modal function + distribution centre function as Inland Container hubs with ICD and Depot (ICD) Logistic Centre ¾ Agricultural development project in Kenya and Uganda Kenya Uganda x Agricultural financing x Agricultural union improvement commercialization support x Food processing hub x Irrigation Scheme Development development program project in Central and Eastern x Distribution improvement Uganda program of commercial crop x Fertilizer promotion x Fertilizer promotion x Superior seed production x Specialty coffee export enhancement projects for small promotion scale sesame farmers support x Tea brand development x Rice Production Promotion x Flower export promotion x Maize promotion support x Value chain of livestock x Specialty coffee export promotion development x Livestock processed products prom x Mwea Irrigation x Kalangala PPP ¾ Industrial Development Project in Kenya x SEZ development: Dongo Kundu SEZ, Naivasha Industrial Park, Athi River Industrial Park, Machacos-Kajiado Leather Industrial Park, Konza Tech City x Packaging industry development for food-processing Major Suggested Projects ¾ Industrial Development Project in Uganda for Industrial Strategies x Industrial park development: Bweyogerere Industrial Park in the suburbs of Kampala, Mbarara, Masaka, Mbare, Sorcti, Gulu, and Kasese x Building capacity of Standard, Metrology, Quality Infrastructure x Leather Industry Infrastructure Upgrading x Marketing hubs for DRC and South Sudan ¾ Industrial development proposal project in Kenya and Uganda x SME Financing for Processing, Manufacturing and Logistics Sector Development x Building up Competitiveness of Construction Materials and Machinery Industry ¾ Mineral and Oil Development Project in Kenya x Coal Transportation Infrastructure (railway main line-Kitui coal mine. F/S needed) x Expansion/Extension of Oil Product Pipeline (pipeline replacement, and expansion) ¾ Mineral and Oil Development Project in Uganda x Refinery and Oil Product Tailing Pipeline Construction (near Kampala, implemented through PPP) x Cross Border Product Oil Pipeline (extending to Kampala and Kigali) x Mineral Master Plan Creation Project ¾ Logistics Hub Project (Reprinting): Maintenance in Mombasa, Nairobi, Kisumu, Tororo, Kampala, Gulu, and Mbarara [Source: Project for Master Plan on Logistics in Northern Economic Corridor, JICA]

Transportation Strategy: Efficient and Integrated Multimodal Transportation System

In the transportation strategy, it is particularly noted that projects have been proposed to improve transportation capacity and safety by introducing multi-modal transportation and transportation systems.

15 2.2.2. Field Survey Results

Regarding Kenya, which occupies a major position in the Northern Corridor, the Standard Gauge Railway (SGR) has been in operation since 2018 and the government is now forced to transport rail traffic to Nairobi (due to the need to increase revenues from rail operations to repay its debt to the Chinese government). First of all, rail transit time itself from Mombasa and Nairobi is 6 to 8 hours, and it is faster than trucks. Loading times are set by the port and rail operators. Importers have access to the data and progress data related to the government common window and customs clearance when the cargo arrives at the Nairobi Inland Container Depot (ICD). If brokers and importers need to ship their cargoes by rail as soon as possible, they will need to negotiate with customs authorities and arrange for an operator to load the cargoes onto the shipping railroad at an earlier date. However, until the Nairobi ICD, the use of the bill of lading (TBL) system has enabled shipments to be prioritized, and cargo can now be loaded in one day, whereas in 2015 it took about two days to load a cargo. The customs clearance process takes about four days from the time the container enters the port until it is transported to the ICD in Nairobi (see figure below). Importers receive the cargo for up to four days after customs clearance, although there is no storage charge for up to four days. Most freight forwarders will also request the importer to send documents to the Kenya Ports Authority at least five days before the importer wishes to receive the cargo.

[Source: JICA Survey Team, based on interviews with local logistics and wholesale companies]

Figure 13 Railway Transport Process and Time in Kenya

Apart from the physical movement of goods, it is possible to implement customs procedures. The process of verifying and calculating the amount of duty takes about two to four days, and in particular, a lot of time is required to classify the goods and determine the amount of duty. After the payment of the duty, the process of declaring the import of the product begins. According to the weekly report from customs to the importers, less than 10% of the goods take more than 12 hours to clear, but within four hours at least one third to one half of all goods are approved. In other words, the physical movement of cargo and the customs clearance process are handled simultaneously. Refrigerated products cannot be transported by rail because the railways are not equipped with electrical plugs, and reefer containers are transported overland by truck or other means.

16 The time required for customs clearance procedures, from declaration to approval, is shown in the figure below. Note that the use of rail transport does not contribute to cost savings ($750/40' and $500/20') as it requires the payment of a set tax for its use ($750/40' and $500/20'). considering the cost of transport from ICD to the customer, trucking is still the preferred method of transport as it allows direct delivery from the port of Mombasa to the end customer. It is cost competitive.

[Source: JICA Survey Team, based on interviews with local logistics and wholesale companies] Figure 14 Customs Procedure Flow

Table 7 Customs clearance time from declaration to permit

Current Week Previous Week

(Jan 20 to Jan 26,2020) (Jan 13 to Jan 19, 2020) Duration in hrs Container units % Container units % 0-2 612 17% 412 11% 2-4 985 28% 906 24% 4-6 741 21% 866 23% 6-8 406 11% 571 15% 8-10 240 7% 373 10% 10-12 200 6% 252 7% 12-14 151 4% 150 4% 14-16 96 3% 79 2% 16-18 56 1.6% 40 1% 18-20 28 0.8% 19 0.5% Above 20 65 2% 34 1% 580 100% 3,702 100% [Source: Customs weekly performance report to importers]

17 For "transit transport" to Uganda, the SCT (Single Customs Territory) scheme will be launched in 2018 and can be utilized. Countries located in the Northern Corridor can initiate/terminate customs clearance from Mombasa through Nairobi ICD while the cargo is temporarily stored on the Kenyan side. After the clearance of the transit cargo has been completed at Nairobi ICD, transit clearance at the Malaba border, located between Kenya and Uganda, will require one to two days. It usually takes one to two days to complete the clearance process at the Malaba border. If re- verification/conformity inspection of imported goods in transit form is required, an additional day is required. In the latest study, customs clearance time has been reduced at Malaba Customs, located at the Uganda border, and new ICT technology has made the clearance time and process visible. Cargo is delivered to its final destination, and the logistical transport flow to Uganda is shown in the following figure.

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&DUJR .HQ\D %RUGHU 8QDJGD 0RYHPHQW 7UXFN7UDQVSRUWGD\V /RDGLQJ8QORDGLQJSURFHGXUHVGD\V 0DUDED ERUGHU 7UXFNUXFN 0RPEDVD 7UXFN DUULYDOʤ7UDQVLW 9HVVHO 7UDQVLW 7UDQVSRUW 3RUW 3URFHGXUHV 7UDQVSRUW 3URFHGXUHV $UULYDO ILQLVKHGʥ 1DLUREL ,&' $ERXWGD\ GD\ :LWKLQGD\ GD\ 7R.DPSDOD 5DLO7UDQVSRUWGD\V [Source: JICA Survey Team, based on interviews with local logistics companies] Figure 15 Image of transport to Uganda

Attach to container door as a GPS Device Customs monitoring room seal

[Source: Uganda revenue authority website] Figure 16 Pictures of Uganda Customs Sites

18 Nacala Corridor

2.3.1. Background, Overview, and Development Vision of the Master Plan

The project for Nacala Corridor Economic Development Strategies in the Republic of Mozambique (PEDEC- Nacala), proposes the vision for the future of the Nacala Corridor Region as “A peaceful, prosperous, equitable, and sustainable region free from poverty in harmony with the environment”. The four key values of “peace”, “prosperity”, “equality”, and “sustainability” are integrated into this phrase. The objective of PEDEC-Nacala is to “design a strategy for guiding appropriate development and investment” for the Nacala Corridor, and has set the following four goals: 1) To enhance social capacity and economic growth in the Nacala Corridor Region, 2) To effectively guide appropriate development in the Nacala Corridor Region, 3) To promote private investment in an appropriate manner in the Nacala Corridor Region, and 4) To appropriately manage resources of the Nacala Corridor Region4 . PEDEC-Nacala has formulated an 'Overall Development Strategy' that addresses short, medium and long term issues. It also formulates and proposes Key Development Strategies for regional development, which are implemented in parallel with the Overall Development Strategy in the short and medium term5.

Overall Development Strategy and Important Development Strategy

PEDEC-Nacala has formulated an “Overall Development Strategy” that addresses short-, medium-, and long- term issues. In addition, it formulates and proposes “important development strategies” for regional development that will be implemented in the short and medium terms in parallel with the overall development strategies.

Overall Development Strategy

PEDEC-Nacala set a development scenario in which the development of various industrial sectors are achieved based on the corridor network, covering inter regions. The expectation is to establish an integrated regional economy which covers not only Mozambique but also Malawi and eastern Zambia. This will be instituted through the development of a large corridor network, supplemented by a corridor of feeder lines (branch lines). The impact on the corridor is expected to be as follows: 1) Development of inland forestry and its processing industry (around Lichinga), as well as inland agriculture and its processing industry (around Cuamba), 2) Both large companies and SMEs to participate in the development opportunities, 3) Agricultural value chains to extend and improve across the Nacala Corridor Region, 4) Increased access to markets for small farmers, and 5) Reduced cost of daily necessities and construction materials. In the JICA survey team's view, with regard to the above development effect (4), the importance of expanding the market for agricultural products produced near the Nacala corridor in small farmers, increasing the possibility of direct sales to retail and wholesale businesses, and improving logistical access from the production areas to the main road for this purpose, in terms of expanding the value chain of the agricultural products and

4 Specific resources are expected to include agriculture, forestry, mining, natural gas, and agro-forestry processing 5 Africa corridor development and strategic master plan briefing materials,"The project for Nacala corridor - ecsonomic development strategies in the Republic of Mozambique(PEDEC-Nacala)", Oriental Consultants Global Co., Ltd, January 18th, 2017

19 food products targeted in this study, should be added.

[Source: Africa corridor development and strategic master plan briefing session materials: “The project for Nacala corridor - economic development strategies in the Republic of Mozambique (PEDEC-Nacala)”, Oriental Consultants Global Co., Ltd., January 18th, 2017] Figure 17 Patial Structure for the Nacala Corridor Region in 2035 (Long-Term Future)

To achieve this development scenario, PEDEC-Nacala has set the following seven general development strategies for the Nacala Corridor Region.

Table 8 Overall Development Strategy of Nacala Corridor Region Strategy Future direction Creation of Effective Creation of an effective region-wide transport and logistics system by ensuring Region-Wide Transport that key and Logistics Systems transport projects could come into operation, the railway could be used for general cargoes, containers and passengers, not limited to coal transport, and inter-modal cargo transshipment could be secured among sea transport, rail transport and road transport Strengthening the Strengthening the foundation of manufacturing sectors at major urban centers Foundation of in addition to commercial and logistics functions Manufacturing Sectors in Major Urban Centers Promotion of Promotion of agricultural development and other economic sectors Agriculture and Other development that are Economic Sector oriented toward non-mineral resources by implementing support measures in Development oriented addition to to Non-Mineral upgrading of the transport corridors Resources Strengthening of Strengthening of environmental management by capacity development for Environmental enforcement of Management and Land environmental regulations and monitoring of environmental management and Management by assuring

20 “Principles for Responsible Investment in Agriculture and Food System (rai Principles)” and Voluntary Guidelines on the Responsible Governance of Tenure (VGGT) of Land, Fisheries and Forests in the Context of National Food Security Strengthening of Strengthening of Human Resources Development by improving both basic Human Resources education and technical and vocational education and training (TVET) Development Coordination and Establishment of an institutional framework and implementation of capacity Promotion of Integrated development for coordinating and promoting integrated development Regional Development Seeking of Region- Coping with emerging social problems, socially vulnerable people, and Wide Inclusive geographically less accessible areas for promoting inclusive development Development widely in the region [Source: “The project for Nacala corridor - economic development strategies in the Republic of Mozambique (PEDEC- Nacala) Final report”, JICA, April 2015]

Important Development Strategy

Seven key development strategies consisting of three major strategies and four sub-strategies are set in the PEDEC-Nacala. Those strategies are supported by a series of measures.

[Source: Africa corridor development and strategic master plan briefing session materials: “The project for Nacala corridor - economic development strategies in the Republic of Mozambique (PEDEC-Nacala)”, Oriental Consultants Global Co., Ltd., January 18th, 2017] Figure 18 Africa Region Nacala Corridor-Important Strategy for Development

The following table shows specific actions in the three key development strategies.

21 Table 9 Key Important Development Strategies Strategy Specific actions I. ¾ Transport functions of major corridors (Nacara-Nampula-Nayutsi- Securing of the Multi- Nkaya-Moatize) will be secured by utilizing existing and planned Modal Transport Function transport projects: of the Nacala Corridor 1. Assuring Coal Railway Transport from Moatize to Nacala Port 2. Assuring Non-Coal Railway Transport for the Nacala Corridor 3. Port-Road Integration in Nacala Bay Area 4. Securing the Upgraded Road Function of the Nacala Corridor II. ¾ Establish a manufacturing base and promote the manufacturing sector Development of the in the Nacala Bay area, Nampula metropolitan area, and Palma: Foundation for Economic 1. Development of the foundation (investment promotion, roads, Development in Nacala electricity distribution and water supply, along with other urban Bay Area, Greater infrastructure and services) for manufacturing sectors in Nacala Nampula, bay area, greater Nampula, and Palma and Palma 2. Water resource development and urban water supply for Nacala bay area, greater Nampula, and Palma III. ¾ Starting from the area around the main corridor between Nacala, Sustainable agriculture Nampula, Cuamba, Mandimba, and Ricinga: development by 1. Effective use of the private sector’s vitality and funds for assisting promoting development small-scale farmers of small-scale farmers ͌ To increase agricultural production and its diversification, and and effective utilization improvement of productivity of the private sectors ͌ To establish supply chains for agricultural products and to generate added value ͌ To develop a social infrastructure to assist community improvement ͌ To realize appropriate private investment applying “Principles for Responsible Investment in Agriculture and Food System (rai Principles)” and Voluntary Guidelines on the Responsible ͌ Governance of Tenure (VGGT) of Land, Fisheries, and Forests in the Context of National Food Security [Source: “The project for Nacala corridor - economic development strategies in the Republic of Mozambique (PEDEC- Nacala) Final report”, JICA, April 2015]

Table 10 Sub-strategies Supporting the Realization of the Three Major Key Development Strategies (I - III) Strategy Specific actions IV. ¾ Start with the strengthening of implementation systems and Strengthening of capacity development for environmental management and Implementation System and land/forest management: Capacity for Environmental 1. Strengthening of Implementation System for Environmental Management and Land Management including Environment Monitoring Management 2. Capacity Development for Appropriate Operation of DUAT (Direito do Uso e Aproveitamento da Terra) System (Right of land use) in accordance with Land/Forest Management Policies V. ¾ Start with the strengthening of basic education Strengthening of Basic 1. Improving the quality of basic education Education and Industrial 2. Development of technical education and vocational training Human Resources facilities Development VI. ¾ Start with the establishment and capacity building of a new Establishment and Capacity organization specifically designed to coordinate and promote Development of an integrated development

22 Institutional Framework for 1. Establishment of an institutional framework for promoting and Coordinating and coordinating integrated development in the Nacala corridor Promoting Integrated region Regional Development 2. Capacity development of the special organization for promoting and coordinating integrated development in the Nacala corridor region VII. Start with implementing measures for emerging social and Taking Care of Emerging environmental issues and vulnerable groups or people in remote areas. Social Problems, Vulnerable 1. Measures for emerging social problems, establishment of places People, and Less Accessible for dialogue with vulnerable groups and people in remote areas Areas [Source: “The project for Nacala corridor - economic development strategies in the Republic of Mozambique (PEDEC- Nacala) Final report”, JICA, April 2015]

2.3.2. Field Survey Results

The purpose of this section is to understand the reality of the most recent Nacala Corridor through the results of interviews and desk research with several logistics companies in Zambia or Mozambique that have actually imported and exported cargoes to Mozambique, Malawi and the DRC. Although JICA is developing the Nacala Corridor, it is currently not used as a gateway to Zambia and Malawi, a landlocked country, as the physical road infrastructure is fragile as a general transportation route for agricultural and food products compared to the Northern Corridor and the North-South Corridor. The Port of Nacala does not possess sufficient cargo handling capacity for containerized goods, making it difficult for the Nacala corridor to develop into a major corridor. The fact that the port can only handle a small volume of cargo on a daily basis is one of the factors that hinder the development of the Nacala Corridor.JICA has been promoting Nacala corridor development, it is not currently regarded as the most popular African Entering Zambia, North South corridor or Beira corridor are the considered the main corridor. Unfortunately, the Nacala port does not record sufficient cargo handling performance for containerized goods. This makes it difficult for Nacala corridor to develop into Africa’s main corridor. Poor port handling volume being one of the reasons hampering Nacala corridor’s development.

Table 11 Container throughput Nacala port and competitor

Port Container Throughput Durban 2,960,000TEU (2018) Beira 400,000 TEU (Project facility) Nacala 77,775TEU(2017) [Source: Durban(https://www.iol.co.za/ios/news/durban-harbour-container-volumes-up-almost- 10-19986130), Beira :Port statistics(https://africaports.co.za/beira/), Nacalla JICA(2018)]

According to statistics from Mozambique's road authorities, traffic volumes in the Nacala/Nampula road zone are gradually increasing as a result of road infrastructure development. However, the annual average daily traffic

23 volume6 of heavy vehicles is significantly lower than in the northern corridor. The reasons are the physical weaknesses of the road infrastructure, such as the fact that many roads are not paved, the road widths are narrow and some of the main roads are narrow at the level of branch lines, and the roads cannot be passed through during the rainy season due to lack of protection against flooding. In addition, given the narrowness of the road's road width and the paucity of lanes, the volume of cargo that the road can handle on a daily basis is also limited. If the modern situation persists, it will be difficult to utilize the road as an import and export route to inland countries such as Zambia and Malawi.

[Source: JICA Survey Team] Figure 19 Overview of Nacala Corridor

[Source: “Data Collection Survey on Impact Measurement of Corridors”(JICA 2019)]

6 Average daily traffic volume per year divided by the number of days

24 Figure 20 Nacala corridor traffic volume

Kenya/Uganda area

Nairobi area (busiest point at Northern corridor)

[Source: JICA Survey Team, based on interviews with logistics companies in Kenya and Uganda] Figure 21 Average annual daily traffic of heavy vehicles in major cities in the Northern Corridor and Nakara Corridor

As shown in the figure above, the heaviest heavy vehicle traffic in the Nacala corridor is in Nampula. Even that Nampula has less than half the traffic of Nairobi in Kenya and Wabyue in the Kenya-Uganda border area. In the Nacala corridor, most of the trucking in the Nacala corridor is done by road, and according to data obtained during the field survey (data entered by two logistics companies on estimated transport times from Nacala to Lusaka by truck operators), the road infrastructure in the Nacala-Nampula corridor is much better than in the North-South corridor, where roads are It is considered to be in an inferior condition, judging from the fact that it is flooded, and that even the main roads are narrow and wide, like branch roads, etc. Beyond Nampula, Mozambique's road infrastructure is even lower than the standard. According to the table below, the "places marked in red" have inadequate road infrastructure and high risk for heavy truck passage. It was observed that it is very difficult to make use of these roads, especially during the rainy season. Compared to the Mozambique side of the border, the roads in Malawi River and Zambia were reported to have improved somewhat. It was also informed that about one day was required for customs clearance when crossing the border.study team obtained 2 logistical companies’ inputs for estimated transit time from Nacala to Lusaka by truck operators. One data source is the same company interviewed for information on the North-South corridor. Hence, JICA survey team asked the data source to calculate transit time while considering North-South corridor as a benchmark.

25 Table 12 Transit time (Based on the inteviews with Company A)

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1DFDODFRUULGRUIURP1DNDOD/XVDND 1DFDOD!1DPSXOD KRXUV 1$ 1DPSXOD!1DPLQD1DPSXOD!PRFXED KRXUV 1$ 1DPLQD!/DSHO /DSHO!0XWXDLO 0XWXDLO!&XDQED &XDQED!0LODQJH0XOR]D0RFXED!0LODQJH0XOR]D KRXUV 1$ VHFRQGDU\URDGV 0LODQJH0XOR]DERUGHU 1$ KRXUV 1$ 0LODQJH0XOR]D!%ODQW\UH KRXUV 1$ %ODQW\UH!/LORQJZH KRXUV 1$ /LORQJZH!&KLSDWD KRXUV Q$ &KLSDWDERUGHU 1$ KRXUV 1$ &KLSDWD!/XVDND KRXUV 1$ Note: Place names in red in the table above indicate areas where the road infrastructure is inadequate for heavy truck passage [Source: JICA Survey Team, based on interview with local logistics company A)]

The second source and local logistics operator indicated that border crossing time is not necessarily long if you handle/move commodities over the border. Customs clearance is considered seamless for these products.

Table 13 Transit time (Based on the interviews with Company B)

5RDG&RQGLWLRQ &KDOOHQJHV 7UDQVLW7LPH %RUGHU7LPH 5287( RXWRI H[SHULHQFHGRQWKLV LQKRXUV LQKRXUV YHU\EDG URXWHDWWKLVERUGHU 1DFDODFRUULGRUIURP1DNDOD/XVDND 1DFDOD!1DPSXOD 1DPSXOD!1DPLQD 1DPLQD!/DSHO /DSHO!0XWXDLO ODQHV 0XWXDLO!&XDQED &XDQED!0LODQJH0XOR]D 0LODQJH0XOR]DERUGHU 0R]DPELTXH0DODZL 0LODQJH0XOR]D!%ODQW\UH %ODQW\UH!/LORQJZH /LORQJZH!&KLSDWD &KLSDWDERUGHU 0DODZL=DPELD &KLSDWD!/XVDND +LOO\ 7DNHVGD\VIURP1DFD [Source: JICA Survey Team, based on interview with local logistics company B)]

In relation to the above findings, the strategy "I. Strengthening Multimodal Transportation Capabilities in the Nacala Corridor" listed in the Key Development Strategy for the Nacala Corridor includes the following specific actions: "Leverage existing and planned transportation projects to secure transportation capabilities in the main corridor (Nacala to Moatize) It is stated that "we will The action plan specifies specific action plans to "ensure the transportation of railways other than coal in the Nakara Corridor" and "ensure the functioning of repaired roads in the Nakara Corridor"; however, since it was confirmed that these have not yet been fully implemented when compared with the results of the field survey, these actions should be implemented in the medium to long term. It is considered to be a plan.

26 West Africa Growth Ring

2.4.1. Background, Overview, and Development Vision of the Master Plan

The economies of the West Africa Growth Ring Corridor (WAGRIC) countries consists of Burkina Faso, Côte d’Ivoire, Ghana, and Togo. These countries primary contributes to the export of mineral resources and agricultural products to the countries outside this region. Since 2000, the economic growth has been accelerated due to the soaring price of mineral resources and agricultural products worldwide, which resulted in the production volume to increase as well. However, while the WAGRIC countries have enjoyed economic growth in the 2000’s, Côte d’Ivoire and Ghana are still classified as lower middle income countries, and Burkina Faso and Togo remain low-income countries. In addition, the economy highly relies on the export of mineral resources which contributes to the wide income gaps. Furthermore the poverty rate in each country still remains significantly high.

Although the economic growth in the WAGRIC countries continue, there are some sustainability issues to ensure growth for the future. The share of the two major export industries, mineral resource and traditional agricultural products, accounts for the majority of GDP. Although some agricultural products are exported, the countries cannot provide citizens with enough food and products without importing from foreign countries. Moreover, as light industries and food processing industries are not fully developed, countries rely on imported commodities to sustain the economy. In addition, there is also the concern that the rapid population growth in rural areas might result in an increase in the poverty rate. Furthermore, immigration of economically disadvantaged people from rural areas to urban areas might result in the population increase of the poor in urban cities.

Essential Strategy Group 1: Development of Economic Sectors

Essential Strategy No.1: “ Fostering of Various Growth Economic Sectors” that Contribute to Region-Wide Development In addition to the existing priority industries such as mineral resources and agricultural products, the industries which target the demand for inland- and coastal areas should be fostered respectively. In order to promote the regional-oriented industry, it is necessary to compete with imported products from outside the region. Therefore, the WAGRIC Master Plan identifies the strategies of “Essential Strategy No.2” and “Essential Strategy No.3” below, and the industrial development measures to create value chains for each industry are shown in the table below.

Table 14 Measures and Programs for Industrial Value Chain Development Measures Programs Important measures for x Breed improvement of rice varieties increasing rice production x Dissemination of necessary production technology x Provision of rice mills and rice storage facilities by private sector x Fostering of private rice distributors Important measures for x Increasing of production of maize for poultry feeds fostering poultry industries x Fostering of poultry feeds producers Important measures for x Expanding the factory production of feeds for aquaculture

27 productivity improvement x Fostering aquaculture trading in the sub-region (system of custom and production scale union) expansion of inland aquaculture Important measures for x Breed improvement increasing production and x Promote as main production area expansion of sub-regional x Branding sales market for fresh x Establishment of transportation technologies for conserved vegetables and fresh fruits products x Construction of parts of the north-south motorways, construction of bypass roads and widening of roads to high-standard four-lane roads (long term) x Simplify border crossing procedures for sub-regional products Important measures for x To develop distribution linkage between agricultural producers in farmers in inland inland areas and inland country with large scale distributors areas/inland countries to enhance access to coastal markets Important measures for x To prevent communicable disease of livestock from spreading sustainable development of x To distribute livestock hygienically extensive distribution of live x To modernization of transport means for livestock cattle and livestock x To resolve conflicts between transhumant cattle raisers and farmers Important measures for x Expand and upgrade industrial areas with necessary basic development of processed infrastructure food and drinks for middle x Supporting to accession of provenance certificate income population, increase x Strengthening of implementation of the customs union of their production and strengthen competitiveness against imported goods [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

Essential Strategy No.2: " Investment Promotion for Growth Economic Sectors” by Taking Advantage of Integration and Expansion of Sub-Regional Markets

This strategy strengthens and focuses on the “regional consumer market industry” to promote investment as essential strategy No.1. In order to compete with goods imported from foreign countries, it is essential to gain their support. Hence, investment on the target industries from inside and outside the regional countries are required. However, it is assumed that the population and economic size of the WAGRIC countries might be an issue and less attractive for investments.

Table 15 Specific Policy of Essential Strategy No.2 Measure Impacts of investment promotion by measure Investment Strategy x Accelerate investment promotion by paying attention to growing opportunities of exporting neighboring countries (sub-regional markets) in addition to the industries for the domestic market and the overseas market Strengthen Customs Union x Bringing in investment reducing cost of raw material import from neighbouring countries by exempted taxes Follow-up of post Investment x Monitoring and support for companies that have advanced by investment [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

28 Essential Strategy No.3: “Development of Basic Infrastructure for Economic Sectors” to Support the Development of Growth Economic Sectors in both Inland and Coastal Areas

The development of infrastructure that connects the inland- and coastal areas, and the adjacent countries in the coastal area is necessary and critical for the future growth of this region. As a result, the development of industries by connecting the inland and markets in the coastal area is required. This strategy aims to develop other essential infrastructures such as energy, electricity, access roads, water resources, and industrial estates that can support the development of each growing industry respectively.

Table 16 Development Projects Required by Essential Strategy No.3 Measure Impacts of investment promotion by measure Development of Energy and x Infrastructure development to support sustainable exploitation Electricity Supply Sector and development of Côte d'Ivoire and Ghana (gas pipeline) Infrastructure which is x Strengthening power connections among the WAGRIC countries Fundamental and with the countries surrounding for all Economic Sectors x Enhancement of natural gas and hydropower generation in Ghana and Côte d’Ivoire x Augmented power generation using natural resources in Burkina Faso and Togo Road Development for x Road improvement in the vertical (east-west) direction for Improving Access to access from the north-south corridor road to the surrounding Potential Agricultural Areas agricultural potential area (inland of coastal country, rural areas in the Inland of inland country) Water Resources x Develop water resources facilities and irrigation facilities to Development and promote agriculture in inland area of coastal countries and rural Development of Irrigation area of an inland country Facilities for Agricultural Development in Inland Areas Water Resources x Water resource development and expansion of water supply Development and Water infrastructure to meet the increased water demand through the Supply Necessary for Urban expansion of economic activities including population and Development in industrial development in regional core cities Inland Areas and Coastal Areas Development of Industrial x In order to promote manufacturing for the regional market, Parks with Basic develop industrial parks with access to power, and water tower Infrastructure for Economic industrial infrastructure around the metropolitan area of the Sectors in Inland regional core cities in the inland area and the Abidjan Lagos Areas and Coastal Areas Corridor in the coastal area [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

Essential Strategy Group 2: Expansion of the Size of Coastal Market

Currently, the amount of trade among the WAGRIC countries is small, and the region’s economic integration is limited. On the other hand, there is potential to integrate the economy and the market by improving the customs union and the development of transportation infrastructure amongst these countries. In addition, it is possible to attract investment in the industries which targets the expansion of markets in the coastal area. The purpose of the essential strategy group 2 is to expand the size of the market in the coastal areas and consists of the following two respective strategies.

29 (4) Essential Strategy No.4: ”Strengthening of Implementation of the Customs Union” and “Facilitation of Sub-Regional Trade” on National Borders, Sea Ports and Transport Corridors among the WAGRIC Countries

In order to promote intra-regional economic integration, expand intra-regional market, revitalize intra- regional trading, and promote investment in growth industries, this strategy focuses on the improvement of the customs union in the WAGRIC countries and addresses potential harassments at custom points.

Table 17 Concrete Implementation Measures for Regional Economic Integration Concrete implementation measures Implementation of manual preparation and training for "zero tariff on regional products" Practice campaign of “Zero Tariff for Local Product” with West African Economic and Monetary Union (UEMOA) and the Economic Community of West African States (ECOWAS) Strengthen enforcement of harassment control at borders, ports, and corridors [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

(5) Essential Strategy No.5: Strategic Upgrading of Abidjan-Lagos Corridor Transport Infrastructure (Super-Mega Economic Corridor)

In order to enhance the spatial connectivity, the Coastal Corridor Expressway will be developed to integrate cross-border markets. Moreover, the integrated and expanded market is expected to attract investment and industrial activities for targeting the demand in the WAGRIC countries. Specifically, the 1,000 km of the coastal areas between Abidjan and Lagos will be connected by highways, including other metropolitan areas such as Accra, medium-sized cities such as Sekondi-Takoradi, Lomé, Cotonou, and other small cities. In addition to basic infrastructure such as electricity, water and ICT (Information and Communication Technologies) in areas along highways and other existing trunk road networks, other important infrastructure such as international airports, airport cities and international ports are also being developed for the creation of a large industrial corridor.

Table 18 Gulf Cities Reachable within 12 hours from Abidjan (2040) Within 12hours Market population If the Abidjan-Lagos Expressway is NOT Abidjan-Accra 23 Million improved If the Abidjan-Lagos Expressway is improved Abidjan-Lagos 65 Million [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

Essential Strategy Group 3

It consists of two separate essential strategies that are aimed at enhancing the coastal market and inland connectivity. The connection between the coastal area and the inland area is important for promoting and growing industry these respected regions.

(6) Essential Strategy No.6: Strategic Upgrading of for Establishment of Efficient and Region-Wide

30 Cargo Transport Networks (Railways, Multi-Modal Dry Ports, Inland Water Transport and Pipelines) for Reducing Transport Costs

In order to foster industries for the regional consumer demands of both coastal and inland countries, it is important to develop a streamlined long-distance freight transportation between inland countries and coastal areas and reduce costs for transport.

Table 19 Development Policy for Long Distance Freight Transport Infrastructure

Target Development policy and approach WAGRIC x Expanded service range through combined rail and truck transport. In addition, strengthening of truck overload regulations.. x Development of a railway line connecting the coast and inland areas (possibility of Ghana or Togo). Competition with other means of transport results in reducing costs of transport. x Practical use of water transportation via Lake Volta (from Tema Port to Inland of Burkina Faso) x The railway development will be promoted by the private sector, taking advantage of mineral resource development also being promoted by them. x Establishment and operation of an international railway maintenance committee (Study on policy for joint transportation maintenance of railway and Tonlac through maintenance of multimodal and dry port, promotion of implementation, railway development between Ouagadougou and Lomé, Abidjan-Ouagadougou-Niamey- Cotonoulou railway maintenance, and Ouagadougou-Paga-Accra-Tema Railway) Côte d’Ivoire x Development of multimodal dry ports in Abidjan urban area and inland Falkesedugu and Burkina x Establish a multimodal dry port at Ouagadougou and use Bobojulasso's existing Faso multimodal dry port to strengthen combined rail and truck transport Ghana x In order to strengthen the connectivity in the north-south direction, a multimodal transportation system will be constructed which consists of three parts: 1) a new railway between Tema port and Akosombo port at lake Volta, 2) inland water transport at lake Volta, and 3) an oil pipeline between Buipe and Bolgatanga. x Rehabilitate Tema- Accra-Boan Kura-Kumasi Railway East Line (Short-term), and development of a new railway line between Kumasi and Paga (Medium- and long- term) x New Railway construction incorporating private sector initiatives for mineral resource development Togo x Railway development between Lomé and Britta (short term) x Railway development between Britta and Kaboo (middle term) x Railway development between Kaboo and Shinkase (long term) [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

(7) Essential Strategy No.7: Strategic Upgrading of Transport Corridor Infrastructure by Emphasizing the Importance of High Speed Transport and Services for Investment Promotion for Inland Areas (Motorways, High-Standard 4-Lane Roads, Air Transport and ICT)

To accelerate the movement of "people, goods and information" between major cities in the coastal and the inland area, the strategy propose to construct selected parts of motorways, high standard 4-lane roads, strengthening of domestic and sub-regional air transport and strengthening of ICT network.

31 Table 20 Implementation Strategy of Each Sector Sector Implementation strategy Road Development of the North-South Corridor Expressway and 4-lane high- standard road x Construction of expressways and 4-lane high-standard roads x Strengthen existing major North-South Corridor Road Infrastructure x Reconstruction of Deteriorated Bridges on the North-South Corridor Road x Improving the pavement of the north-south corridor road x Development of urban bypasses and ring roads located in the north- south corridor x Widening of major roads in the city located in the North-South Corridor x Improvement (flyover maintenance) of major intersections located in the north-south corridor Confirmation and implementation of international expressway network and 4-lane high-standard road maintenance program in the WAGRIC countries Aviation Strengthening domestic and sub-regional aviation: short-term maintenance is difficult, but it is necessary to increase the frequency gradually ICT Internet use and infrastructure development: important components of the speed-oriented corridor infrastructure in the critical infrastructure industry ͌Establishment of data centers in capitals of each country ͌Optical fiber network reinforcement ͌A public internet kiosk is installed in a small city inland ͌Development of ICT human resources [Source: “The Project on the Corridor Development for West Africa Growth Ring Master Plan”, JICA, March 2018]

Essential Strategy Group 4

In order to achieve the future vision of the region, it consists of three individual strategies that include social, environmental, and security objectives.

(8) Essential Strategy No.8: Supporting of Small and Medium Enterprises, Development of Human Resources for Economic Sectors and Strengthening of Basic Social Services in order to Enable More People to Participate in Emerging Development Opportunities due to Sub-Regional Corridor Development

In order to enable people to participate in corridor development opportunities, the enhancement of basic education and health services in the corridor countries is inevitable, including the development of human resources skills, especially in inland countries and inland areas of coastal countries.

(9) Essential Strategy No.9: Development of Systems and Activities of Environmental Management that could Respond to Potential Risks to the Natural and Social Environments Increasing across Wide Areas due to Sub-Regional Corridor Development

Increasing negative impacts on the environment and society might be as a result of industrial development activities. Therefore, it is necessary to develop a legal system focusing on environmental management, whilst establish organizations to improve on technical capabilities for coping with these issues.

(10) Essential Strategy No.10: Strengthening of Security Measures for Maintaining Safe and Secure

32 Societies and Sustainable Economies in the Sub-Region Precautionary activities against terrorism that threatens the security and stability of local communities and economies are necessary.

2.4.2. Field Survey Results

At this time. no particular field survey was conducted on the West Africa Growth Ring.

North-South Corridor

In this section, North-South corridor will be taken into consideration due to the large export volume of agricultural products and foods from South Africa to other Sub-Saharan African countries. North-South Corridor is one of Africa's longest and busiest transit corridors, linking South Africa and the Congo DRC, and is considered the most important corridor in Africa. Therefore, the focus here is on food transport and distribution routes from South Africa to other Southern and Eastern African regions. Many South African retailers supply agricultural and food products to other African countries through this corridor. We also confirmed that one retailer is using the corridor to export to nearby counties. Improvement of the corridor is considered to be very important for regional development.

[Source: JICA Survey Team] Note: Blue: Beit bridge-Chirundu route (main route), Grey: Kazungla route (new route) Figure 22 North-South corridor Overview

33 2.5.1. Background, Overview, and Development Vision of the Master Plan

North-south corridor is conceived by a development advisory organization called "African Union Development Agency (AUDA)-NEPAD", which is a plan for development advisory organization. It is defined as "transcontinental interconnection of multimodals (roads, railroads, ports)," which ultimately connects Cape Town in the south with Cairo in the north. A number of hard and soft maintenance projects are currently underway, but South Africa has led the Baitbridge Border Post project as part of the North-South Corridor7.

2.5.2. Field Survey Results (a) Field Servey Overview

According to the interview survey, the Study team captured data from two routes, namely Durban to Lusaka through the Beitbridge and Chirundu border (indicated in blue in the figure above), as well as Durban to Lusaka via the Kazungla route (indicated in grey in the figure above). Although Chirundu route is regarded as the main route, the congestion on this route has been so significant that the route has become an alternative route for many companies. Kazanungula bridge is under construction and hope to be completed in the near future according to JICA Zambia office. The time constraint is currently due to the waiting ferry. In addition, OSBP (“One Stop Border Post”) is also planned. In this context, North-South corridor is expected to have an effective alternative route in addition to Beit bridge/Chirundu route.

7 AUDA-NEPAD Website(https://www.nepad.org/north-south-corridor-roadrail-project㸧

34 Table 21 North-South corridor transit time

5RDG&RQGLWLRQRXWRI 7UDQVLW7LPH %RUGHU7LPH &KDOOHQJHVH[SHULHQFHG 5287( YHU\EDG ,QKRXUV ,QKRXUV RQWKLV H[FHOOHQW

1RUWK6RXWK&RUULGRUIURP'XUEDQ/XVDNDYLD&KLUXQGX 1'%1-+*KHDY\ WUDIILF 'XUEDQ!*DXWHQJ KRXUV 1$ KLJKDFFLGHQWULVN 9DQHHQHQ3DVV &URVVLQJ*DXWHQJ *DWHQJ!%HLWEULGJH KRXV 1$ %RUGHURIWHQFRQJHVWHG %HWEULGJHERUGHU 1$ KRXUV 1$ FDXVLQJGHOD\V 5RDGLVQDUURZDQGKDV %HLWEULGJH!+DUDUH KRXUV 1$ KHDY\WUDIILF +DUDUH!&KLUXQGX KRXUV 1$ &KLUXQGXKLOOVFDQEH &KLUXQGXERUGHU 1$ KRXUV 1$ GDQJHURXVDQGVORZ &KLUXQGX!/XVDND

1RUWK6RXWK&RUULGRUIURP'XUEDQ/XVDNDYLD.D]XQJXOD

1'%1-+*KHDY\ WUDIILF 'XUEDQ!*DXWHQJ KRXUV 1$ KLJKDFFLGHQWULVN 9DQHHQHQ3DVV &URVVLQJ*DXWHQJ *DXWHQJ!0DUWLQ V'ULIW KRXUV 1$ 0DUWLQ V'ULIW!)UDQFLVWRWRZQ KRXUV 1$ )UDQFLVWRWRZQ!.DVDQH.D]XQJOD KRXUV 1$ &DQEHFRQMHVWHGLIIHUU\ &URVVLQJ.D]DQH.D]XQJXOD 1$ KRXUV 1$ GRZQ 5HVWULFWLRQQRGULYLQJ .D]XQJXOD!/XVDND KRXUV 1$ EHWZHHQ [Source:JICA Survey Team, based on interviews with logistics companies in Zambia]

According to the above table, the road condition is seen as in a relatively good condition. Crossing the border is a tedious process and takes time – at least 1-2 days. Even though the free trade or regional trade facilitation agreement between the countries guarantees a speedy border crossing, the estimated time taken for border procedures is about half of the total transit time. This clearly indicates that crossing the border represents the largest portion of total transit time. Although OSBP (“One Stop Border Post”) programs have been implemented, the border crossing time still takes time. Table 22 Constraints for border crossing

Tangible Intangible - Limited number of lanes when crossing - Many customs systems/software failures, often not the border functioning - Only small parking spaces should exist. - That the border is only open for a limited number of

35 - Narrow roads near the border. hours (only open for 12 hours (6 a.m. to 6 p.m.) - Lack of quarantine machines in X-rays - Trucks that fail to clear customs within the above and frequent breakdowns time frame will be forced to spend an additional 12 hours in order to clear customs. - Whatt the pre-clearance system practically doesn't work at all. - Many related organizations are involved in the quarantine process and the procedures are complicated - High inspection frequency and high inspection rate, such as inspection by product at the customs clearance - Limited processing capacity for customs clearance of "transit shipments" to other countries inland (import clearance to Zambia is easier by comparison) [Source: JICA Survey Team]

These overarching factors cause critical delays while crossing the border. A Zambian retail operator pointed out that Lusaka's customs office has fewer specialized and targeted personnel than the one at the Chilundo border. In addition, although advanced customs systems are employed at the Chilundo border, such as having an electronic clearance system, the reality is that the communication infrastructure is weak and many specialists are not familiar with the system/software, which often results in increased manual inspections and the need for secular decisions and additional procedures.

(b) Beit bridge border

When a product is transported from South Africa to Zambia, it passes through the route from Durban (or Johannesburg) to Lusaka. In that case, a trucking permit is first required to transport the product in "transit" (i.e., transporting the product as a foreign shipment, since the final destination is Zambia) at Beitbridge. Transit transportation" does not require payment of duty (instead, a bonded procedure is required), so customs clearance is easier than under the normal import scheme. However, it was mentioned by logistics operators that even with the above "transit transport" declaration procedure, there is a complex process in place. Examples of transit transport transit time delays are as follows.

x While the declaration process for "transit transport" is a bonded procedure and therefore does not require payment of duty, and should be easier than the normal process of importing into Zimbabwe (which takes a certain amount of time as there is a robust duty assessment and delivery procedure in place for duty payment), it is not always easy, as even in the case of transit transport, provisional duty security may be required x Bond registration / bond withdrawal procedures are required x Single lane at border crossing (no dedicated transit lanes when crossing the border)

According to Zambia customs (Revenue authority)and the 2017 TRS (Time release survey) it takes on average 16 hours to cross the Chirundu border. The constraints are pointed out as following;

Table 23 Constraints for border crossing

a) Lack of system interface between the Zambia Revenue Authority (ZRA) and Zimbabwe Revenue Authority(ZIMRA) Customs systems. b) The check-in gate on Zimbabwe side is not properly located as it is on a hill where loaded trucks have problems to move if the stopped for checking. c) Insufficient paved parking space d) Existing paved spaces on the Zambian side have worn out and created potholes which make it difficult for some trucks to navigate in the border area. e) Poor lighting in the common control zone on both sides of the border posing a security risk to property and officers. f) There is no lighting at the bridge. With discussions to move to 24 hours operations of the OSBP, lighting will be required. g) The Scanner system and the “ASYCUDA World system8” are not linked. h) There is no FAST Lane on the Zimbabwean side of the OSBP affecting the application of Authorized Economic Operators(AEO) concept i) No adequate inspection bays and shelters at the Zambian Passenger terminal for clearance of passengers. j) Limited WIFI connectivity within the Common Control Zone(CCZ) affecting outfield processes such as inspection reports submission, and online gate operations. k) Most of the staff not trained in OSBP concept. l) Need for awareness and sensitization of the newly enacted Border Management and Trade Facilitation(BMTF) Act of 2018 m) Need for cold room facilities for holding perishable goods. Currently there is a cold room at Chirundu customs warehouse but its non-functional. n) Lack of Physical inspection equipment to aid quick clearance of goods. [Source: TRS((Time Release Survey)(2017)] Note: Totally, it is the serious problem for retiralers who handles fresh/chilled products.

Another source points out the time consuming situation at Chirundu border as the following:

8 Customs data automation system recommended by UNCTAD. An integrated customs control system for trade and transport operations in an automated environment is designed and developed to comply with international standards in performing procedures related to imports, exports and transport.

37 Table 24 Interview survey results of Chirundu border delay

Reason for delay Number of times mentioned Staff shortage and inadequate inspection bay 9 System failure 6 Multiple Inspection 2 Too many manual documents 11 Slow and tardy agent 2 Delay remitting duties 5 Inadequate infrastructure 3 [Source: “Border Economies” Geo Africa discussion paper Nov.2018]

The below table indicates the average waiting time for each product code at the Chirundu border. Refrigerated perishable goods or pre-clearance cargo are prioritized through the border, however, it still takes between 0.5 to 8 hours to cross the border with these goods.

Table 25 Border waiting time by product type

Products code Example Waiting time Green line Refrigerated perishable products, empty trucks, fuel tankers 0.5-8hours Blue Any products: importers have direct account to Zambia customs 2-24 hours or pre-cleared cargo Yellow Non-containerized cargo 8-36/72hours Red Bulk containerized cargo that are not non-perishable 8-48/168hours [Source: “Border Economies” Geo Africa discussion paper Nov.2018]

One of the major challenges in customs clearance is that there is a large difference in border crossing times for different products. This makes it difficult for importers to predict the average border crossing time. As a result, importers are forced to either set longer than expected "border/crossing" times or take the risk of importing expired goods into the country. This is a serious problem for both exporters and importers of perishable food and products with short shelf lives.

(d) Other Findings in the North-South Corrido

The Sub-Saharan African Transport Policy Programme (SSATP) has conducted a survey to physically track truck movements by GPS, which shows that border crossing times can vary widely even at the same border.

[Source: SSATP (Sub-Saharan African Transport Policy Programme)] Figure 23 Border crossing time variance

SSATP does not analyze the commodity-based border crossing time but it does point out that the required time varies for different vehicle types.

x Revise if verification is necessary or not x Inspection is necessary not only for customs but also other related agencies x Transit or not (normal import) x If uty payment is required or not

Another source (FESARTA) indicated the following challenges at the borders for both routes.

Table 26 Constraints FESTRA pointed out in border

Border Constrain Beit bridge There are continual delays at this border post of up 3-4 days at times, currently the new border post on the Zimbabwean side is under construction and parking space for trucks has been reduced. This is further complicated by the influx of maize consignments into Zimbabwe and onward transit to other destinations under the World Food Programme. These loads are given priority passage through the border and coupled with Zimbabwean customs to weigh and scan all trucks, as well as electronic sealing of the transit loads causing significant congestion and delays the release of trucks from the border. Chirundu Chirundu was the first OSBP in Africa opened in December 2009. That was supposed to improve the border post efficiency and improve the border

39 crossing times significantly. However, this has not materialized due to the continual transferring and movement of Customs Officers and a lack of capacity building on OSBP procedures has resulted in the procedures being adopted reverting back to the two-stop or legacy border post systems. Coupled with inability of Customs to manage the border post effectively and control and prioritize traffic flows has turned this border post into a chaotic nob-functional border post with queues of trucks developing up to 20 km on the Zimbabwe side waiting to enter Zambia. Comparison with Currently, the Northern corridor is better than North-South corridor Northern corridor ࣭Malaba border(Kenya/Uganda border) crossing time improved, taking only 12 hours, far faster than North-South corridro ࣭Massive time reduction in excess of 50% at the newly implemented OSBP. ࣭Introduction of the SCT (Single Customs Territory) system in all EAC countries - payment of all duties at point of origin [Source: FESTRA(Federation of Southern African Road Transport Associations)]

Out of stock a Lusaka㸦In the case of Retailer A㸧

Since the transit time is long and unpredictable from South Africa, it is difficult to procure fresh product and to manage the inventory. This subsequently leads to the possibility of retail stores being out of stock on varies goods.

☚In the case of South Africa, there is few risk for out- of-stock, as all products are sourced locally

[Source: JICA Survey Team] Figure 24 Stock condition image in Lusaka, Zambia

40 Macro View of Retail and Distribution Industry

Structure of this Chapter

This chapter provides a macro overview of consumer trends and the characteristics of the food and retail sector in each of the African countries in relation to the three corridors, thereby providing the basic data to support the current state and challenges of distribution and logistics in the food and retail sector in Chapter 4. The research methodology includes in-country store visits and interviews with major retail operators in each country, interviews with relevant actors across the value chain, and a literature review.s

Kenya

3.2.1. Consumer Movement Overview9

The growth prospects for Kenya's consumer market are positive. Kenya's food and beverage sector is expected to benefit from accelerated spending growth in 2019-2023 due to factors such as favorable demographics, income growth, and the modernization and increase in the number of food retail operators. Real household expenditure is expected to grow at an average annual rate of 6.0 percent between 2019 and 2023. In addition, the need for retail convenience in the country is expected to increase in the future as Kenya's employment opportunities increase and the workforce becomes busier, with the development of mobile money platforms leading to an increase in direct sales through e-commerce, which might be used as an alternative to retail sales. Furthermore, as consumer habits become more westernized, there will be more opportunities for sales of products for the premium segment, which will improve consumer spending on branded packaged food and beverage products. However, there are some concerns about the growth of the consumer market in Kenya. That is because of the limited number of affluent consumers. Only 2.8% of all Kenyan households have disposable income of $10,000 or more per year; as of 2019, this is projected to rise to about 4.3% by 2023, an indicator of the potential demand for premium products in emerging markets in general. However, if the population growth rate of Kenya's affluent households is low, the premium market is likely to develop, but only at a slow pace.

Consumer Spending

Household spending in Kenya is expected to continue on a strong growth trajectory in 2020, followed by a strong year in 2019, with real household spending projected to increase by 6.0 percent, according to a private sector survey (see figure below). Strong economic growth is also expected to improve household income levels, with real household expenditure expected to increase by an average of 5.9 percent per year through 2023, according to the same study, with continued growth in the medium term. The steady expansion of the middle class, the strong presence of domestic retail operators10 to further streamline distribution, and the influx of

9 Fitch Report (Kenya Consumer and Retail Report; Q1, 2020) 10 In the ranking of the size of domestic retail operators in the Kenyan market, local retailert Tuskys, followed by Naivas,

41 foreign brands will drive growth in consumer spending over the medium term, as the number of households with disposable income above $10,000 is expected to increase to 4.3 percent of all Kenyan citizens in 2023, according to the study.

[Source: Fitch Report (Kenya Consumer and Retail Report; Q1, 2020) ] Figure 25 Consumer Spending Estimation

Retailers can be classified into two forms of distribution: "Modern Trade: MT" which does not involve many wholesale intermediaries such as supermarkets, hypermarkets, and convenience stores, and "Traditional Trade:TT" which involves multiple wholesale businesses and intermediaries such as micro-retail stores (e.g., mom-and-pop stores). distribution", commonly defined as "distribution"11. The percentage of retail operators with modern distribution in Kenya (estimated 30-40%) is the second highest in sub-Saharan Africa. The retail market is projected to reach 8.1 trillion Kenyan shillings (= $7.76 billion) by 2020. The growth of the Kenyan food retail market is largely dependent on the mass market. Strong economic growth and rising household incomes are expected to support increased consumer spending throughout the forecast period to 2023. In terms of nominal GDP, household spending is projected to increase from an estimated 8.1 trillion Kenyan shillings (= $7.76 billion) in 2020 to 11.5 trillion Kenyan shillings (= $9.94 billion) in 2023, with projected nominal GDP growth averaging 12.3 percent over the 2020-2023 period12. Low-income groups spend more on essentials, with the majority of their spending allocated to food and non- alcoholic beverages (60%), the housing and utilities sector (8%), the education department sector (7%) and the transportation sector (7%). Among the essential goods sectors, the housing and utilities sector is projected to grow the fastest in the future, on the back of the rising cost of living and other factors. On the other hand, the ranked first and second in terms of domestic retail share. 11 Armstrong, G., Adam, S., Denize, S. and Kotler,“P., Principles of Marketing, Asia-Pacific ed., Australia, Pearson”, 2014, pp 315-316 12 Fitch Report (Kenya Consumer and Retail Report; Q1, 2020)

42 clothing and footwear market is projected to maintain a robust growth by the middle and wealthy, rather than the low-income segment..

[Source: Fitch Report (Kenya Consumer and Retail Report; Q1, 2020)] Figure 26 Total Household Spending Break-down

Household Characteristics

Households in Kenya will see their income levels grow significantly over the medium term. While the majority of households earn less that USD 5,000 a year, there is still scope for growth in household incomes at the top end of the income distribution. Households at the bottom end will be supported by minimum wages. Key factors that could be considered from household income trends in Kenya are summarized below.

• The overall number of households will increase from 13.4 million in 2020 to 14.4 million by 2023, growing by an annual average of 2.5% a year. • In 2020 the average disposable income per household in Kenya is estimated at KES 276,575 (USD 2,649), which will rise to an estimated KES 359,483 (USD 3,107) by 2023. • Despite rapidly growing incomes, it is expected that only 10.2% of households will have a disposable income of above USD 5,000 per annum at the end of 2023. While still relatively small in numbers, the number of households earning above USD 25,000 will grow at a CAGR of 18.8% a year to 2023. • Minimum wages in Kenya increased to KES 13,572 per month in 2018 from KES 12,927 per month in 2017. There were plans to increase this from May 2019, but this has yet to materialise.

[Source: Fitch Report (Kenya Consumer and Retail Report; Q1, 2020)] Figure 27 Disposable Income Breakdown

3.2.2. Food business overview Market Overview13

Like most sub-Saharan African countries, Kenya's modern retail/distribution market is still in the development stage, with modern distribution only accounting for 30-40% of total sales. Kenya's economy is beginning to develop, with several high-tech companies setting up shop in the capital city of Nairobi. On the other hand, the average Kenyan has a limited share in the "modern retail" market, which is characterized by the absence of a multi-tiered distribution structure, and is still characterized by "traditional distribution" with a multi-tiered distribution structure in which wholesalers, intermediaries, etc. intervene between producers and retailerrs, so that the average Kenyan is not organized in the traditional way food and other products are purchased through distribution channels, and it is not common for people to purchase food and household items at modern retailers. However, Kenya has seen good consistent growth over the last 20 years, and has doubled its per-capita income in the last 8 years alone14.With population growth, increased urbanisation, a growing middle-class, and customers demanding higher levels of availability, service, and quality, the retail market will continue to see higher growth rates than most of Kenya’s continental counterparts. From an upstream perspective, he agricultural market is still very fragmented. Approximately 70% of produce is sourced from small independent farmers. Kenya is starting to witness a consolidation trend of these players, especially around Nairobi, where fresh produce is prevalent. Even with the consolidation, Kenya still has a far way to go to utilise the country’s carrying capacity, and improve optimal harvests and quality standards. In order to promote higher utilisation of farming lands, agricultural tech solutions have started popping up,

13 JICA survey team from data from Euromonitor (2019) and local retailers, wholesalers, and supplier interviews and retail store surveys 14 Stasista, “Kenya: Gross domestic product (GDP) per capita in current prices from 1984 to 2024”, 2020

44 and are assisting smaller players to plant, harvest, and manage agri-produce to a standard as required by formal retailers. One of these start-ups, Hello Tractor, provides a platform where expensive agricultural implements can be shared between a cluster of smaller independent farmers. In addition, they also tracking of data, improving efficiencies, profitability, and security to farmers and machine owners15 . They aim to uplift the fragmented market into the formal trade space by stimulating the current fragmented ecosystem.

Availability of credit & capital for growth

In September 2016, a law on interest rate controls, which imposed a ceiling for lending rates at four percentage points above the reference prime, received unanimous support from Kenyan Parliament. At the time of the ceiling introduction, Kenya’s interest rate controls affected more than half of all existing loans. By capping the interest rate chargeable by banks, the law on interest rate controls seems to have had the opposite effect of what the lawmakers intended. Instead of addressing the poor affordability and availability of credit to the working people in a society where consumer debt levels were increasing, it led to the collapse of bank credit to small and medium enterprises; as the weight of the bill fell disproportionately on riskier borrowers, to whom the banks were not willing to lend money at these artificially low interest rates. This has caused the growth of the private sector to slow, preventing businesses from borrowing to invest. Fortunately, the bill has been revoked in November 2019, and capital provisioning in the agricultural sector, an industry heavily dependent on seasonal loans to survive, might somewhat return to increased debt-gearing as before the bill was passed. Unfortunately, many banks are still only awarding the limited interest rates, as they have become accustomed to their de-risked financing position. It seems that only micro-lenders have offered their investments towards slightly-less creditworthy private sector activities in the past four months since the bill was revoked16. Increased capital provisioning in the agricultural sector, could also provide for investment in quality and consistency, creating opportunities for local suppliers to meet international export standards, as well as local food standards in the formal trade. This might further stimulate domestic product growth, as well as possibly growing the export market. Since February 2006, non-profit One Acre Fund, has been providing farmers with asset-based loans, including: distribution of seeds and fertilizer, financing for farm inputs, training on agriculture techniques, and market facilitation to maximize profits. In 2019, One Acre fund impacted close to a million farming families in Kenya with credit, delivery, training, and market facilitation support for at least one technology in their portfolio. (Impact, 2020)

Value added services17

Kenya has a trade deficit of more than $11 Billion18 , and most of its $6 Billion plus exports are raw agricultural plants and livestock. (Kenya Trade, n.d.) Albeit not as left behind as most of its African neighbours,

15 Hello Tractor”Hello Tractor About US”,2020, and based on interviews with Hello Tractor 16 Emre Alper, 2019 17 Standard Digital “Proposed law seeks to ban export of raw coffee”, 2019,and based on interviews with Kenyan retailers, suppliers, distributors 18 Kenya Trade “The Observatory of Economic Complexity”

45 Kenya is still lacking value-add services in the manufacturing and processing sectors. Kenya exports many agricultural commodities, and imports processed, refined, and packaged goods, missing out on various GDP opportunities. One example of West Africa’s growth efforts in these sectors, is the Kenyan coffee industry. Kenya is in the process of presenting a bill seeking to ban exports of unprocessed coffee, in the effort to boost farmers’ earnings (Proposed law seeks to ban export of raw coffee, 2019). This will greatly benefit coffee trade, and stimulate growth in the processing and packaging industries, but may create some turmoil in the short run, as export supply of unprocessed coffee will completely collapse, whilst demand for roasted, packaged coffee, will take time to grow. An export orientation rooted in value-addition services like processing, manufacturing, packaging, and canning is a good means of shifting account deficits to a surplus, protecting and creating local jobs, and generating forex to settle foreign denominated debt. A big need for Kenya’s food business, is a requirement on coaching, training, and development. The number of skilled workers in Kenya’s labour market does not match the agricultural sector’s current needs. Although the size of the skills gap is unclear, various industry sources point to subprime utilisation of land, inexperienced processing (planting, fertilising, maintaining, harvesting), and excessive agricultural wastages. SMEs are hesitant to invest in training and development, as higher attrition is prevalent in a skilled workforce, due to the high demand in the overall market. From a supplier and broker lens, there are many meat suppliers that transport raw product in non-reefer containers. Even though most retailers in the formal market have quality standards that reject products not adhering to their storage and transportation requirements, some suppliers are still not educated in handling of meat and other perishables. From a consumer lens, the general public are very susceptible to fake news. One of the Major retailers dropped 60% in revenue (Y-o-Y) a few years back, due to a rumour of improper usage by butchers of preserving chemicals. Consumers also have a ‘developing country’ view on fresh. Many Kenyans believe that meat is fresh when there is still blood dripping. In practice, the absence of blood dripping from meat in formal retail has no negative correlation to freshness, and conversely, the existence of blood in informal trade does not necessarily imply freshness. Within the upper class, and ever-growing middle class consumer, there is a subconscious desire to consume, and be seen with international and imported products, as seen and viewed on social media. This is a known trend by most major retailers, and contributes to the demand of imported goods19.

East African Trade community20

The East African Community (EAC) is an intergovernmental organization consisting of Burundi, Kenya, Rwanda, Tanzania, Uganda, and South Sudan (which is not yet a WTO Member), and aims at widening and deepening co-operation among the Partner States in political, economic and social fields for their mutual benefit. The organisation was revived on 7 July 2000, after collapsing in the late 70s. Agriculture remains the key driver of the economies of the EAC countries, but the services sector is the main contributor to their GDP, as most of

19 Website Impact – One Acre Fund(https://oneacrefund.org/impact/), 2020 20 TRALAC ”Trade Policy Review: East African Community (Burundi, Kenya, Rwanda, Tanzania and Uganda)”, 2019

46 the agricultural trade is for livelihood in rural areas. Kenya and Rwanda’s strong and continuous economic growth of late has been accompanied by steady improvements in many of its social indicators. However, the economy of Burundi has been severely affected by its political crisis since 2015, although recovery signs were noticeable in 2016 and 2017. (Trade Policy Review: East African Community (Burundi, Kenya, Rwanda, Tanzania and Uganda), 2019) Regional heads of state have since emphasized the need and urgency for the EAC to work harder, to fast- track the development of the bloc. Over the past few years, however, political wrangling has again hampered much needed progress. These political differences between the countries often result in problems at the borders. As with the rest of Africa, when the political situation between leaders is not good, it affects traders. The current "bad blood" between Uganda's President Yoweri Museveni and Rwanda's President Paul Kagame, is one example of this, and the trade is down to a trickle after year-long of frosty relations. Similarly, there are current trade tensions between Tanzania and Kenya. Tanzania refused to sign the revised trade deal between the EAC and the European Union in 2016, further cultivating the love-hate relationship with Kenya. They have been at odds over economic and logistic issues, with traders from both countries rivalling each other, while the balance of the trade mostly favouring Kenya. There are constant negotiations at the EAC bilateral meetings towards resolving the trade disputes, but the idea of free trade between these countries remain a pipe-dream, as red-tape rules on the ground at the borders. Tanzania is however not that sensitive to transit imports, they are only sensitive to Kenyan imports into their country. There is a cultural aversion of the Tanzanian folk towards Kenya products and imports – Tanzania are sensitive as to not be exploited by the Kenyan “powerhouse”. There are also tensions between Uganda and Kenya, with Kenya limiting milk and manufactured products to be imported from abroad, and Uganda retaliating with controlling the flow of eggs.

Zambia

3.3.1. Consumer Movement Consumer spending

Zambian consumers are expected to continue allocating large proportion of their spending to essentials over the medium term (2019-2023). According to Fitch solution, food, non-alcoholic drinks, housing and utilities are going to remain as the major household spending groups. These groups account for more than half of total household expenditure.

Total Household Spending

Total Household Spending is expected grow with 3.9% during 2020, which is a significant increase from the 0.8% projected growth for 2019. Throughout the 2019-2023 period, positive economic growth and growing private consumption will equip consumers with stronger purchasing power, as inflation remains lower than the peak observed in 2016. Underpinned by the continuing inflation, household expenditure growth is forecast to rise to 13.1% (in local currency terms) in 2020 from an estimated 9.9% in 2019, to reach ZMW108.2bn (USD7.6bn) by the end of 2020.

[Source:Fitch Repor(Zambia Consumer & Retaile Report) (2020)] Figure 28 Total Household Spending Real Growth

Essential And Non-Essential Spending

Essential spending will account for 88.9% of total household spending in 2020 as food, drink, housing, and utilities keep a significant share of total of house hold spending. On the other hand, non-essentials spending is going to remain at 19.4% of total household spending in 2020.

[Source:National Statistics Agency in Zamibia (2019)] Figure 29 Essential and Non Essential Spending in Zambia

48 This trend is estimated to remain over the medium term with essentials accounting for 82.4% of total household spending, while non-essentials will account for 17.7% of total household spending in 2023. However, in the long term non-essential spending is expected to increase, which is a promising sign for global retailers to enter the market in the future.

3.3.2. Food business overview Trends in the sector

World Bank statistics shows that food spending is going to remain the largest component of house hold expenditure in Zambia for a medium term. In addition, the inflation of food price will be slowed down since the weather condition is expected to be more stable compared to 2019, which experienced severe drought.This will drive recovery in consumer demand and consumption.

[Source:National Statistics Agency in Zambia] Figure 30 Food Sales Estimation

According to data from the national statistics agency, retail prices for maize flour in July 2019 were the highest since 2003. To cope with the situation, Zambian government introduced a policy and directions for the food sector in the country; i) Price cap on Maize, ii) Calling for a drastic change in the citizen’s dietary habits by switching from maize meal to more nutritious millet, sorghum, cassava and sweet potatoes, iii) Looking at ways to increase protein intake in the country, especially for young children. In relation to stimulate protein intake, it is interesting to note that the growth of aquaculture industry in Zambia seems promising. Zambia has the most soybean crushing capacity of any country in Sub-Saharan Africa after South Africa, and a large portion of the output of the biggest Zambian oilseed crusher goes to the aquaculture industry as a high protein feed for fish (mostly tilapia). Also, a study by SAIPAR (Southern African Institute for Policy and Research), a Zambian research institute, shows that consumption of farmed fish, predominantly tilapia, has increased quickly in the last 10 years to surpass poultry as the most important animal-

49 based protein source in Zambia. This trend in aquaculture sector is expected to contribute to the growth of consumer spending on fish and fish products in a medium term in Zambia. As a matter of fact, the report by Fitch solutions shows the forecast growth rate of the consumer spending on those food category to be averaging 16.7% per year up until 2023 while it might experience short term slow down of food consumption affected by the economic tightning forcasted after the election year in 2023.

Size of international trade

The chart below shows the import and export trade volume of Zambia by products in 2018. For import business in Zambia, Machinery and Electronic goods, Minerals, Chemicals, and Fuels accounts for more than 60% of the trading value in total. It is important to note that almost 80% of the earnings from export business in Zambia comes from exporting metals, namely coppers. For the rest of the goods exported includes food products, chemicals and minerals which accounts for 22%, 18%, 11% of the export value except metals respectively.

[Source:World Integrated Trade Solution”Zambia Trade Summary 2018 Data”] Figure 31 Trade Volume by Products

Then, the below chart shows the import and export trade volume of Zambia by partner countries in 2018. While the cargo going to Switzerland accounts for more than 40 % of export value followed by China and Democratic Republic of the Congo, the top 5 trade partners are accounting for almost 60% of the total value for the import business in Zambia are Democratic Republic of the Congo (20%), China (19%), UAE(9%), and India(7%).

[Source: World Integrated Trade Solution”Zambia Trade Summary 2018 Data”] Figure 32 Trade Volume by Countries Macro Agri imports/exports

According to statistic data provided by FAO in 2017, the top 5 in export value of agricultural products produced in Zambia were maize, sugar raw centrifugal, tobacco, beverages, soybeans and soybeans cake. The top most imported agricultural in terms of value is Palm oil, Food preparation, wheat, beer of barley, soy bean oil, whole and dry milk. This figure reflects the operational structure of food products in Zambia: Zambian farmers produce and export ingredients for value added products such as soy beans and then the retailers or the trading companies import value-added goods such as soybean oil back to Zambia.

Source:FAO STAT Figure 33 Agricultural Product Trade Breakdown

51 Mozambique

3.4.1. Consumer Movement Consumer spending

Mozambicans seem to prefer to shop at typical trading points such as kiosks, table tops, container stores and open markets. Shopping malls are becoming more common in bigger cities, particularly the capital Maputo, as they are seen not only as a place to shop but also as an entertainment venue. Mozambique customers are keen to try new products and affordability is the main purchasing factor. Also, Mozambicans don't want to pay more for personalized items, they think they should have minimal preferences, and prefer to spend time with family at home to go out with friends. Mozambicans, particularly young people, may feel strongly that traditional values and cultural constraints are preventing them from leading a free lifestyle.

Comparison of Real GDP growth (Annual percent change) 30

-5

-10

-15

-20

Mozambique Advanced economies Emerging market and developing economies World

[Source:The World Bank Group(2020) ] Figure 34 Real GDP Growth Estimation Compared to Other Countries

Total Household Spending

Total household spending is expected to hit MZN620.6bn by 2020, rising further to MZN871.6bn by 2023. This will translate in US dollar terms to USD9.4 billion and USD13.1 billion, respectively. The projection for growth in total household spending in local currency terms is 10.7 per cent in 2020, a marginal deceleration from an projected 11.8 per cent in 2019 although predicting 11.7 per cent between 2019 and 2023. Growth in total household spending is less pronounced in real terms, with the prediction of 5.6 per cent annual average growth between 2019 and 2023. Although this represents an increase over historical growth rates, considering the undeveloped nature of the market and weak base effects, it remains unimpressive.

[Source:Fitch Repor(Mozambique Consumer & Retaile Report)] Figure 35 Total Household Spending in Mozambique Essential and Non-Essential Spending

Because of the large share of expenditure on food and non-alcoholic beverages, which accounts for 52.6 percent of total expenditure, 90.3 percent of total household expenditure in Mozambique is projected to be in the critical category by 2020. Food and non-alcoholic beverages are by far the largest sector, followed by housing and services accounting for 23.2 per cent of overall household expenditure. Housing and utilities constitute Mozambique's second-largest share of total household spending, a typical trend in emerging markets.

[Source: Fitch Report(Mozambique Consumer & Retaile Report)] Figure 36 Essential and Non Essential Spending Estimation In Mozambique

The following figure shows the percentage of total household expenditure by income group. About 65% of the lowest households spend on food and beverages, and about 35% of the lower households also spend on food

53 and beverages as a percentage of total expenditures.

Share of Each Sector in Household Total Consumption, by Consumption Segment (%) – Mozambique

Lowest

Lower

Middle

Higher

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Food and Beverages Clothing and Footwear Housing Energy Transport Water Utility Education Health Personal Care ICT Financial Services Others

[Source: The World Bank Group(2020)] Figure 37 Share of Each Sector in Household Total Consumption, by Consumption Segment

3.4.2. Food Business Overview

There is a positive outlook for food spending over the medium term. Increasing disposable incomes, increasing urban population and preferred populations would all be seeking fuel. It should be remembered, however, that the disposable income is still substantially low, even on national levels. Bread, rice and cereals will account for about 64.0% of food and beverage expenditure in 2020, and due to the large absolute numbers of the poorest and poorest populations, spending on coveted foods, alcoholic beverages, cigarettes, etc. will not grow, and bread, rice and cereals are expected to continue to account for a similar share of expenditure over the next few years. Mozambique's food sector will remain primarily driven by staple foods spending on the back of low income levels. Over the short term, consumer spending power will be further dampened by rising prices. Elevated levels of inflation, though lower than previous years' highs, will hamper consumer purchasing power as the affordability of discretionary products remains constrained. Most of the population spend the majority of their income on food and drink staples such as cereals and vegetables, and it is estimated that food and non-alcoholic drinks account for more than half of the total household spend. Any increase in household income will automatically translate into higher food consumption. Bread, rice, and cereals are predicted to make up over 62% of overall food purchases, which is a large part of low-income economies, over the projected timeframe until 2023. Brew, rice and cereal spending is estimated to reach MZN 307,2 billion by 2023, up from MZN 203.8 billion, which is projected to reach USD 3,2 billion by 2020. Grain is fundamental to the diet of the majority of Mozambican consumers and over its medium

54 predictive duration it can be expected the segment to rise at an annual rate of 15.1%. The dense porridge-style dish ncima, made from corn flour, is a staple meal for many Mozambicans every day, demonstrating the significant role that this segment plays in the country's food sector and why the segment should stay prominent in our forecasts. Fresh vegetables, primarily root crops and mushrooms, are another main factor, responsible for 15.9 per cent of overall food sales in 2020. In nominal terms, fresh vegetable investment will hit MZN 63.8 billion (USD 979 million) in 2023, rising from MZN 50.8 billion (USD 742 million) in 2019. As real disposable incomes rebound towards the end of our forecast period following an inflation-induced fall in 2017, Mozambican households are expected to slowly diversify their diets, in particular by eating more meat and poultry products. Sales of meat and poultry are forecast to rise by 14.4% a year during 2019-2023, but it should be recognized that this high growth rate is partially due to weak base impact. Spending on meat and poultry in nominal terms will amount to MZN 43.9 billion (USD 1.0 billion) in 2023, up from MZN 24.9 billion (USD 809 million) in 2020. When consumers increasingly follow more diversified diets, eating habits will contain larger volumes of Western food; indeed, this will be a long-term trend. We foresee a continued degree of investment in the sector from global firms looking to export their goods in the world and to invest in the food processing industry in the region.

[Source:Infodev “EMIS㸸A Short Case Study of Mozambique”(2019)] Figure 38 Food Sales Estimation

Cote d’ivore

3.5.1. Consumer Movement

The Ivorian economy has had one of the best results in Africa in recent years, with consistent GDP growth, stable currency and good infrastructure, both of which have affected the country's consumer behaviour. Ivorian customers are often drawn to conventional, much more casual retailers, where negotiation is tolerated and goods are delivered in a simplified way. While international and local supermarket brands (Carrefour, Bonprix, CDCI) are growing their market share, informal trading persists. According to the same report,

55 Ivorians are market-sensitive, as 42 per cent of consumers know the price of most goods and understand that when prices change, they are just and equal (46 per cent of consumers never change stores). Cote d'ivore's franc is not only related to the euro in terms of exchange rates, it is still subject to inflation levels, unlike other African countries with free-floating currency regimes. This will also ensure that stable and sustainable consumer investment stays in place in the coming years.

Real GDP growth (Annual percent change) 12

-2

-4

-6

Cote d'Ivoire Advanced economies Emerging market and developing economies World

[Source: The Economist Intelligence Unit(2020)] Figure 39 Real GDP Growth Estimation Comparison to Other Countries

3.5.2. Food business overview

According to InfoDev’s report, food consumption growth in Côte d'Ivoire is forecast to rise by 8.3% over the 2019-2023 period, backed by optimistic economic outlook, increasing disposable incomes and low and steady inflation. Food staples in the wheat, rice and cereals categories will tend to dominate food consumption, as disposable incomes remain small despite rising. Milk, rice and cereals, and fresh vegetables are projected to rise faster than in the period 2019-2023. The consulting firm, TRENDTYPE, measured the present volume of new grocery retail sales at USD 936 million, or 14.2 per cent of overall grocery sales in 2018.

56 Analysis of Value Chain in Food and Distribution Sector

Structure of this Chapter

The previous chapters have described consumer trends in each country in the food and retail industry and an overview of the food industry. Following these, this chapter presents a "distribution network map" that visualizes the distribution network from agricultural and food suppliers, wholesalers and distributors to retail outlets and imports and exports to and from foreign markets, based on an understanding of the trends of the major players in the food/retail industry in each country, the major retail products handled and the actual means of distribution and transportation. In the field study, interviews and retail store visits were conducted with the following related companies in each country.

࠙Field Intervieweesࠚ

• Kenya: Three major retailers (top classes), three major food and beverage manufacturers (fruit processing, beverage production and vegetable production), two major logistics companies • Zambia: Two retail operators (one of which is a major player), two wholesalers, three logistics and warehousing companies, three food manufacturers (meat business, grain production and processing, alcoholic beverage production), one agricultural product supplier (grains, fruit and vegetables, etc.) • Mozambique: Two major retailers and two major logistics companies • Côte d'Ivoire: Two major food manufacturers (general food manufacturer and fresh food manufacturer) and one major logistics company • South Africa: Two major retailers (one of which interviewed three sectors), a logistics-related trade association, and a logistics-cum-wholesale operator

In addition, in accordance with the classification of the groupings of food categorized in Chapter 1, the "Value Chain Analysis" of agricultural products and foods by category, i.e., the flow of the general distribution structure of "Who produces agricultural products and foods where, which entity is responsible for procurement of agricultural products and foods, the person responsible for collection and storage, the location and method of transportation from the collection and storage location to the retail store, and the innovation" was carried out, in parallel with the literature survey, by bringing the "Value Chain Matrix" presented in Chapter 1.3.1 to local retailers, logistics providers, agricultural product suppliers, food processing operators, etc. to fill in the interview sheet information to the extent possible. It aims to clarify the supply chain flow, innovations, and distribution issues, as well as logistical barriers and bottlenecks that hamper smooth logistical promotion and expansion within a wide area, while also paying attention to differences in the nature of each product group in each country. In addition, it was decided to grasp the original residual land and the price range of the target items surveyed by multiple on-site shop visits of retailers. These will primarily be conducted in the high priority countries of this study, Kenya and Zambia. Based on these considerations, practical issues and bottlenecks in domestic and international logistics are extracted in each country. In addition, in South Africa, where the entry into the food retail industry to other Sub-Saharan countries is significant, the aim was to conduct the above-mentioned value chain analysis on measures to solve

57 the international logistical issues, extract logistical issues and bottlenecks, and at the same time conduct a case study for retailers in South Africa as advanced cases in order to provide suggestions for other African countries (e.g. Kenya and Zambia) to expand the logistics. For Mozambique and Cote d'Ivoire, which have relatively low priorities, the survey was limited to the general condition of distribution and logistics.

Kenya

4.2.1. Current State of the Food Retail Industry21

The food business was disrupted by the decline of Nakumatt, a former retail-distribution leader who filed for bankruptcy in 2017. Nakumatt was ambitious and attempted to prevent its international competitors from entering the market by rapidly expanding its store network. However, the company failed to maintain its aggressive strategy. The company was forced to go bankrupt because of its heavy debt and high operating costs. With the bankruptcy of Nakumatt, there was room for large food retailers to enter the market, allowing international players to enter the market. Specifically, the occupancy rate at major retailers averaged 77% in the second half of 2019, down 4.2% from the first half of 2019. This is due to an oversupply of retail space in particular locations, terrorist attacks targeting malls in the past, a decline in consumer spending due to the current economic situation, and the growth of online shopping solutions such as Jumia (including Carrefour's products, Glovo's products (including Tuskys, Naivas, and Zucchin products), and retailer-specific e-commerce distribution). Major multinationals, such as Carrefour, Shoprite, Game, and LC Waikiki, saw the Kenyan market potential and succeeded in building brands that quickly appealed to Kenyan consumers. They offered high quality, established loyalty programs, and aggressively priced. Carrefour offered a "ten-fold refund for the price difference" service to compete with Kenyan retailer leaders Tuskys and Naivas. By mergering with Tumaini and Quickmart, Carrefour tried to improve its market share through their 24 hours a day, 365 days a year operation, and impressive and fresh food services offerings. To date, however, Tuskys and Naivas have continued to be leaders in Kenyan food retailing. The factors for this can be a presence in e-commerce, innovative product solutions, loyalty programs, and their adequate responses to the needs of local Kenyan consumers. Traditional distribution is carried out still through the dominant distribution channel, accounting for about 70 percent of all retailing. These markets are attractive across segments, providing consumers with fresh local ingredients, low-cost clothing, and other non-food categories.

4.2.2. Main Products Handled in Kenya

(a) Overview22 Kenya is located near the equator and can supply its own products throughout the year. The reason for this is

21 From Fitch Solutions"Kenya Food & Drink Report –Q1 2020 and results of interviews with local retailers 22 Trade Policy Review: East African Community (Burundi, Kenya, Rwanda, Tanzania and Uganda). TRALAC. [Online] 21 March 2019. (https://www.tralac.org/news/article/13962-trade-policy-review-east-african-community-burundi-kenya-rwanda- tanzania-and-uganda.html)

58 not because agricultural products and foodstuffs differ in terms of seasonal differences, but rather, because the weather varies by region in Kenya, most agricultural products and foodstuffs are able to be supplied and sold over the course of the year. Like most African countries, East African countries have problems with the way food is transported across borders. Although the East African Community (EAC) intends to promote cross-border free trade, each product category has a strict customs review process, a sample of products at the border is being tested continuously, and long customs clearance processes remain at some borders. Another issue is the lack of clear food provisions on trade, imports, and exports with regard to the distribution of perishable agricultural products and foodstuffs among the EAC countries. Many retailers enter into strict quality and lead-time contracts to prevent the flow of below-standard-quality agricultural products into their own countries.

(b) Issues for Fresh Food This section describes the characteristics and issues of Kenya's main products, especially fresh foods.

(1) Fruits and vegetables23 In the Kenyan domestic market, most fruits and vegetables are transported by truck from within 20km of the vicinity of Nairobi, and most farmers that provides them are located near Nairobi. Tomatoes and onions are sourced from a bit farther away and procured from within about 50 kilometers in bulk. Suppliers transporting coconuts, oranges, fish (from Lake Turkana), and bananas are transported by road from the most distant distance of up to 500 kilometers, but most suppliers are located near Nairobi. Fresh ingredients are delivered directly from suppliers to stores. Many of these suppliers are sellers, who sort fruits and vegetables from many farmers and ultimately supply them to retailers. These wholesalers must keep prices down to ensure healthy competition in the Kenyan local market. Most of these local suppliers have supply contracts with retailers who are expected to meet specifications and quality standards. Retailers have facilities and warehouses for accepting frozen merchandise at Nairobi stores, and conduct quality checks on temperature, sensitivity, etc. when they arrive, and refuse to purchase products that do not meet the standards set forth in the contract. Wholesalers usually visit farmers twice a day, first very early in the morning, buy for morning shipments, and also buy from farmers for additional daytime shipments to stock fresh agricultural products in the afternoon. Since some of these very short transport processes do not require a cold chain, many local wholesalers do not possess transportation technology for the cold chain.

(2) Milk The trade friction between the two countries, Kenya and Uganda is exacerbating over the milk trade. In December 2019, Kenya introduced a value-added tax of 16% on milk imports from Uganda to protect domestic dairy products. Uganda then said it would retaliate to key Kenyan products that would cross borders. Kenya also seized large quantities of dairy products from Uganda milk producers. Meanwhile, Uganda requested Kenya to be responsible for the corruption of products seized in the country and refrain from any action that violates the EAC Customs Union and general market principles, i.e. any action that opposes

23 Based on intervews and store surveys conducted in Kenya

59 Uganda's export to Kenya. Ugandan traders and ministries refer to the "seizure act" as a "political incentive" and widely criticize it in the face of violations of Kenya's EAC Customs Law and general market principles.24 The Kenyan government has heard that Ugandan President Yoweri Museveni is providing a high subsidy for milk, arguing that it is necessary to protect its milk trade because the cost of milk production in Uganda has become much cheaper as a result. Brookshire Dairi, Kenya's largest milk processor, is owned by the family of President Ufur Kenyatta, and some analysts have speculated that this conflict of interest would increase economic costs. During President Kenyatta's first tenure alone, milk consumer prices nearly doubled, producer prices remained unchanged, and the interests of milk processors increased astronomically. Until Kenya imposed a heavy tax on Ugandan milk and began seizing the product, Ugandan milk was imported to Kenya across national borders, fundamentally “leading” Kenya's milk consumption, which was caused by the high consumer price of Kenyan milk. In highly competitive markets, Uganda should be permitted to sell milk to Kenya until the interests of producers in both markets begin to balance in line with demand and supply, as noted in the above-mentioned article, “Kenya-Uganda 'milk war' puts E.Africa trade pact in limbo”. However, Kenyan consumer prices do not reflect market forces. These reflect the dominance exercised by Kenyatta family-owned firm Brookshire Dairi. For example, the company bought most Kenyan milk companies such as Ilara, Tuzo, Delamare, Molo Milk, Sameer Agriculture and Livestock Limited. The other two milk processors in the country are consolidated public agencies, state-owned enterprises, and farmers, which will strongly protect the domestic marketplace for Brookshire Dairi25 . Other milk producers and exporters attempting to enter the Kenyan market have not remained there even for a year. Essentially, the issue of the milk industry is not an agricultural policy, nor a trade policy, but a matter of competition policy. Kenya's obstruction of Uganda's milk trade is not entirely new, but based on Kenya's political incentive to protect farmers, just as the similar milk ban announced in 2010.26

(3) Fish products27 The Lake Victoria fisheries are said to be worth more than US$800 million and produce 0.8 million jobs across the EAC countries.28 However, the lack of fisheries regulations has led to an increase in hunting and illegal trafficking in Lake Victoria, and some analysts predict that the extinction of Nile Parch and Tilapia may be realistic in nearly three to four years. Up to 50% of the fishermen and vessels operating in lakes have not been registered. Kenya recorded exports of about $32 million of fish in 2017 (filet products, non-filet frozen products), and Uganda exported about $150 million of fish in the same year.29 The large difference in this figure can be

24 The Star, "Kenya - Uganda 'milk war' puts E.Africa trade pact in limbo", 2020 25 Kenya - Uganda 'milk war' puts E.Africa trade pact in limbo. The Star. [Online] 28 January 2020. (https://www.the- star.co.ke/business/kenya/2020-01-28-kenya-uganda-milk-war-puts-eafrica-trade-pact-in-limbo/.) 26 "the Economic Cost of Conflict of Interest: The Kenyatta Dairy Industry Case," 2020, and interviews with major Kenyan retailers and logistics providers 27 "Saving Lake Victoria means going after the big fish. Institute for Security Studies" [Online] 09 July 2019. (Https://issafrica.org/iss-today/saving-lake-victoria-means-going-after-the-big-fish) and Kenya leading retailers interview survey) 28 Institute for Security Studies "Saving Lake Victoria means going after the big fish",2019 29 The Observatory of Economic Complexity"Kenya Imports & Exports, Uganda Imports & Exports", 2017

60 explained by the size of Lake Victoria, which is within Uganda's boundaries relative to that within Kenya’s boundaries. The greatest corruption occurs downstream of the fishing sector's supply chain, with police and authorities making illegal arrests, disposing of enormous amounts of cash and fish, and cartels managing the entire forced action. All new entrants to the fishing business will be forced out unless they participate in existing major cartels. The EU launched ENACT Africa, a program for “enhancing response to cross-border organized crime in Africa” (2014-2017), which supported financial assistance and regulatory activities by detecting the illegality of the cartel, and the fact of using illegal catch-and-search for fish and using illegal distribution channels without testing fish. However, fish in Lake Victoria are still not being transported and sold through formal, and transparent distribution channels. The EAC countries export most fish because the supply price in the export market is much higher than the price available in the local market. The "aggregator" of the cartel is present, and there is a pool of fishermen (about 50 people), so it integrates a large demand including formal local trade and supplies the demand. The cartel manages national prices as a whole, and many small formal traders who do not agree with this "pricing" will find it difficult to supply fish continuously.

(4) Eggs30 The current supply-demand imbalance in egg trade in Kenya is caused by trade frictions among the EAC countries. At present, the demand for eggs is increasing in Kenya because the domestic supply is small. In recent years, Kenya's egg production has shrunk, and affordable eggs have been imported very easily from Uganda and Tanzania, and Kenya has imported about 40% from neighboring countries. These reduced the supply of local egg producers because of the import inflow. Due to factors such as trade friction in milk, however, Kenya has not been able to import enough eggs, leading to the current trade imbalance. Uganda also had imported a great deal of chicks from Kenya on the assumption that it would produce and export chicken eggs. However, the export of eggs to Kenya was blocked as a retaliation to the trade friction of milk, etc., and the supply of fresh eggs has been decreasing in Kenya since then.

(5) Semi-fresh and long-life product31 As with fish, Kenya's corn is a cartel business. Both the high-income class and the poor eat corn as a staple food. The cartel of the product manages the whole corn market, such as controlling prices, to ensure that a large margin is realized when the market is undesirable. Cartel operators also import corn from Brazil, Zimbabwe, and Malawi. Most imported fresh and semi- fresh products are purchased by retailers through modern distribution from local brokers and importers, minimizing the risk of quality degradation, such as freshness degradation. However, the market for fresh and semi-fresh products does not have a price guarantee system because it is not managed by the government like

30 Kenya Imports & Exports, Uganda Imports & Exports. The Observatory of Economic Complexity. [Online] 2017. (Https://oec.world/en/profile/country/uga/) and interviews with Kenyan retailers and logistics providers 31 Police in bed with cartels extorting poor fishermen. Standard Digital. [Online] 25 October 2019. From (https://www.standardmedia.co.ke/article/2001346764/) and local store surveys and interveiw survey and local store surveys and interveiw survey

61 maize. Kenya also imports most of its rice because of the affordability of foreign rice. However, this also caused a decrease in local supply. Kenya also exports Kenyan wheat to import different varieties of wheat from neighboring countries. The Kenyan food culture tends to prefer to make bread from more fine grain wheat, producing soft wheat domestically, but they have been forced to export as demand is low in the domestic market.

4.2.3. Transportation Methods and Their Characteristics and Issues

A comparison of Kenya's import and export values shows that the import value is about $11 billion larger than the export value. This is partly because Kenya imports many processed foods (cans, pasta, etc.) and fresh foods such as fruits and vegetables from Europe (partly from South Africa) by air (mainly fresh foods) and by sea (mainly processed foods), while Kenya has many export crops and cash crops such as flowers, tea and coffee than neighboring Africa. It also has an extensive air transportation infrastructure and shipping infrastructure that enable the import of fresh foods. It also implies that import efficiency is more important than export efficiency in order to construct optimal supply chains. Imported goods are transported differently depending on the product, with fresh foods being transported by air or land (truck), processed foods being transported by sea or land (railway), and product categories being transported differently.

(a) Road Freight (and Road Infrastructure)32 Road freight was the most commonly used method for container transport until the SGR was completed in 2017. However, the requirement for all dry containers to be transported by rail has resulted in a great dissatisfaction of truck carriers in the surplus of truck logistics supply and the change in means of transport to rail transport. These changes forced many truckers to lose their jobs and move to other industries. In addition, Kenya's road infrastructure has already received significant investment, including assistance from many international organizations, in the development of road networks, which has eliminated significant logistical barriers recently and made it possible to move to various routes. Next, the current state survey of the road infrastructure in Kenya is described below. The overall view of the results of interviews with Kenyan traders, wholesalers and retailers is that road infrastructure is not physically excellent, but is not the major logistical barrier/bottleneck in current cross-border trade. Many investments have been made in Nairobi and its surrounding roads, as well as in major trade routes over the past 24 months. As for logistics of the Northern Corridor other than Kenya, there are mainly problems related to transportation and customs clearance between the borders, and this is not a problem related to road taxes or the logistics network itself. Many trading companies have referred to the peak of traffic congestion in Nairobi with regard to the above-mentioned transportation issues. The private sector appears to be lagging behind the public sector, and peak traffic is becoming increasingly crowded and impeding the smooth flow of goods, despite the fact that the road infrastructure has not collapsed. According to retailers, smooth distribution is greatly hindered during the

32 ICD Nairobi. Kenyan Port Authorities. [Online] From 2020 (https://www.kpa.co.ke/EquipmentsAndFacilites/Pages/ICD- nairobi.aspx) and interviews with local logictics providers

62 peak hours of early morning or daytime, which is regarded as a problem The problem of theft of cargo also exists in Kenya, and it is not unusual for trucks carrying "high-value" goods to be depredated. Some of these depredations are organized by Somalia's terrorist group Al-Chaverb, but sometimes they are depredated by the citizens. Diagio's affiliate, Eabl, has seen these citizens depredate for alcoholic freight. For fresh food importers and exporters, all refrigerated containers are transported on land by truck, so they do not affect the quality and freshness of fresh food. The reason why refrigerated containers are transported only by trucks is that the SGR does not have a "generator set" and does not have a reefer plugin. In addition, the fact that the ICD of Nairobi is not equipped with a reefer plugin for refrigerated warehouses is another reason why it is not possible to handle refrigerated containers. In road transportation, the customs clearance process of a reefer container (refrigerated container) is similar to the process of customs clearance for dry containers at ICD, which will be described later. However, because SGR's road cargoes are very crowded at present, the customs clearance process of reefer containers is currently being conducted in the relatively uncrowded Mombasa Port. Freight that does not require the use of SGR (rail transport) to Nairobi other than refrigerated containers is a transit transport product (both dry transport or refrigerated transport). Thus, at the present time, approximately 80% of customs clearance of transit transports that need to be transported to destinations outside Kenya are carried out in the Mombasa Port, and most of the retailers’ distribution partners are located in the Mombasa, so they are shipped on road transport in the track. However, the customs clearance process in the transit has gradually been transferred to the Naivasha ICD and has been placed as another ICD other than Nairobi (located at the end of the extended SGR between Nairobi and Naivasha). The Kenyan government has been allocating land to neighboring countries near Naivasha for more efficient transit customs clearance, and it can be inferred that the Kenyan government's policy intention is that Naivasha should be judged to be appropriate as a logistics hub and should strengthen its logistics functions. Road transportation to EAC countries except Tanzania is carried out mainly through the Malaba border. The Malaba border has been invested by the governments as anOSBP for two-way transportation between Kenya and Uganda. The Ugandan OSBP includes offices of the Uganda Revenue Authority, the Uganda Customs and the Uganda Immigration Office. Similarly, in Kenya, customs officials from both countries support transport operators departing from Kenya to leave for Uganda. This facilitates Kenya's border and customs clearance procedures to Uganda and shortens logistics companies' border waiting times. In addition, exports from Kenya to Uganda exceed exports from Uganda to Kenya, suggesting that Kenya's export support system is being enhanced. In addition, in the EAC countries, a process was developed to expedite customs and customs clearance procedures for authorized AEO operators so that authorized operators can quickly complete their customs clearance processes. This implies that the inspection is not so strict, but in particular, fresh food logistics providers that have been cleared through customs in advance rarely undergo inspections at the border, and the inspection is at the level where it is sufficient to ensure that the products are being proper, which can be said to be a simplification of the customs clearance process. In Uganda, Rwanda and Burundi, the AEO-certified operators and their systems are respected and complied with, but customs and trade practices between Tanzania and Kenya often fail to proceed smoothly. Authorized operators under the AEO system in Tanzania and Kenya face problems such as trade imbalances in two countries, and Tanzania has a strong desire to take time for

63 customs clearance and inspection of Kenyan products. Therefore, it is not possible to expedite the customs clearance process at present. However, even with all of these processes in place, there are still some "queues" in clearance at the Malaba border, and customs clearance procedures are processed in first-come-first-served order. Appropriately communicating and managing trade flows requires waiting time to grasp and predict traffic congestion at border posts, but there appears to be no accurate data captured. When operators move across borders without understanding the customs clearance process, or when they are trying to transport new types of products (e.g., new categories of meat, clothing, electronic products), or when there is no local partner to support customs mediation, there are more wasteful delays due to the lack of knowledge of customs officials and the need to negotiate with them. Permission and documenting processes have resulted in a bipolar phenomenon in which experienced import and export operators are successfully and quickly cleared in their stance while new enterprises and global enterprises are very difficult to overcome the issues in customs clearance, and are recognized as a cumbersome and unnecessary customs clearance process for new entrants. The immediate solution is to actively utilize local logistics partners. The long-term solution is to integrate the customs clearance process, standardize it, and ensure its implementation.

(b) Rail Freight (and Rail Infrastructure)33 The Standard Gauge Railway (SGR), Kenya's largest infrastructure project since Kenya's independence in 1963, was constructed at $3.2 billion to replace the meter gage rail line “Lunatic Express” originally completed by the British colonial forces. The SGR is a 472km rail line from Mombasa to Nairobi. It was completed in 2017 and the additional section between Nairobi and Naivasha was completed at the end of 2019. Imported cargoes, such as dried foods that do not require freezing, are transported from Mombasa Port to the SGR's railway, then loaded on the railway and transported over 485km to the ICD of Nairobi. Since the completion of the SGR, the Kenyan government has now had enormous debt and has been forced to transport freight on dry containers by rail (constructed by China) in order to repay the loan to China. Although this rail-based freight takes only six hours to transport, and it is a more cost-effective transportation method than land truck transportation (about 10 hours), ICD sometimes produces backlogs (which leave unprocessed freight in arrears). The SGR completes 8-9 transports per day (up to 11 at peak time) between Mombasa and Nairobi ICDs and carries approximately 108 containers per transport. This means that about 800-1,000 containers per day had to be processed by ICD, a significant improvement compared to about 60-80 containers per day transported before the SGR was completed. However, the above improvements also pose issues in infrastructure processing capacity. That is, clearance of these cargo at the ICD takes at least 48 hours, and at peak time backlogs occur very easily. In other words, when shipping containers by rail, it takes at least one day longer for customs clearance than road freight. SGR line was extended to Naivasha Port located in Lake Naivasha, which is 92km inland from Nairobi. ICDs

33 Kenya forcing importers to use costly new Chinese railway, businessmen say. Reuters. [Online] 3 December 2019. (Https://www.reuters.com/article/us-kenya-railways/kenya-forcing-importers-to-use-costly-new-chinese-railway-businessmen- say-idUSKBN1Y70LT) and Kenyan logistics providers interview survey

64 are also placed in Naivasha Port to process small volumes of cargo, but as cargo processing in Nairobi ICDs is approaching saturation, plans to expand the ICD in Naivasha in the near future are already on the rise. Next, the improvement situation of the railway infrastructure is described. From the Mombasa Port, container and bulk loads can also be shipped by rail or land to other East African countries, as well as transported via transit. Since the completion of the SGR, however, the Kenyan government has been forced to require the use of railways for all dry containers directed to Nairobi and elsewhere in Kenya to repay the enormous debt owed to Chinese banks. Transporting 40-foot containers to Nairobi by rail would cost about 80,000 shillings (about $800), which is roughly the same as a truck. However, an importer must pay at least 25,000 shillings for "last one mile" logistics in accordance with the time for customs clearance of the container at the location of the ICD in Nairobi, sometimes up to 15,000 shillings for demurrage in the ICD.34 Although new rail transport methods are quite efficient, they also have the aspect of increasing dissatisfaction with the length of customs clearance time at Nairobi ICD and other facilities and with additional cost payments. SGR was a dream for Kenya that could dramatically improve logistics, but for some importers the cost of transportation has risen by about 50% due to such factors as the possibility of backlog, the length of processing time due to the underdeveloped infrastructure, and so on. Many traders have expressed the view that "the most important thing in rail transportation is to reduce the transportation costs between Mombasa and Nairobi, and to provide a cheaper price comparable to road transportation." The ICD is owned and operated by the Port Authority of Kenya and connects the railway between the port and Mombasa Port, providing dry port facilities in the center of the country. However, the physical road infrastructure of the ICD has not been sufficiently improved in terms of connectivity with the SGR. For this reason, delays have been caused in the products of traders who were forced to use the SGR and Nairobi ICDs, and they are concerned that they will not be able to fulfill their contracts with their customers. That is, according to the internal regulations of the Port Authority of Kenya, if containers stay in ICD for more than four days, traders will need to start paying demurrage fees to the Port Authority of Kenya, regardless of whether this delay is under their control. A project to develop infrastructure to improve the road infrastructure around the Nairobi ICD started recently, but it took time for the project to be carried out in parallel with the further expansion and development of the SGR. In addition to the ICD located in Nairobi, there are also large projects to develop the road infrastructure, including Kisumu ICD and Eldoret ICD. Therefore, the opinion from the local logistics providers was that this was not a problem that could be solved within one year (12 months). In addition to the high logistics cost, the length of customs clearance time for product shipment is also an issue. Railway transportation enables short-term transportation to Nairobi, but the length of customs clearance time due to underdeveloped road infrastructures around ICDs can lengthen “End to End” transportation time. However, the advantage of the SGR was that most importers and traders were positive about improving the container transportation and tracking process, and that there was no experience of loss of cargo during SGR transportation.

34 Reuters "Kenya forcing importers to use costly new Chinese railway, businessmen say", 2019. ICD Nairobi. Kenyan Port Authorities. [Online] 2020.(https://www.kpa.co.ke/EquipmentsAndFacilites/Pages/ICD-nairobi.aspx)

65 (c) Port Cargo35 Most of Kenya's imports are made via port cargo, mainly because they are less expensive than air freight. Approximately 14% of imported products are refined petroleum, 3.2% are palm oil, 2.9% are automobiles, and 2.5% are pharmaceutical products. The Mombasa Port is a natural good port with a natural deep ocean floor, though many upgrades have been made in the past several years. JICA implemented the “Mombasa Port Expansion Plan” project through 2015 in a yen loan scheme, after which the “Mombasa Port Expansion Plan (Phase 2)” is under way until late 2015-2020. The overview of the project is to improve the capacity of Mombasa Port and to construct a smooth import supply chain by developing existing container cargo handling districts and bulk cargo handling districts, and constructing a new container terminal. The project contributes to the improvement and transparency of the operation of the port and to the increase of cargo handling capacity. In addition to improving the land readjustment and cargo handling capacity of terminals, Japan has also been implementing the “Mombasa Port Road Development Project” (2015-2017) under a yen loan scheme. In order to solve the issue of undeveloped port facilities and surrounding transportation infrastructure, this project is aimed at facilitating the distribution mainly of Mombasa Port by constructing roads connecting containers terminals to the Northern Corridors and bypass roads to the southern region of Mombasa in the vicinity of Mombasa Port. In fact, it enables seamless distribution of harbors and roads and contributes significantly to the improvement of the food value chain from the logistical aspect of the food value chain. Mombasa Port is the busiest port in East Africa, and as for the cargo that arrives at this port, the port also serves as a transit port for most of the products targeted to East African countries outside Kenya. From ocean cargo, products are transported by rail or road to the terminal destination. There are two main methods of importing containers by ocean transportation, Through Bill of Landing (TBL) and "merchant haulage". Bills of lading are prepaid to the logistics provider. The bill of lading is fully responsible for transporting “End to End” of the containers. Customs clearance procedures of dry container transports of these cargo are conducted at the Nairobi ICD (Nairobi is shown as the terminal destination). Containers will spend a minimum of time at Mombasa Port prior to loading into the railroad. A merchant haulage refers to the movement of containers from ship to rail in which the cargo recipient (or the transport contractor) is responsible for loading containers from ship to rail. Transportation contractors and railway managers have very good relationships with the Kenyan Port Authority, and thus their authority is strengthened. The merchant haulage system needs to be negotiated with them, and customs clearance takes a somewhat longer time. Transit transport takes about four days, but sometimes takes much longer, depending on the ability of the "cargo recipients (owner of merchandise)" to negotiate with the Port Authority of Kenya and the railway manager. Many small wholesalers and brokers tend to prefer merchant haulage system because of the low cost of transportation. However, delays in product delivery often require additional demurrage for inventory and increase the cost of unloading over the total assumed transport costs. In addition, the merchant haulage system requires that empty containers be returned to the port by the cargo recipient or the transport contractor. On the other hand, under the TBL system, logistics providers return empty containers. Consequently, most large

35 The Observatory of Economic Complexity,"Kenya Imports & Exports, Uganda Imports & Exports",2017 and interviews survey with logistics providers in Kenya

66 retailers and their logistics partners tend to import only on a TBL basis. Most transit products now undergo customs clearance at the Mombasa Port and they are transported by land to each country. Also, all refrigerated containers undergo customs clearance at the Mombasa Port and they are transported by track to the destination. All containers and bulk products other than refrigerated containers are shipped by rail, and their customs clearance procedures are performed at Nairobi's ICD, which then delivers to the destination using "last one mile" transportation.

(d) Air Cargo36 In order to export a large volume of valuable flowers from Kenya (accounting for about 11% of Kenya's total exports), frequent "low load factor" aircraft fly from Jomo Kenyatta Airport in Nairobi. For some traders, this "low load factor" airline is considered to be a cheaper means of importing goods than high load factor airfreight, and if the "low load factor" airfreight is not available, it will be imported by sea. When imported by means other than "low load factor" airfreight, the cost of air cargo will be expensive, so it will be used only for importing high value-added items. Examples include electronic equipment, pharmaceuticals, machinery, and automobiles, which are valuable but have low domestic demand (but are sensitive to lead times). It also includes seasonal and trend-sensitive apparel items, because too long import time incurs opportunity costs. Finally, in the food sector, important fresh foods, such as rare flavors, bread ingredients, and fruits that are not available locally, are also imported by air. There are several refrigerated warehouses at Jomo Kenyatta Airport, which are used for importing and exporting fresh foods. These refrigerated warehouses are owned by the airline group and are indispensable for functioning as buffer warehouses for frozen goods waiting to be out of stock. The customs clearance process at airports is much faster than customs clearance through Mombasa Port or ICD because of much less demand and simpler retention processes.

4.2.4. Distribution Channel

Kenya is the world's 48th largest country with a total area of 580,367km², bordering Somalia, Ethiopia, Southern Sudan, Uganda, and Tanzania, with a coastline of as much as 536 km. Coastal areas are comprised of low plains, but there are mountain ranges in eastern Africa along the way to the interior. The East African Trench also includes Mt. Kenya, the second highest mountain on the African continent. There is a Kenyan border between Uganda and Tanzania, bordering Lake Victoria. Northern Kenya also has Lake Turkana, the fourth largest lake in Africa. Located on the coastline of southeastern Kenya, Mombasa is an important logistics hub for economic trade in East Africa. Mombasa Port is a natural good port with the depth of the sea floor, and it is the largest port in East Africa. The Strategic Plan of the Kenyan Port Authority (KPA) showed significant progress in port infrastructure between 2013 and 2017, thereby improving port performance. Mombasa Port is also a major host port for many East African countries, and is commonly used outside of Mombasa Port. The only other port is Dar es Salaam Port in Tanzania. However, this port is inefficient and not deep enough to accommodate many

36 Kenya Imports & Exports, Uganda Imports & Exports. The Observatory of Economic Complexity. [Online] 2017. (https://oec.world/en/profile/country/uga/(Link). ) and interview survey with a Kenyan logistics providers

67 large cargo ships. As a result, most of the EAC countries have imported products from Kenya to Uganda, Rwanda and Burundi through the Mombasa Port. In recent years, KPA, with the help of international organizations, have been trying to combat and restrict cross-border illegal transactions. This has resulted in undesirable impacts on import and export markets in terms of lead time, and retailers are increasingly wasting time to wait in recent months due to improper port time delays. Many retailers and logistics providers believe that there is still room to improve the process, even though KPA has significantly improved its customs and customs clearance processing systems. Distribution map | Kenya and Uganda

Customs clearance time is less than 2 days(Improving) 䞉Poor Road Infrastructure in Northern Kenya 䞉De-Centralized distribution Truck Malaba Kampala 220Km Truck without DC R 2 440km 20~200km R R R Kisumu R Nakuru R Nairobi Train or Truck

480km Mombasa R 1

R Outlet of the retailer Border point Local suppliers of perishable goods Local Distribution Center

[Source: JICA SurveyTeam based on the results of field surveys, including interviews with Kenyan retailers and logistics providers] Figure 40 Distribution Map Mombasa, Nairobi to Kampala(in Uganda)

4.2.5. Analysis of Logistical Issues According to Food Categories

Kenya's food distribution market mainly procures agricultural products and foods domestically. In 2018, the domestic food market was approximately $37,834 million, and imports from Mombasa Port and Nairobi Airport were not large. The imports of the agricultural products and foods sector were US$7,806 million, and exports were US$5,376 million in 2018. In addition, trade among EA countries using the distribution network of the Northern Corridor is currently not very active. Even in Uganda, which has the largest trade volume between Kenya and the EAC countries, its trade value in 2018 was $174 million and its import value from Uganda was only $425 million.

68 (a) Group 1: Fresh Food and Cold Chain Products For the items in this group, the current situation of distribution/logistics of agricultural products and foodstuffs in Kenya will be investigated first, and then the possibility of expansion of cross-border logistics including EAC countries in the future will be analyzed. As for the current state, despite items requiring cold chain transportation such as fresh meat, bananas and oranges for items requiring cold chain technology in fresh food in Kenya, cold chain transportation is not being carried out. According to FAO statistical data, the self-sufficiency rate for chicken is 100% and the production is only 35,000 tons. Since no imports or exports are made, chicken is a typical product for local production for local consumption. The self-sufficiency rate of bananas is 99.9%, and the production is 742,000 tons. Since no exports are made, they are also locally produced for local consumption. In addition, the self-sufficiency rate of oranges declined slightly to 65.6%, and there are 46,000 tons of imports. Finally, freshwater fish have a self- sufficiency rate of 101.8%, with a minimal volume of exports and imports of 6,000 tons and 2,000 tons, respectively. Basically, in order to prevent quality degradation in the product group, procurement is carried out from suppliers located near the store. In addition, there are no large-scale DC (Distribution) centers. Fresh food, meat, fruits and vegetables are generally procured directly from producers and food processing companies near large- scale consumer areas during the morning, daytime, and other hours on the day. The range of procurement is 20km or less of the radius of the large market, up to 50km, and is often procured directly from retailers without going through wholesalers. In Nairobi, a major consumer market, says daily roads are congested when entering Nairobi, and fresh meat (chicken, beef, etc.) is transported within 20km of the store, and easily damaged vegetables are transported from the neighborhood to reduce food loss to 20-30%. Without that distance, the quality standards that retailers require will not be met, and retailers will have the right to refuse to accept goods based on contracts between them and suppliers. Suppliers of 50km or less from stores often handle fruits and other vegetables. They are delivered directly from farmers to retailers' stores without going through warehouses (wholesalers) or DC (Distribution) centers. Similarly, freshness and quality issues allow retailers to refuse to accept goods under contracts37. On the other hand, suppliers that produce products 50km away from their stores often outsource logistics to wholesalers (often Indian-affiliated wholesalers) that basically have refrigerated warehouses. Wholesalers also have logistical functions, taking goods on branch roads, sometimes up to the point of production, and some wholesalers have either refrigerated trucks or refrigerated warehouses, enabling them to meet the quality standards of major retailers. If the development of branch roads and traffic congestion in the suburbs of major cities are improved, it may be inferred that the volume of procurement from suppliers more than 50km away will also increase. However, the big problem was that the road congestion before entering Nairobi City was terrible, and the opinion of the logistics providers that the improvement of the congestion was the first priority was heard. At present, farmers and food processing companies need to transport goods daily while satisfying the needs and quality demanded by retailers and wholesalers, and the "last one mile delivery" in Nairobi, the largest market, is constantly congested by traffic congestion on suburban roads. Farmers and food processing companies often

37 Based on interviews with major retailers and logistics providers

69 outsource logistics to wholesalers and are often bought from wholesalers at product prices, including transportation services. Therefore, suppliers face the issues of earning only a small profit. As outlined in the FAO statistics, most of the fresh foods in this category are produced locally for local consumption. Some foreign retailers import high-end fresh foods from South Africa and Europe using cold chain technology. According to consumer trends in Kenya in Chapter 3.2.1, only about 360,000, or just 2.8% of Kenyan's total households have annual incomes of $10,000 or more in fiscal 2019. The market size of this income segment is limited, and the high-end agricultural and food markets are expected to grow at a moderate pace. However, some predict that households with incomes of $10,000 or more will increase to about 610,000, or 4.2% of the total households by 2023. As a result, demand for fresh and high-quality fresh foods will increase as the high-end market rises, and as a result, cold-chain-related technologies will gradually penetrate the market.38 Some fragile road infrastructure is also a barrier to distribution. The road infrastructure of trunk roads (e.g., Mombasa-to-Nairobi roads) is rarely problematic. However, even though the trunk roads of entire North Kenya and western roads are developed up to, for example, Eldred, a city close to the Kenyan mid-west crop-producing zone, it is difficult for gardeners who produce fruits and vegetables, grain farmers, and others to carry them themselves to trunk roads. In such places, the ratio of "traditional distribution (Traditional Trade: TT)" 39 is higher than that of "modern distribution (Modern Trade: MT)”. Therefore, it is thought that the issue is to organize distribution, in other words, to make procurement more efficient by major wholesalers. In addition, in the case of fresh fish, large cartels that control the market manage the distribution, and it is necessary to note that it is difficult for small-scale wholesalers to actually enter the market.

38 Fitch SoLutions "Kenya – Consumer & Report (Q1-2020)" 39 Modern Trade (MT) is the term for classifying distribution formats. Modern Trade refers to modern retail formats such as supermarkets, hypermarkets, convenience stores, and drug stores. TT refers to traditional retail formats such as small "papa mama stores." In the distribution industry, the two categories are used, and "MT size" is also an indicator of the stage of retail development in emerging countries.

70 Table 27 Kenya: Value Chain Analysis of Group 1 (Fresh Food and Cold Chain Products)

Country: Kenya VC Patterns: Locally-produced/locally-consumed type Procurement Local source: Basic Region of origin: Kenya (partly South Africa) Information Perishable or non- Perishable foods perishable: Temperature Necessary (reefer container) control: Item: Fresh fish, fresh meat (chicken, etc.), oranges, bananas Wholesale э (import) э Distribution flow Producers Retailers (Transportation) businesses (Transportation) /Broker Scope of Procurement (some Production special high-end ― Purchase/sales responsibility items are imported) Means of Truck (partially Value chain ― ― Train/truck ― transportation shipping) (Distribution Usually produced Nairobi within the country; structure) (partially imported from the suburbs of from Mombasa or Location Nairobi (only some ― ― Nairobi from markets of other special products are countries such as imported from South South Africa) Africa, etc.) N/A (in the case of importing products by Payment terms ― ― N/A ― ship, a fixed fee must be paid) Meat suppliers supply Major retailers in Conditions of some meat to retailers Kenya do not like to roads from the within a 20 km procure fresh foods suburb of Nairobi distance or up to 50 through indirect where producers are km maximum in the wholesale, etc. located to the capital Physical same day. are very poor, and packaging is required infrastructure to maintain quality. Roads within a distance of one last mile to retail stores in Nairobi are constantly crowded. Basically, with the exception of special items, Kenyan retailers and logistics companies procure vegetables and fruits in the domestic Customs/Border market (or procure some from the markets in EAC).

With the exception of fresh fish, Kenyan logistics companies do not transport products by trucks using cold-chain Logistics technology. Producers want to export fruits and vegetables to EAC countries other than Kenya, but in the reality, it is technology difficult to do so without cold chain technology.

In terms of the logistics field in Kenya, the latest FS survey shows that the construction of a distribution network Barriers and can be guaranteed by bottlenecks using/selecting from multiple in logistics transportation methods. However, Market access/ the high-end consumer market Business targeted by modern feasibility retailers is not yet large, and immature. For example, Carrefour has an extensive lineup of high-end cheese products made in Europe, but competition is fierce, leaving questions about the business feasibility. Fresh fish in Lake Many small, formal Victoria are very wholesalers who do vulnerable to fish not agree to "pricing" poaching and illegal decided by cartels Policies and trade since the handling fish find it regulations are not difficult to maintain a regulations actually put in place. continuous supply of In addition, illegal fish. cartels hinder free business transactions. [Source: JICA Survey Team based on field interviews and store surveys]

71 As for the possibility of future expansion of logistics to EAC countries, according to major fruit producers, processors and beverage companies in Kenya, they have a strong intention to sell fresh food to inland EAC countries other than Kenya in the future. However, they are aware of the issue of being unable to manage and maintain freshness of fruits and beverages due to the long waiting time for customs clearance at the border of Uganda. In other words, a number of opinions were expressed that, during the waiting time of about two days before customs clearance, there is a high probability and risk that products will be rotten and their value will decline, so that exports of products have not been realized. Malaba, the national border between Kenya and Uganda, has improved in customs clearance time. However, in order to transport fresh products to inland countries, there are no refrigerated warehouses, and quality degradation cannot be denied. There was the opinion that it is essential to establish a refrigerated warehouse or a DC (Distribution) center on the Kenyan side of the border of Malaba in order to promote the export of fresh food to inland countries located in the Northern Corridor. Behind this is the fact that trucks with refrigerated containers are not yet common in Kenya. Based on the results of the field survey40, which indicates that the spread of frozen trucks will take several years to 10 years, in the border areas of Kenya and Uganda, the existence of a DC (Distribution) center that can smoothly carry out the management of refrigerated warehouses, temperature control facilities, and cargo will enable the storage and re-shipment of frozen vegetables and frozen beverages at the time of customs clearance procedures without degrading quality. This will make it possible for companies other than major suppliers and major logistics providers that do not possess cold chain technology to use the center. The establishment of refrigerated warehouses and DC (Distribution) centers will contribute greatly to the expansion of exports to inland areas from a medium-term perspective. From the above, the following six points can be cited as logistical issues from the viewpoint of value chain analysis of items belonging to Group 1 in Kenya.

x Local production for local consumption model: Due to the lack of penetration of cold chain-related transportation technologies, Kenyan retailers are forced to procure fresh goods daily from suppliers located near 20km-50km in the suburbs of metropolitan areas. Kenya's market for foods for mid-income group and high-income class is small, and it will take time for cold-chain technologies to spread until a high-quality, fresh, high-end fresh food market is formed in the next few years. x Local production for local consumption model: Retailers and logistics partners in Kenya do not currently have a refrigerated warehouse and DC (Distribution) center because of their limited need for high-quality fresh food. As a result, a systematic logistics and shipping system of collection, inventory control, and shipping of fresh goods has not been established, resulting in higher logistics costs. x Local production for local consumption model: Roads around metropolitan areas, such as Nairobi, are chronically crowded, but many modern retailers do not have stores in rural areas or suburban areas of Kenya from the standpoint of profitability. This makes it difficult for suppliers/wholesalers to deliver their products to retailers in a timely manner. x Local production for local consumption model: Although road infrastructures such as northern and western Kenya are being developed to some extent, farmers are located apart from trunk roads, and

40 Based on interviews with local retailers and local logistics providers

72 wholesalers are also small in the area (fruit and vegetable producers are located in the Midwest areas, such as Bungoma State, Trans Nzoia State, and Nynadana State, separated from trunk roads, and poultry farmers are located in the vicinity of Nairobi, Kisumu, and Nakuru, which are relatively close to the trunk roads). As a result, the farmer must prepare a means of logistics for transporting agricultural commodities through roads that are not paved from the producing area to the trunk road. Therefore, suppliers need to sell to wholesalers and retailers, taking logistics costs into account, and only a small profit can be obtained. x Local production for local consumption model: Cartel dominates the fresh fish market in Kenya, making it difficult to enter the market. x Export model: Suppliers are highly interested in selling fresh goods to inland countries such as Uganda. The trunk roads from Nairobi to the Malaba border have been developed and can be reached in about six hours. However, the waiting time and customs clearance procedures at the border are time-consuming and there are no refrigerated warehouses and DC (Distribution) centers along the border, so there is a high possibility of exporting products with degraded freshness and quality.

(b) Group 2: Fresh Food and Non-Cold Chain Products For the items belonging to this group, the current state of distribution/logistics of agricultural products and foodstuffs in Kenya will be surveyed. According to FAO statistics, in 2017, the self-sufficiency rate of eggs was high at 99.8% and the import volume was only 1,000 tons. For corn, the self-sufficiency rate was 79.0% and the import volume was 1.36 million tons in the same year. From the perspective of expanding cross-border trade within East Africa, egg products are imported from Uganda and Tanzania. Although there are no major problems in terms of customs clearance procedures and marketability, there is a reality that trade conflicts are currently occurring between Kenya and Uganda, etc. Since roads near national borders are not necessarily developed for egg products during transportation, it has been pointed out that advanced packaging technologies need to be introduced in order to prevent "cracks" in egg products from the viewpoint of maintaining quality during transportation41. Imports of cheap eggs from Uganda and Tanzania increased sharply from 2018 to the first half of 2019, but since then they have developed trade frictions, and the amount of Kenyan eggs imports is now declining again.

41 Based on interviews with several major retailers and logistics providers in Kenya

73 Table 28 Kenya: Value Chain Analysis of Group 2 (Fresh Food and Non-Cold Chain Products)

Country: Kenya VC Patterns: Locally-produced/locally-consumed type/Import model type Procurement Local source: Basic Region of origin: Kenya (or EAC countries) Information Perishable or non- Perishable foods perishable: Temperature Dry logistics control: Item: Egg products, wheat, and corn Wholesale э (import) э Distribution flow Producers Retailers (Transportation) businesses (Transportation) /Broker Scope of Value chain Production ― Procurement ― Purchase/sales (Distribution responsibility Means of structure) ― Truck ― Truck ― transportation Western Kenya Location (partially ― Suburb of Nairobi ― Nairobi Uganda/Tanzania) Payment terms ― N/A ― N/A ― First, some road conditions, from Tanzania/Uganda to Nairobi, are poor, impacting on egg product transport and even causing cracking of some products. Also, many production areas in Kenya producing Physical wheat and corn are located in western Kenya. The main roads to Nakuru and Eldoret, which are main cities of the country, are infrastructure developed, but small roads to farms are not necessarily developed. Institutionalization and efficiency of distribution/procurement from micro farmers who produce wheat and corn are required.

No major problems concerning import Customs/Border procedures from Uganda or Tanzania are found.

Logistics Regarding packaging techniques of eggs, more sophisticated packaging techniques are required to maintain quality. technology Barriers and Eggs at affordable bottlenecks prices are easily imported from in logistics Tanzania and Uganda, and Kenya imports as much as Market access/ 40% from Business neighboring feasibility countries. However, import of a large volume of eggs to Kenya has caused trade conflicts with Uganda and other countries. The purchasing price Due to trade friction in of corn is decided by milk, the import Policies and the government, volume of eggs from regulations making an effort to Uganda is stabilize farmers' decreasing. incomes. [Source: JICA Survey Team based on field interviews and store surveys]

Looking at the logistics of locally produced products for local consumption, farmers producing corn are more small-scale and micro-farmers than farmers producing tea or coffee and other cash crops41. As shown in the

41 According to the FAO "The Economic lives of Smallholder Farmers," the definition of micro farmers (smallholder farmer) is unclear, but it refers to family-owned farmers, and the average farmland area of micro farmers is 0.47ha

74 figure below, it is difficult for farmers producing in areas extending from Nairobi to the northern and western regions to transport from production areas to highways and major cities. Road infrastructure is not sufficiently developed, especially in northern and western Kenya. Because locally produced locally-consumed crop corn can be transported at normal temperatures and does not require cold- chain transport techniques, transport problems remain relatively low within Kenya. However, because there is no system for collecting and delivering bulk quantities, logistical issues include the inability to organize distribution, i.e., to build a common shipping and delivery system that bundles small farmers together. Wheat, on the other hand, is similar to corn in that it does not require cold-chain technology to transport at normal temperatures. However, Kenya basically depends on imports as for the wheat. It exports small quantities of Kenyan wheat and imports large quantities of different varieties of wheat, for which the demand from Kenyan consumers is high. That may require customs and customs clearance procedures, and may also need longer time to transport on roads in vulnerable infrastructure after the import process. Therefore, the development of infrastructure from the Kenyan wheat production region to the trunk roads will be a major issue in the future promotion of distribution for smooth import and export42.

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NOTE: Green lines: Trunk roads, Purple lines: Branch roads. [Source: JICA Survey Team] Figure 41 Major Grain Production Areas and Major Roads in Kenya

Road infrastructure in northern and western Kenya, which is not currently developed, leaves issues for

42 Based on interviews with several major retailers, food suppliers, and logistics providers in Keny

75 domestic transportation of corn and import and export of wheat within Kenya. From the above, the following four points can be cited as logistical issues from the viewpoint of value chain analysis of items belonging to Group 2 in Kenya.

x Import model: Eggs can be imported at low cost from Uganda (Tanzania), but there are currently trade frictions between Kenya and Uganda. Kenya has imposed high import tariffs in violation of the regulations of the EAC tariff union, making it difficult to import eggs into Kenya. x Import model/local production for local consumption model: The physical infrastructure of Uganda (a part of Kenya) roads is fragile, and suppliers do not possess advanced packaging technology. As a result, eggs may be "cracked" and their product value and quality may decline. x Import model/export model: Central and northern Kenya, the grain production zone of wheat, has developed trunk roads in place until urban Eldred in central-western Kenya, but the producing areas of micro-farmers producing wheat are far from the trunk roads and are very difficult to transport to the trunk roads. There are problems with smooth road transport, particularly for wheat for export, from wheat producing areas to branch and trunk roads. x Local production for local consumption model: Corn is produced by a majority of small-scale farmers in Kenya and is mainly produced in central and northern Kenya, as is wheat. However, because there are many small farmers, access to branch roads and trunk roads is difficult, and it is necessary to organize logistics that enables small farmers to collect and deliver commonly.

(c) Group 3: Non-Fresh Food and Cold Chain Products For the items belonging to this group, we first surveyed the current situation of distribution/logistics of agricultural products and foodstuffs in Kenya. Next, we will analyze the possibility of expanding cross-border logistics, including EAC countries, in the future. Regarding the survey on the present state, given the present state in Kenya where cold chain technology is not yet widespread, there is a problem that quality will decline during the transportation of suppliers' products. Looking at the income by household in Kenya, in 2018 the total number of households was about 12.72 million, and the ratio of households with annual income of $10,000 or more was only 2.4%, or 308,000 households. The number of households with annual income of $50,000 or more reached only 15,900 households, or about 0.1% of the total number of households. In other words, the demand and market size for frozen meat, dairy products, frozen vegetables, etc. among Kenyan consumers as a whole is limited to metropolitan areas with high incomes. Therefore, major retailers develop and open stores only in urban areas where profits and profitability can be expected and it is not common for them to open stores in rural areas. They are focusing on finding quality suppliers near large cities rather than setting up and operating DC (Distribution) centers related to cold chains and making large investments in refrigerated trucks43. According to FAO statistical data, the self-sufficiency rate of the main products was 95.5% in 2017, and the production volume was 4,798,000 tons and the import volume was 282,000 tons, almost all of which were able to be procured in Kenya. The production of chicken was only 35,000 tons in the same year, and the self-

43 Fitch Solutions” Kenya – Consumer & Retail Report – Q1 2020”

76 sufficiency rate exceeded 100%. However, chicken is very locally produced and consumed because it is not imported or exported. As frozen vegetables are imported from countries such as South Africa, the market size of the products in the category is limited except for milk. Of course, the implementation of cold-chain transport technologies on trucks and the establishment and operation of DC (Distribution) centers will certainly contribute to the expansion of the market and quality of the category's products in Kenya. In the sense that milk products and frozen meat, which had been produced in the vicinity of major cities, can be produced and transported without decreasing quality even from cities away from major cities, the necessity for cold chain technology is high, but it is considered that the market size and business potential will not be commensurate with this. Regarding the future potential for export expansion from Kenya to other EAC member states, the network road network between the core cities of Nairobi, Mombasa and Kisumu is smoothly linked, and the good connectivity of Nairobi to Mombasa and Kisumu, in particular, is largely attributable to the good location of the ports in these two cities. Rather, the slowdown of transport due to traffic congestion around Nairobi and the frequent occurrence of road sequestration by police have emerged as logistical issues44.. Interviews with logistics providers indicate that the customs clearance time has improved on the national border from the Kenyan trunk roads to Uganda as mentioned above, and that customs clearance can be carried out within two days at the border. In addition, according to the survey results detailed in Section 2.2.2 of Chapter 2, approximately 30-50% of all customs-cleared products will complete the customs clearance process within 4 hours, indicating that there is ample potential for the promotion of inland logistics. Depending on the type of product, if there is a need to replace the cargo, the establishment and operation of a refrigerated warehouse or a DC (Distribution) center at the Malaba border between Kenya and Uganda, as in Group 1, is considered to be of great significance for maintaining the freshness and quality of the product. Currently, competition in dairy products is occurring between Kenya and Uganda. Uganda has exported cheap milk to Kenya and other countries. However, Kenya is also able to produce cheap milk through the mass production of large enterprises by utilizing the "economies of scale" as a result of successive mergers and acquisitions of milk companies in Kenya, and it is speculated that the export of Kenyan milk to EAC countries will increase in the future. Kenya's imports of Ugandan milk are not supposed to fall under the tax imposition, including customs duties, according to EAC rule. However, Kenya imposes a special value-added tax of 16% on Ugandan milk, causing trade friction without complying with the EAC rule. As of April 2020, Kenya has proposed to Uganda “Daily Regulation 2020“ that stipulates that foreign milk be subject to an import tax of 10% to protect the milk production of Kenyan farmers. If Kenya agrees to abolish value-added and import duties on Ugandan milk and becomes compliant with the EAC customs rule, it will increase imports and exports between Kenya and Uganda and contribute to the promotion of inland logistics in the corridor in the future45.

44 EMIS "Market Overview(Freight Transport and Shipping Report Kenya Freight Transport and Shipping Market Overview – Kenya -2020)" 45 Business Daily (https://www.businessdailyafrica.com/markets/commodities/Kenya-seeks-10pc-tax-on-East-Africa-milk- imports/3815530-5523044-nm4lkn/index.html)

77 Table 29 Kenya: Value Chain Analysis for Group 3 (Non-Fresh Food and Cold Chain Products)

Country: Kenya VC Patterns: Locally-produced/locally-consumed type Procurement Local source: Basic Region of origin: Kenya Information Perishable or non- Non-perishable perishable: foods Temperature Necessary (reefer container) control: Item: Yogurt and other dairy products, frozen vegetables (fruits), frozen meats Wholesale э э Distribution flow Producers (import/export) Retailers (Transportation) (Transportation) business/Broker Scope of Production and ― Procurement (export) ― Purchase/sales Value chain responsibility processing (Distribution Means of ― Refrigerated truck ― Refrigerated truck ― structure) transportation Nairobi/Uganda Nairobi/Uganda Location Kenya ― ― (Kampala, the capital border of the country), etc. Payment terms ― N/A ― N/A ― Regarding the roads from Nairobi to Uganda, etc., some roads have Physical bad conditions. However, if processed products are packed infrastructure properly, there is no problem.

Export/customs procedures to go to Uganda from Kenya have been improved more than before, Customs/Border with no more than two days of customs clearance. Import procedures from Uganda to Kenya are not very complex. If the cold chain technology is not implemented in a truck, there are Barriers and Logistics concerns that the quality of dairy products, frozen vegetables, frozen bottlenecks technology meats, etc. will decline. in logistics Kenyan dairy Kenyan dairy products manufacturers have are expected to be Market access/ grown in scale as a price competitive and result of repeated be exported to Business M&A, and continue to Uganda and other feasibility hinder the import of EAC countries in the cheap milk from future. Uganda. Kenya introduced a 16% value-added tax on milk imports from Policies and Uganda to protect its domestic dairy regulations product sector (many of them are governmental enterprises).

[Source: JICA Survey Team based on field interviews and store surveys]

From the above, the following three points can be cited as logistical issues from the viewpoint of value chain analysis of the items belonging to Group 3 in Kenya.

x Local production for local consumption model: Because transportation technologies built around cold- chain buildings are not widespread, dairy products and frozen meat (chicken, etc.) must be produced and

79 processed within a range of 20km to 50km in the suburbs of the city, which is the consumer market. x Export model: Even if the company tries to export dairy products to other EAC countries such as Uganda, there is no means of transportation with cold chain technology (e.g. frozen trucks) and there is no frozen warehouse/DC (Distribution) center between Uganda borders. This causes quality degradation of the product concerned. x Import/export model: Milk from Uganda was imported into Kenya at low prices before, but Kenya manufacturers are also becoming cost competitive because of the large-scale consolidation of milk manufacturers in Kenya. In Kenya, 16% import tariffs are imposed on Ugandan milk, ignoring the EAC tariff rules, which impedes the mutual distribution of milk, etc. and the promotion of distribution to inland areas.

(d) Group 4: Non-Fresh Food and Non-Cold Chain Products For the items belonging to this group, we first surveyed the current situation of distribution/logistics of agricultural products and foodstuffs in Kenya. Then, we will analyze the possibility of expanding cross-border logistics, including EAC countries, in the future. As for the survey on present state, according to FAO statistical data, the self-sufficiency rate is 0% (2017) and the import volume is 768,000 tons as a representative of the group's processed products. A number of visits to the stores of major retailers in Kenya revealed that there were many such items as pasta and seafood cans, tomato cans, and luxury edible oil and seasonings from EU countries and South Africa. In other words, many processed products that do not require cold chain technology are imported into the Kenyan market. Considering the reasons why many processed products are imported from the Kenyan market from abroad without problems in dry transportation, which is one of the items in the category concerned, it can be pointed out that there are no plants in Kenya that produce large quantities of palm oil, tomato cans, pasta, etc. For example, large-scale production of pasta produced in Europe and South Africa is planned at a large factory, and it is thought that the major factor behind this is to keep the market price low even when the distribution cost is added, rather than to operate the factory in the Kenya region. Imported processed products are often delivered to the harbor of Mombasa by sea and to large markets such as Nairobi by railway, respectively. As for the logistical situation from Mombasa to Nairobi, the customs clearance time has been reduced as a result of the simplification of the procedure, as well as the development and improvement of both the infrastructure of the rail and the road. Regarding the possibility of future distribution expansion in Kenya and the EAC countries, it is important to attempt import substitution through the operation of large-scale factories and efficient manufacturing operations, considering the size and demand for processed products such as cans and pasta in Kenya. Furthermore, since these products have the property that no cold-chain transport technology is required, they are considered to be products with expectation for the promotion of distribution in large quantities to inland countries in Kenya and the Northern Corridor from the standpoint of marketability. In addition, tea products and coffee products, which are processed foods made in Kenya, are mainly transported from the airport located in Nairobi to the European market, etc., but there are no major problems in distribution. For example, coffee products have a self-sufficiency ratio of 1025% and export volume of 44,000 tons, which is a major cash crop.

80 (e) Group 5: Cash Crops For the items belonging to this group, we first surveyed the present state of distribution/logistics of agricultural products and foodstuffs in Kenya. Then, we will analyze the possibility of expanding cross-border logistics, including EAC countries, in the future. According to FAO statistical data, the self-sufficiency rate of rice is only 7.9% (2017), and rice is imported from Thailand, Vietnam and other Asian countries, and the total amount of rice imported is as high as 929,000 tons. In Kenya, on the other hand, although rice cultivation is carried out in the Muair region, the production is only 81,000 tons in 2017. However, many international organizations and JICA projects aimed at increasing rice production in Kenya are in process, and rice production and related industries are gradually developing due to the import substitution of rice. As for the possibility of expanding cross-border logistics in the future, rice is a major grain popular in Uganda and elsewhere, and if the development of rice production and related industries as an import substitute proceeds in the future, it will promote inland logistics in the Northern Corridor as a staple food. In the medium-to long- term, it will be expected that inland logistics will be expanded by exporting grain to the Democratic Republic of the Congo and South Sudan, where staple food imports have been large and the nutritional value has been relatively insufficient. Coffee beans and fresh rice are also imported from inland EAC countries such as Uganda. Kenya imports raw materials from inland countries such as Uganda, and it is considered that the logistical barriers in the import of raw materials in Kenya are lower than those in other inland EAC countries due to the development of physical road infrastructure and the increasing transparency of customs clearance procedures. In addition, Kenya has a comparatively strong advantage in processing technology compared to other EAC countries. As a result, Kenya's food value chain imports raw materials from the EAC region, processes them in Kenya, and exports them (e.g., tea products and coffee products). This could be a driver of increased logistics in the corridor by expanding existing distribution networks in the interior due to further development of Kenya's processing industry and rising demand in inland countries for these processed Kenyan products.

81 Table 30 Kenya: Value Chain Analysis of Group 5 (Cash Crops)

Country: Kenya VC Patterns: Import of raw materials/export of processed product type Procurement EAC countries source : Basic Region of origin: EAC countries Information Perishable or non- Non-perishable foods perishable: Temperature Not required control : Processed products such as soybeans, polished rice, Item: and coffee beans (raw beans) Processing Producers in э companies and э Retailers in Distribution flow other countries (Transportation) manufacturers in (Transportation) other countries Kenya Scope of Production of raw Value chain ― Processing ― Buying and selling (Distribution responsibility materials Means of structure) ― Truck ― Truck ― transportation EAC inland countries EAC inland countries Nairobi and other Location such as Uganda and ― ― such as Uganda and places in Kenya Rwanda Rwanda Payment terms ― N/A ― N/A ― 䞉 Only a few problems have been found in the route from Kenya to Physical Malaba on the Ugandan border. 䞉 Some roads from Uganda to Rwanda appear to have bad infrastructure conditions.

Customs/Border Logistics technology Barriers and Major export items Local processing and The processing and Although retailers bottlenecks from Uganda and manufacturing manufacturing import/sell processed Rwanda to Kenya are companies in Kenya companies or their food products made in logistics Market access/ raw coffee beans, process, logistics partners in Kenya, the profit fresh rice, etc., and manufacture, and export processed margin is not Business since the raw package coffee, fresh products to Uganda, necessarily high feasibility materials are rice, soybeans and Rwanda, etc. because they are not exported to Kenya at other items. able to conduct the low cost, the profit processing process margin is low. within their countries. Policies and regulations

[Source: JICA Survey Team based on field interviews and store surveys]

From the above, while there are few logistical issues from the viewpoint of value chain analysis of the items belonging to Group 5 in Kenya, the following can be cited considering the problems from the viewpoint of Uganda and Rwanda.

x Import raw materials/export of processes products model: Import coffee beans, fresh rice, and soybean raw materials from Uganda and Rwanda, which are located inland areas of the northern corridor, at low prices, process them and produce products in Kenya, and then re-export processed products to inland countries. This business model has low profitability for raw material suppliers such as Uganda and Rwanda, and retailers in Uganda and Rwanda do not necessarily make significant profits. x In other words, for the food industry, including the logistics industry in Kenya, the development of industries and the promotion of logistics are important, but from the viewpoint of industrial development

82 in Uganda and Rwanda, they are also factors that hinder the development of their food sector.

4.2.6. Summary: Bottlenecks and Barriers in Logistics in Food Retailing

Within Kenya and the Northern Corridor region, the following impediments and barriers to future expansion of distribution/logistics are expected.

1) Delayed customs clearance procedures in Nairobi's ICD (Import model)

The following are the specific logistical issues and barriers.

x The physical infrastructure of “Inland Containers Depots (ICDs)” in Nairobi is not sufficient, and it has not been able to process large quantities of containers shipped via the “Third Standard Gauge Railway (SGR)” from Mombasa Port causing delays in ambulation in Nairobi. x The customs clearance process takes about four days, but if it takes more than four days, an additional overdue rate will be charged.

The issue is that the logistics from Mombasa Port to Nairobi are by railways where no refrigerated containers are implemented.This is a common problem to Group 2, Group 4, and Group 5 in the sense that it uses the form of transportation.

2) Lack of penetration of cold chain transportation technology (Local production for local consumption model)

The following are the specific logistical issues and barriers.

x Even the largest Kenyan retailers such as Tuskys and Carrefour do not have their own DC (Distribution) centers, so that fresh-food suppliers and suppliers that produce products that require refrigerated transportation will transport their products to retail stores or outsource logistics providers and wholesalers. As a result, logistics costs increase, and the cost burden on the supplier side is large. x Logistics providers and wholesalers also rarely own cold-chain-related transportation technologies. Fresh foods are normally procured from local suppliers within a radius of 20km to 50km from retail stores on a daily basis. Suppliers need to be located in the suburbs of large cities. x The lack of cold-chain-related transportation technology makes it impossible to conduct common, systematic, functional logistics management, such as collection, inventory management, and shipment, as done at DC (Distribution) centers, and incurs more logistics costs than necessary.

This issue is common to both Group 1 and Group 3. It can be regarded as a bottleneck in logistics in terms of the burden of logistics costs and the frequency of transportation at short distances.

3) Undeveloped road infrastructure (Local production for local consumption model)

The following are the specific logistical issues and barriers.

83 x In northern and western Kenya, there is no logistics infrastructure such as roads. In particular, micro farmers producing corn, wheat, fruit trees and vegetables face difficulties in transporting agricultural products to suburban cities and trunk roads. They are looking for logistics methods on their own and transporting them to trunk roads. x In the suburbs of producing areas in the western and northern areas, there are secondary cities (such as Eldred) that play a logistics hub role up to the capital city of Nairobi. However, in the rural areas, there are not many major wholesalers and logistics providers, and micro suppliers are not sufficiently supported by logistics. x Therefore, in the Kenyan rural areas, where there are many micro-farmers, it is necessary to create a mechanism and organization to organize collection and distribution.

This issue is thought to be a common logistical barrier in Group 1 and Group 2 in terms of crops that are often produced and harvested in Kenyan rural areas.

4) Traffic jam and congestion in central Nairobi (Local production for local consumption model)

The following are the specific logistical issues and barriers.

x Roads around metropolitan areas, such as Nairobi, are constantly crowded, but many modern retailers do not have stores in rural areas or suburban areas of Kenya from the standpoint of profitability. This makes it difficult for suppliers/wholesalers to deliver their products to retailers in a timely manner. x Suppliers who need to deliver fresh foods on a daily basis, in particular, face a significant time burden and operational challenges.

This issue is seen as a logistical issue primarily for suppliers of fresh foods in Group 1.

5) Degradation of quality and freshness of fresh products in the Kenya-Uganda border area (Export model)

The following are the specific logistical issues and barriers.

x The lack of a cold chain function has made it difficult to supply fresh goods from Kenya to the inland areas through the Northern Corridor. x Specifically, since there are no refrigerated warehouses and DC (Distribution) centers in Malaba, which is on the border between Kenya and Uganda, if customs procedures and customs clearance take more than two days, freshness and quality of fresh food will decline. x If a refrigerated warehouse or DC center exists, it is possible to unload, store, and refrigerate the product for customs clearance procedures, and to construct a systematic collection, inventory, and re-shipment system, but it is not possible at present.

This issue is common to both Group 1 and Group 3, and it is a bottleneck in the promotion of logistics to inland countries.

84 6) Lack of manufacturing skills in processing, manufacturing and packaging in inland countries (Import of raw materials/export of processed products model)

The following are the specific logistical issues and barriers.

x The business model of importing coffee beans, fresh rice, and soybean raw materials at low prices from such countries as Uganda and Rwanda, which are located inland areas of the Northern Corridor, processing and manufacturing them in Kenya, and then re-exporting processed products to inland countries is common in the Northern Corridor. x However, this business model has low profits for raw material suppliers such as Uganda and Rwanda, and retailers in Uganda and Rwanda do not necessarily enjoy large profits. x For the food industry, including the logistics industry in Kenya, it is important for the development of industry and the promotion of logistics, but from the viewpoint of industrial development in Uganda and Rwanda, it is a factor hindering the development of their food sector. Therefore, the necessity of guidance and technology transfer for processing, manufacturing and packaging technology to Uganda and Rwanda is high for mutual promotion of inland logistics.

This issue is common to Group 4 and Group 3, which require particularly sophisticated processing and packaging, and can also be a logistical barrier for products such as egg products that require more sophisticated packaging in Group 2.

7) Trade friction between Kenya, Uganda and other EAC countries (Export model/import model)

The following are the specific logistical issues and barriers. Competition in dairy products is occurring between Kenya and Uganda, and Uganda has until now exported cheap milk to Kenya and other countries. However, Kenya is also able to produce cheap milk through the mass production of large enterprises by utilizing the "economies of scale" because of the wave of mergers and alliances among milk companies in Kenya.

x At present, Kenya imposes a special 16% value-added tax on Uganda-made milk as import duties, even though the EAC rule does not originally impose any taxes, including tariffs. Thus, Kenya has caused trade friction without complying with the same rule. x Kenya had previously imported cheap eggs from Uganda and Tanzania, but because of the trade friction mentioned above, Kenya has imposed high import duties in violation of the EAC rule, making it difficult to import them into Kenya.

This issue is a macro-economic issue for Group 2 (eggs) and Group 3 (dairy products) according to commodities, but it cannot be denied that the failure to comply with such laws and regulations impedes the promotion of logistics in the corridor.

85 Zambia

4.3.1. Current State of the Food Retail Industry47

In Zambia, agricultural products and foodstuffs are basically locally produced and consumed. The share of the traditional distribution (Traditional Trade: TT) is high, and according to the interview research of the local retailers and wholesalers, TT accounts for about 70% and the modern distribution (Modern Trade: MT) accounts for about 30%. On the other hand, the companies including Woolworths, Shoprite, and Pick n Pay are concentrated in metropolitan areas such as the capital city Lusaka, and the presence of modern retailers of South African capital businesses is also strong. Regarding the procurement of agricultural products and foodstuffs, retailers targeting the poor and middle-income groups mainly rely on local procurement. On the other hand, modern retailers in the urban areas target the middle-income and high-net-worth groups, so there are not many products that meet the quality standards of these customers. Therefore, they rely heavily on procurement from South Africa and other European countries.

4.3.2. Main Products Handled in Zambia

(a) Imported Products Many non-perishable foods and dairy products are imported via inland transportation from the DC (distribution center) in South Africa to food retailers. On the other hand, chocolate and frozen chips are sometimes imported directly from suppliers of other countries as exceptions50.

(b) Exported Products There are farmers and food retailers exporting vegetables, fruits and flowers from Zambia. To the airport located in Lusaka, the capital of the country, different types of freights are delivered, but only a few companies operate refrigerated warehouses with different temperature levels. Crops that require sensitive temperature control, such as passionfruit and blueberry, are carefully handled as air cargo in order to export them to East Asia, the Middle East and to the rest of Africa.51 In 2017, Zambia exported $1,223,000 worth of flour, according to trade statistics published by FAO. Some major flour exporters regularly transport their products to the Democratic Republic of the Congo (DRC) by truck. According to the interview research, regarding the transportation between the Mazabuka and Cashalesa borders, the roads around that these areas have poor conditions and the condition is not good enough for loaded trucks to go through, so it was found out that there are many cases where cargo owners hire local workers who carry cargoes by bicycle, cross the bridge after loading cargoes to their bicycles, and load cargoes into trucks arranged by importers. These cargo owners usually collect wheat used as raw material on the way returning to the manufacturing plant in Lusaka from the border area to use the trucks effectively.

4.3.3. Transportation Methods and Their Characteristics and Challenges

47 From Fitch Report "Zambia Consumer & Retail Report-Q1 2020" and the interview research by JICA Survey Team 50 From Fitch Report "Zambia Consumer & Retail Report-Q1 2020" and the interview research by JICA Survey Team 51 From interviews with logistics and warehouse operators located at Lusaka Airport in Zambia

86 Major transport methods and their logistical challenges in Zambia are as follows:

Table 31 Major Transportation Methods and Their Challenges in Zambia

Domestic and Transport Products Challenges52 cross-border methods logistics Domestic Truck Perishable x Since local carriers do not have sufficient logistics food refrigeration capacity, it is difficult for them to transport refrigerated goods between stores in the country for retail stores that do not have their own insulation trucks x The road conditions in the suburb of Lusaka are very bad Cross-border 㹱 Truck Non- x Costs concerning permits (the fee called facilitation logistics perishable cost is charged) have been an issue around the food/frozen Chirundu border foods x In the route between the Chirundu and Lusaka borders, many cargoes, such as diesel fuel and natural resources are carried, so security and road conditions are poor and accidents are likely to occur Cross-border Airlines Perishable x Cold storage capacity is becoming scarce as the logistics food market expands x In some cases, even pharmaceutical and other temperature-sensitive cargoes may be left outside for 3 to 4 hours while waiting for a connection to inland transport [Source: JICA SurveyTeam based on field interviews]

Next, transportation methods according to each procurement type (local procurement, international procurement) will be described as well as their features.

(a) Local Procurement (1) Food Stores According to food retailers, local logistics and wholesale businesses in Zambia play important roles in the distribution of local agricultural products. Major retailers such as Shoprite and Pick n Pay supply perishable products through external logistics/wholesalers or their own logistics centers. For example, according to local farmers who supply vegetables to both retailers and local markets, "Freshmart" acts as an entity who supplies perishable food exclusively to Shoprite; nearly 100% of perishable food harvested

52 From interviews with logistics companies and wholesale/warehouse companies in Zambia

87 locally are delivered from this wholesaler to multiple stores. Generally, wholesalers aggregate the procurement of perishable food from local farmers within a distance of 30 to120km from the center of Lusaka where the warehouses/logistics centers are located, and such wholesalers are responsible for i) the procurement from local farmers and that of agricultural products which are capable of meeting the production volume and quality standards demanded by retailers; ii) the periodic monitoring of the production environment of farms and maintenance/promotion of relationships with farmers; iii) labelling on packages of products; and iv) giving instruction for delivery to local logistics companies. On the other hand, field interviews with logistics/wholesale businesses and retailers showed that there was a shortage of transportation services using cold chain technology in Zambia. For this reason, some retailers owned their own refrigerated trucks and outsourced truck operations to local logistics partners to facilitate local distribution of frozen goods. However, for many medium-sized retailers that do not own refrigerated trucks, it is difficult to distribute and procure frozen products locally such as ice cream.

Refrigerated warehouse of a local distributor Interior of refrigerated warehouse [Source: Photographed by JICA Survey Team] Figure 42 Refrigerated Facility of a Local Wholesaler (Distributor)

(2) Independent Retailers Independent retailers in the Lusaka area usually buy perishable foods directly from local farmers or from the informal market called "Soweto". It is not necessary to establish a temperature management system for Soweto because it opens early in the morning every day and farmers bring their crops to the market while they are still fresh. According to retailers, even in the capital city Lusaka, most consumers in Zambia are low-income households without food refrigeration and frozen facilities. Therefore, the network consisting of local farmers, informal markets, and a number of independent retailers in each region still remains as the mainstream distribution network in Zambia.

Note: The tomatoes in the wood boxes go to Soweto market, and the tomatoes in plastic box are purchased by distributors and food retailers. [Source: Photographed by JICA Survey Team]

Figure 43 Perishable Foods Sold at Soweto Market in Zambia

(b) International Procurement Most food retailers in Zambia transport products made in South Africa. They transport these products from their own logistics centers in South Africa to other countries and regions via inland transport such as trucks. After that, they carry out the procedures that are necessary to cross borders and deliver freight directly to stores in Lusaka or distribution centers. Given that food retailers regularly import products with short shelf lives, such as dairy and agricultural products from South Africa, traffic congestion at inland borders, customs clearance procedures, and delays in transport due to inspections are critical challenges for them to perform their businesses.53

4.3.4. Distribution Channel

In inland transportation from Johannesburg to Lusaka, there is a major border point with Zimbabwe in Chirundu, and there is a border point with Botswana in Kazungula. Interviews with cargo owners and carriers in Zambia indicated that the process of issuing transfer permits and permit payments at Chirundu border is inefficient and serious delays frequently occur. For cargo heading from South Africa to Zambia, it is necessary to cross Zambezi River by ferry to use the Kazungula border via Botswana. However, more cargo owners have shifted to transportation routes via Kazungula to avoid the risk of delays at the Chirundu border via Zimbabwe. Interviews with local logistics companies revealed that approximately 80% of the cargo for food retailers is currently transported through the Kazungula border when imported into Zambia. The summary of the distribution network on the distribution channel and procurement structure is illustrated in the following figure.

53 From interviews with logistics companies and retailers in Zambia

89 • Imports from land are shipped directly from the border to retail stores. • Locally sourced fresh food products are transported from local suppliers within ᅜቃ䝫䜲䞁䝖 a 120 km radius of Lusaka City to retail outlets via local distribution centers • Local suppliers are located within a 120 km radius of the local distribution center in Lusaka

R R R Procurement area (Local fresh food): within a radius of 120 km from 䝏䝹䞁䝗 Lusaka City

Lusaka

Kazungula

R Outlet of the retailers 20 Chilundo Border Point % Local Suppliers of Perishable goods Local Distribution Center 80 % From DC From DC in South Africa in South Africa

[Source: JICA Survey Team, based on field interviews] Figure 44 Distribution Network Map (from the Zambian Border to the City Center of Lusaka)

4.3.5. Analysis of Characteristics and Challenges Related to Logistics by Each Food Category

In Zambia, there are several common challenges to recognize the current distribution situation and challenges and to expand cross-border logistics facilitation. Common issues identified by the survey to stores of retailers and interviews with the DCs (distribution center) are the issues of local customs and customs clearance procedures for imported processed foods (including perishable foods). First, when considering the promotion of the extensive distribution network, or specifically, the bottlenecks in logistics from the perspective of utilizing the North-South Corridor, it is mandatory in South Africa, which is a major importer, to preliminarily acquire product labels indicating the origin of the raw materials used for manufacturing the products. In addition, it is necessary to acquire food safety/quality control certifications and export permits from Department of Agriculture, Forestry and Fisheries of South Africa as well as from Perishable Products Export Control Board (PPECB). Subsequently, food is transported to the markets in Zambia via Zimbabwe or Botswana. At the time of customs clearance at the Zambian border, for example, there is a customs clearance system for each product, such as a "signal system" when transporting perishable goods. However, logistics companies are not permitted to cross the border until the customs clearance procedure is completed. As a result, it takes a lead time of two to three days before crossing the Zambian border, regardless of the product groups, and this has been a common

90 issue. Secondly, the challenge with regard to market access to Zambia is that it is difficult to predict delays at national borders beforehand, and as a result, it is difficult for suppliers in South Africa and local retailers in Zambia to jointly adjust inventory systems and order timing/volume accordingly. In fact, according to retailers in South Africa, the business model, that considers risk management of inventory and delivery for purchasing products from multiple suppliers and exporting them, is hardly taken into account in Zambia. Thus, there is also little awareness about improving the quality of logistics. Finally, as for re-customs and its restrictions, it is necessary to respond to multilayered procedures, including customs, quarantine, and authorities of provinces, even in border areas where OSBP is being implemented, resulting in significant opportunity-loss of time and cost (tax procedures, freight costs, and disposal costs), particularly when cargo owners are refused to import cargo. Even in the border areas where OSBP is being implemented, it is necessary to go through many administrative procedures. An example of these cases includes customs duties to quarantine some product foods, and there are no remedies in the event of problems such as the refusal of customs to accept products in Phase 2 and Phase 3. This also represents a significant loss of business opportunity in terms of time and cost (e.g., no re-import tariff exemption, round-trip travel fee). In addition, regulatory changes are not notified to retailers and suppliers in advance, resulting in an extension of the lead time concerning delivery to these related entities.

(a) Group 1: Perishable Foods and Cold Chain Products For the items in this group, the current state of logistics/distribution of agricultural products and foodstuffs in Zambia will be investigated as a start, and the future expansion potential of cross-border distribution will be analyzed. As for the current research, the results of interviews with logistics companies and retailers in Lusaka, the capital of Zambia, indicate that transportation methods that implement cold-chain technologies throughout Zambia have not permeated much of the country. Only some logistics companies transport products by using cold-chain transportation (via land or air) such as refrigerated trucks from South Africa etc., and it was indicated that they often import high-value-added perishable goods, such as fruits and vegetables from other countries. In addition, regarding some retailers in Zambia only, we have confirmed that there are some retailers that transport high-value-added products such as passion fruits and blueberries made in Zambia, which require sensitive temperature control, to their own refrigerated warehouses located adjacent to Lusaka International Airport by refrigerated trucks, and store them in the refrigerated warehouses to use them for importing. According to FAO statistics, in 2017, among the fresh meat products included in the group, the self- sufficiency rates of pork (domestic production: 32,000 tons) and that of sheep meat (domestic production: 11,000 tons) were 100%, so no exports or imports existed for those products. For chicken, the self-sufficiency rate was 81.7% and domestic production was 49,000 tons. It is also imported partially by 12,000 tons. In addition, the self-sufficiency rate of beef was 224.7% and the production volume was high at 209,000 tons, so future export can be expected. As for fresh fish, the self-sufficiency rate of freshwater fish was 87.7% and domestic production volume was 114,000 tons. Its export volume was also high at 17,000 tons, expecting a future growth after fulfilling domestic

91 demands. In contrast to freshwater fish, the country entirely depends on imports to obtain sea fish; with the volume of import by 126,000 tons, and an increase in imports and exports of fresh fish is expected. Also, the self-sufficiency rates of fruits and vegetables are basically high, and the locally-produced/locally-consumed type business model is adopted. In the category of "other vegetables," the self-sufficiency rate was 113.6%, domestic production was 400,000 tons, and exports were 51,000 tons as well. Therefore, the potential for exports of beef, freshwater fish and vegetables could lead to enhanced intra-regional logistics of nearby countries in Africa if logistical barriers are resolved in the future. On the other hand, most products in the category are procured locally from a radius of 50km or less and a maximum of 120km or less. More specifically, fresh meat and fresh fish, which require a high level of freshness retention, and some value-added vegetables and fruits (onions, tomatoes, papayas, and lettuces) are often procured within a 50km distance, and other vegetables and fruits are procured within a 120km distance as a rough indication. These findings were confirmed through the interviews with local wholesalers. Fresh meats, such as beef and chicken, are currently transported from the suburbs of large cities such as Lusaka by trucks that do not have a function of temperature control, because the livestock industry is flourishing in the local areas. To summarize, the locally-produced/locally-consumed type distribution structures are established in Zambia, where most perishable foods are procured and sold locally. As of 2019, there are approximately 3,584,000 households in Zambia, but only 3.1% of them have annual disposable incomes exceeding $10,000 (number of households: 114,000), and 0.2% (number of households: 6,800) of them have annual disposable incomes exceeding $50,000. Currently, only a small demographic of people uses modern retailers in metropolitan and core cities. Traditional distribution methods used in retailing are still widely used in rural areas and this type of distribution accounts for 70 to 80% of market distribution in Zambia. If these methods do not change, an expansion of the distribution network cannot be expected. Currently, modern distributions can be seen mostly in large cities such as Livingston and the capital city Lusaka, and the rest is purchasing products in traditional retail shops or Soweto. It can be inferred that by only systematizing and modernizing the distribution, and then by proceeding with the nationwide expansion of modern retailers such as supermarkets in Zambia, the distribution of high-end products will be promoted in the domestic market54. At present, only some high-end perishable goods are imported from South Africa by refrigerated trucks or air, and some by air from Europe. In the case of land transportation from South Africa, the route through the Kazungula border via Botswana is preferred as a transportation route due to the duration of lead time and simplicity of customs procedures rather than the route through the Chirundu border via Zimbabwe. However, exceptional cases have also been confirmed in Zambia, where there is a strong tendency to rely on food imports from other countries. A large retailers, which has recently entered from South Africa, is trying to expand sales of high-priced product groups that considers food safety and security in the Zambian market as well. To this end, the company partnered with local wholesalers to promote procurement from local sites in Zambia, in addition to exporting agricultural products and foodstuffs from South Africa using cold chain-related transportation technology. Local wholesalers were advised by South African retailers on technologies and know- how related to quality preservation and standards. As a result, the wholesalers had to meet the stringent quality

54 Fitch Solutions “Zambia Consumer and Retail Report Q1 2020"

92 standards demanded by the retailer, but the retailer provided guidance to about 30 farmers, and many of the farmers were able to meet the quality standards demanded by the retailer. In other words, because the wholesalers made deals with two or three farmers for each food item, the retailer was able to procure from as many as 15 to 20 local farmers. These locally procured items include onions, tomatoes, papayas, lettuces, cucumbers, and peppers.

Table 32 Zambia: Value Chain Analysis of Group 1 (Perishable Food and Cold Chain Products)

Country: Zambia VC Patterns: Import model type Procurement Abroad source: Basic Region of origin: South Africa Information Perishable or non- Perishable foods perishable: Temperature Necessary control: Item: Fresh meat, fresh fish, bananas, oranges, other fruits (passion fruits, blueberries, etc.) э э Distribution flow DC(distribution center) Border Retailers (Transportation) (Transportation) Scope of Retailers Logistics companies Logistics companies Logistics companies Retailers responsibility Means of ― Refrigerated truck (partially airlifted) ― Refrigerated truck ― transportation Value chain Border areas (between South Africa (Distribution and Zimbabwe or between South Africa and Botswana, between A large city in South Africa Stores in Lusaka (the capital structure) Location ― Zimbabwe and Zambia, between ― (Johannesburg) Zambia) Botswana and Zambia) In the case of air transportation, Lusaka International Airport is used.

Based on contracts between Payment terms ― N/A ― retailers and logistics companies ― (60-day period)

When using the route starting from the DC (logistic) centers in Johannesburg to stores in Lusaka via Beitbridge Physical and the Chirundu Border, the travel distance of a truck is about 30 hours or less, often causing congestions due to a narrowness of the absolute width of the road, and the uphill road located around Chirundu is slightly high. infrastructure

Food safety and quality-control Even when food safety and quality certifications and export permits control certifications and export must be obtained in advance from permits are obtained, the above- Department of Agriculture, Forestry mentioned operations are assumed and Fisheries of South Africa and for exporting of a single product by a Perishable Products Export Control producer; the problem is that the Board (PPECB). system considering the business model of a retailer who purchases and exports multiple products from Customs/Border multiple suppliers is not designed. In addition, there is a "green signal system" for fresh foods (transport with a refrigerated container) at borders, but it actually takes two to three days to cross the border because the customs does not permit cargo owners to cross borders until customs duty payment procedures are completed.

Barriers and Airlift is costly and is only available It is difficult to transport products bottlenecks when cold chains, such as between stores due to the lack of Logistics refrigerated warehouses and development in domestic in logistics technology refrigerated trucks are available at refrigeration transportation systems the time of cargo loading or (e.g., refrigerated trucks and DCs). unloading. There are multi-layered customs, Because purchases are made once quarantine, state authorities, etc. a week, stock shortages often occur procedures at the time of re- in the second half of the week. clearance on the Chirundu Border. Market access/ Especially, when importing of cargo by cargo owners are refused, Business significant opportunity losses in feasibility time and cost will occur (e.g., no re- import duty, round-trip transport costs, disposal, etc.), and the inability to predict the time of arrival affects retail sales operations. Regulatory changes occur frequently at borders, but regulatory changes are not notified in advance and the extension of lead times occurs Policies and sometimes. In addition, it is regulations practically difficult to reflect the occurrence of such delays in the logistics system in advance and to adjust the timing and amount of orders.

[Source: JICA Survey Team, based on field interviews and store surveys]

93 Next, this document describes the possibility of future expansion of cross-border distribution from Zambia. Zambia is adjacent to Mozambique, there is a route to get to the Nacala Corridor in Mozambique, mainly through Malawi. From the viewpoint of the expansion of the logistics and distribution of agriculture products and foodstuffs in the vicinity of the Nacala Corridor, it was said that there are a certain number of industrial products such as cements and pesticides distributed from the Beira Corridor in Mozambique at present. However, it was said that the distributions of agriculture products and foodstuffs are not conducted in general by businesses because of the vulnerability of the physical infrastructure of the roads and the absolute small amount of the product to be handled. On the other hand, in terms of the distributions of agricultural products and foodstuffs to the Nacala Corridor via Malawi, there were opinions saying that the absolute amount of distribution is even lower than that of the Beira Corridor. This is coming from the absolute low distribution volume (not just food sector), followed by the vulnerability of the road infrastructure. Many logistics companies in Zambia said that it was common to use the Beira Corridor route when importing and exporting from Mozambique.55 However, regarding perishable foods imported from Mozambique in the future, specifically seafood and fruit/vegetables such as banana and oranges, the possibility of an increase in imports to Zambia is expected in the medium to long term, subject to the distribution of some large lots and future improvement of the fragile road infrastructure. However, for Mozambique, which currently relies on imports for approximately 90% of its agricultural products and foodstuffs focusing on grain, it is estimated that it will take a long time to meet these conditions. On the other hand, with regard to exports from Zambia to Mozambique and Malawi, the medium-term increase in the number of logistics companies possessing cold chain-related transport technologies through technology transfers via the entry of South African business operators, and the improvement in infrastructure vulnerability of roads in Mozambique, can also contribute to the potential export of Zambia's specialties - fresh meat (especially beef), freshwater fish, fruits and vegetables - which can contribute to the expansion of intra- regional distribution in the medium term. From the above, we can point out the following seven logistical issues from the perspective of value chain analysis of items belonging to Zambia Group 1, including common logistical impediments and barriers, which are commonly seen in any product categories of each group of Zambia.

x Import model: When using the export route starting from the DC (distribution center) in Johannesburg to stores in Lusaka via the Beitbridge and the Chirundu Border, the travel distance of a truck is about 30 hours or less. However, there are road infrastructure problems including a narrowness of the absolute road width causing frequent congestion, and the uphill road located around Chirundu whose degree of danger is slightly high. x Import model: There is a "green signal system" for perishable foods (frozen container transport) at the border. However, customs does not permit cargo owners to cross borders until the customs payment procedure is completed. In practice, it often takes two to three days to cross borders. Due to the inability to predict the time length to go through the customs, it is not possible to guarantee whether delivery can be made to stores by a certain period, possibility resulting in the loss of business opportunities due to

55 From interviews with logistics companies in Zambia

94 deterioration in product quality or absence of products. x Import model/Locally-produced/locally-consumed model: In terms of "last-one-mile delivery", it is difficult to transport products among stores because domestic refrigerated transportation systems (refrigerated trucks, DCs, etc.) have not been developed. x Import model: Regulatory changes are frequently made in border areas, but this is not notified in advance, and ordering lead time may increase. It is difficult to reflect the occurrence of such delays in the logistics system in advance to adjust the timing and amount of orders. x Export model: As for the possibility of export from Zambia to neighboring countries (Mozambique and Malawi), there are problems including the smallness of business scales, the cold chain-related technologies not being penetrated and the vulnerability of road infrastructure in other countries. The possibility of export within these countries will not be expanded without solving problems. x Locally-produced/locally-consumed model: In order to cultivate suppliers producing quality and perishable products in Zambia, strict quality and freshness conditions of local retailers such as South African capital must be met. To meet these conditions, it is necessary to transfer technologies and know- how from retailers and wholesalers, but guidance is not provided sufficiently at present.

(b) Group 2: Perishable Foods and Non-Cold Chain Products Regarding the items belonging to this group, the present state of logistics/distribution of agricultural products and foodstuffs in Zambia will be investigated, and the future possibility of distribution expansion in Zambia will be analyzed. Products in the group include wheat, corn, eggs, etc. According to the FAO statistical data, the self-sufficiency rate of wheat in 2017 was 82.6%, domestic production volume was 194,000 tons, import volume was 79,000 tons, and export volume was 12,000 tons, indicating some dependence on imports. Subsequently, the self- sufficiency rate of corn was 122%, and among the domestic production volume of 3,610,000 tons, about 10% (35 tons) was exported. The self-sufficiency rate of eggs was 102%, and most of them were consumed domestically. Interview research of wheat producers, wholesalers, logistics companies and retailers in Zambia did not identify any important issues that could impede the flow of products that starts from local farmers to food retailers. As shown in the FAO statistics above, when overviewing the perishable food value chain of Zambia, local products are mostly consumed locally. However, issues related to marketability (items that consumers want are low-cost products) and feasibility (low profitability) were identified in the entire food value chain. First, in terms of feasibility, there are not many farmers who provide crops on a contract basis. Most local farmers receive weekly purchase orders from retailers via wholesalers that operate warehouses (distribution centers), and prices vary according to their seasonal market prices, and products need to be sold at “asked prices”. Subsequently, it is necessary to procure packaging and labels required by retailers, which are normally imported from other countries via retailers and supplied to farmers, and this leads to a large increase in the prices of final products, which is a disadvantage for consumers. For example, a store survey of major retailers headquartered in South Africa found that market prices were about 10 to 20% higher at stores in Lusaka (in Zambia), in comparison with stores in Cape Town (in South Africa), when compared the price of the same food.

95 Secondly, from the standpoint of marketability, the high-end market for high-quality perishable foods remains small at the current stage56. In other words, many consumers in Zambia do not have financial leeway and prefer low-priced foods to high-quality foods. According to the results of an interview research of retailers and distributors in Zambia, one of the reasons why consumers have low awareness over food safety and quality is that consumer preferences lie with less interest in high-end products. In addition, because the government has no food quality control rules/standards and these rules/standards have not been implemented as law, retailers currently offer locally produced and processed foods at stores as they are. Finally, regarding logistical issues for Zambia as a whole, small-scale farmers often produce grains such as wheat and corn, but they often have to leave procurement and logistics to wholesalers because they need to spend lots of effort on transferring products to main roads. As a result, farmers and food processing companies have to pay wholesalers logistics commission fees, which minimize the profit of suppliers, leaving a major challenge in the upstream of the supply chain.

Table 33 Zambia: Value Chain Analysis of Group 2 (Perishable Foods and Non-Cold Chain Products)

Country: Zambia VC Patterns: Locally-produced/locally-consumed type Procurement Local suppliers source: Basic Region of origin: Zambia Information Perishable or non- Perishable foods perishable: Temperature Not required control: Item: Maize, wheat, egg, etc. Warehouse of э э Distribution flow Farmers wholesaler Retailers (Transportation) (Transportation) (or distribution center) Warehouses of wholesalers Scope of Production of agricultural Warehouses (distribution (distribution centers)/retailers Value chain Wholesalers and retailers Sales as retailers responsibility products centers) of wholesalers (labeling, packaging, inventory (Distribution management) structure) Means of Truck ― Truck ― (Thermal management may ― transportation also be partially carried out.) Lusaka (within a 50km radius Warehouses in Lusaka Location ― ― Lusaka from distribution centers) (Distribution centers) Payment terms ― 24-48 days ― 24-48 days ― Physical The roads near the farmers are infrastructure not paved. Customs/Border Because there are very few local logistics and wholesale companies that provide refrigerated transportations, Logistics some logistics companies and technology retailers own warehouses or Barriers and DCs (distribution centers), and some retailers own refrigerated bottlenecks trucks. in logistics Except for a small number of The cost of procuring labels Consumers are less large-scale farmers, direct and packaging for each retailer concerned about food safety Market access/ contracts cannot be concluded is incurred. and quality; their demands for Business with retailers, and weekly low price are high and their feasibility orders are received from demands for high quality fresh retailers and wholesalers via foods are low. intermediaries. Policies and There are no quality control regulations or standards in the regulations country. [Source: JICA Survey Team based on field interviews and store surveys]

56 As noted in (a) of the chapter 4.3.5 in this section, only 3.1% of Zambian households exceed disposable income of $10,000 or more per year, and only 0.2% of Zambian households exceed disposable income of $50,000 or more per year (2019).

96 From the above, the following three points can be cited as logistical issues from the viewpoint of value chain analysis of the items belonging to Zambia Group 2.

• Locally-produced/locally-consumed model: There are hardly any farmers who have been approved as contract farmers by retailers directly, and most famers sell products through wholesalers while receiving their requests weekly. Regarding prices as well, all they can do is to sell products at “asked prices”, which are influenced from seasonal fluctuations and market trends of wholesalers, leaving only small profits to the suppliers. Therefore, the motivation of suppliers to produce and sell is low, and they produce and process agricultural products and foodstuffs that are applicable only in the vicinity of producing areas. In other words, suppliers are not much interested in expanding distribution either, and they only produce and process low-quality products without spending costs on quality improvement or packaging, so they do not intend to produce products that can be distributed throughout Zambia. • Locally-produced/locally-consumed model: The consumer market for high-end foods is small, and consumers are not much interested in food safety and quality, and local retailers are not much interested in adding value to their products either. In other words, there is a strong preference for cheaper products than high-quality products, and the Zambian government has not enacted any laws concerning food safety rules or standards. Therefore, from local suppliers, in Zambia, to wholesalers/logistics companies, and even retailers; these parties are currently reluctant to implement cold chain transport/packaging technologies and they do not intend to invest in those technologies from the viewpoint of feasibility either. • Locally-produced/locally-consumed model: Farmers engaged in the production of wheat and corn are mostly small farmers, and their production areas are far from main roads, forcing them to outsource distributions to wholesalers. Wholesalers also have little intention of expanding their logistics businesses throughout Zambia, and are only interested in logistics businesses in the neighboring regions.

Regarding the possibility of future expansion of logistics in Zambia, it will be important for the Zambian government itself to establish laws, regulations and standards related to food safety, security, and quality as a start, and then conduct promotion activities targeting consumers. If regulations and standards for food products are established, related parties including suppliers, wholesalers and even retailers have no choice but to comply with these laws, regulations and quality standards in order not to impede the distribution of their products. At present, the high-end food market is small in scale, but in order to develop and promote the distributions for their businesses in the future, their awareness needs to be raised by having them think it is necessary to increase the added value of their products by packaging, establish/operate refrigerated warehouses and DCs (distribution centers) related to cold chains and introduce refrigerated trucks in the future. Products made in Zambia have already been exported to some neighboring countries in addition to being distributed to the domestic market. In order to promote distribution of corn and egg products in the domestic market, export of these products internationally, as well as aiming for import substitution of wheat in the future, it is presumed that the preference of policies that pursue advantages of facilitation of Zambian agriculture/food product distributions will be important through the above-mentioned top-down rules, standard establishment

97 and promotions.57

(c) Group 3: Non-Perishable Foods and Cold Chain Products For the items in this group, the current state of logistics/distribution of agricultural products and foodstuffs in Zambia will be investigated as a start, and then the future expansion potential of cross-border distribution will be analyzed. Regarding the investigation of the local sites, according to FAO's statistical data, in 2017, a self-sufficiency rate of milk belonging in this product group was 98%, domestic production volume was 397,000 tons, import volume was 14,000 tons, and export volume was 6,000 tons, indicating this product is classified into the locally- produced/locally-consumed type. Also, the country largely relies on import to obtain frozen vegetables. On the other hand, among processed meat, the self-sufficiency rate of beef was extremely high at 224.7%, as described in (a) of the same section. As of 2017, 93,000 tons of beef had already been exported to the nearby countries in Africa. According to a survey of retail stores in Zambia, frozen vegetables and fruits are sold by retailers targeting some wealthy classes, but the distribution volume of those products is small, and many of them are imported from South Africa. Dairy products such as yogurt and cheese, and frozen meats such as beef and chicken are generally procured from local producers within a 50km radius from the capital city Lusaka, because cold chain transportation is not common. Among the products of this group, dairy products such as yogurt and cheese, and frozen meats such as beef and chicken are classified into the locally-produced/locally-consumed type, because refrigerated trucks, refrigerated warehouses, and DCs (distribution center) are not widely used to realize cold-chain distributions and no distribution network has been built from the production regions to the entire regions in Zambia. In order to expand sales of these products throughout Zambia in the future, it will be essential to develop a system that enables efficient nationwide transportation by establishing logistics hubs in secondary cities, which will be important points for distribution, as well as in major cities. Next, regarding the possibility of expanding cross-border distribution in the future, among frozen meats, Zambian beef is a product that is highly internationally competitive with relatively large export volume, and is a branded product as described above. Therefore, in the future, there is a possibility that Zambian beef can be sold in the markets of Malawi and Mozambique along the Nacala Corridor and in the Democratic Republic of the Congo, which is the inland area. However, there is an issue concerning the vulnerability of the road infrastructure in the route from Mozambique to Malawi. However, following an increase in demand of accepting processed meats from the Zambian market, it seems high reasonable in the medium term to export and sell products abroad for wealthy and middle-income earners in exporting countries, and also to promote cross-border logistics.

(d) Group 4: Non-Perishable Foods and Non-Cold Chain Products For the items in this group, the current state of logistics/distribution of agricultural products and foodstuffs

57 Created by JICA Survey Team based on the interview research with local suppliers, logistics companies, wholesalers, and retailers in Zambia.

98 in Zambia will be investigated as a start, and then the future expansion potential of cross-border distribution will be analyzed. According to FAO statistics in 2017, the self-sufficiency rate of palm oil, which is a processed product in this group, was only 3.4% and domestic production was 2,000 tons, while import volume was 57,000 tons. As in the case of palm oil described above, in Zambia, according to interviews with DCs (distribution center) and retail businesses and store surveys of retail businesses, processing and manufacturing technologies are still less developed than that of South Africa etc., and processed foods and products that do not require refrigerated transportation are often imported from South Africa and other countries. In other words, the current situation is that Zambia relies on imports rather than making efforts to produce, process, and distribute processed foods locally. In addition, more current issues were identified through local customs and investigation of borders concerning imported processed foods (including perishable foods). To begin with, when the current logistical barriers are taken into account, the following logistical challenges were identified as already mentioned at the beginning of Chapter 4.3.

x Prior procedural issues in importing countries: In South Africa, which is a major importer, it is mandatory to preliminarily acquire product labels that indicate the origin of the raw materials used in the manufacture of products. It is also necessary to obtain food safety and quality control certifications and export permits from the Department of Agriculture, Forestry and Fisheries and the Perishable Products Export Control Board (PPECB) in South Africa. x Challenges concerning borders and customs: Foods are transported through Zimbabwe or Botswana to the markets in Zambia. At the time of customs clearance at the Zambian border, there is a customs clearance system for each product, but cargo owners are not allowed to cross the border until customs clearance procedures are completed, resulting in a lead time of two to three days before crossing the Zambian border. x Challenges concerning market access and feasibility: It is difficult to anticipate delays at the border, and as a result, it is difficult for South African suppliers and local Zambian retailers to jointly adjust inventory systems and order timing/volume accordingly.

In practice, according to retailers in South Africa, the business model, that considers risk management of inventory and delivery for purchasing products from multiple suppliers and exporting them, is hardly taken into account in Zambia. Thus, there is also little awareness about logistics management including inventory management and improving the quality of logistics.

99 Table 34 Zambia: Value Chain Analysis of Group 4 (Non-Perishable Food and Non-Cold Chain Products)

Country: Zambia VC Patterns: Import Model Procurement source: Overseas Basic Region of origin: South Africa Information Perishable or non- Non-Perishable perishable: Temperature control: Not Reuired Item: Pasta, Fruit Juicem, Coffee Products, Canned Fish, Canned Tomato, Tobacco Products э э Distribution flow DC(Distribution Center) Border Retailers (Transportation) (Transportation) Scope of Retailer Retailer Retailer Retailer Retailer Value chain responsibility Means of (Distribution ― Truck ― Truck ― transportation structure) Border Point䠄South Large City in South Africa 䠄Cape Lusaja Outlets䠄Capital of Location 䇷 Africa,Zimbabwe, 䇷 Town,Johannesburg, Durban䠅 Zambia) Botswana,ZAmbia䠅 Payment terms 䇷 N/A 䇷 N/A 䇷 It takes 35 hours by truck to get to the Physical border at Chirundu via Bait Bridge and a couple of days to cross the border, so the infrastructure total transport from Cape Town to Lusaka takes about 5 days One of the requirements when Firstly, South Africa's Department of exporting from South Africa is the Agriculture and Fisheries and PPECB marking requirement, which have granted various certifications requires that all producers and and export licenses for food safety places of production of each raw and quality control needs to be material be indicated (Since it is not obtained. Secondly, the above- a requirement at the time of mentioned operation is based on importation, in some cases it is the premise of producers, and the difficult to trace back to the system is not designed for the Customs/Border producer, making it difficult to deal business model of retail companies with at the time of exportation.) that purchase from multiple suppliers and export. Third, although there is a "green light" system for perishable goods at the border, in practice it takes two to three days to cross the border because customs does not allow shippers to cross the border until the duty payment Barriers and process is completed. Air freight is not used as it is Transportation between stores is bottlenecks in expensive and the handling difficult due to the lack of a logistics Logistics environment for loading and domestic cold transport system. technology unloading cargo cannot be guaranteed. Stocking is done once a week, so Market access/ there are often shortages later Business feasibility in the week. First, even at a border that claims to be a one-stop window, there are multiple layers of administrative procedures associated with the crossing of the border, such as customs authorities => quarantine => state authorities, and there are no remedies when a problem occurs, such as refusal of acceptance at the second or third stage, which results in a Policies and large loss of opportunity from the regulations perspective of time and cost (exemption from re-importation, round-trip transportation, etc.) (transportation costs, disposal, etc.). Secondly, regulatory changes are not notified in advance and may further increase the lead time. It is also difficult by design to reflect the occurrence of these delays in the logistics system and to adjust the timing and volume of orders. [Source: JICA Survey Team, based on field interviews and store surveys] Next, the possibility of promoting the wide-area distribution in the future will be described. According to interview researches of local vegetable and fruit producers and processors who conduct processing, packaging, and distribution of grain in Zambia, they are also highly motivated to pack, process, and distribute products by themselves. The evidence suggests that the number of consumers who are in the suburb of Lusaka and interested in food safety and packaging has been increasing recently. Those producers and processors also point out that if they obtain processing, manufacturing, and packaging skills, more modern retailers would buy products at higher prices than now. However, they are also aware of their issues, that is, there are limitations to obtain high level of processing, packaging, and logistics skills by themselves, and it would be necessary to receive guidance from retailers in South Africa, etc. In practice, they mentioned that they have already started test-market to South

100 African-headquartered Woolworths, Shoprite, and Pick n Pay ,and they expect that their products will be sold at higher prices with higher profit margins than selling to existing retailers who they have dealt so far. In order to deliver products to these retailers, the companies need so-called “Just In Time” logistics technology and know-how, and some said that they are currently taking on the challenge. These suppliers also exist in the suburb of Lusaka, and they had a will to produce, distribute, and sell their own processed products as large retailers increased their share of the Zambia market. It can be inferred that by increasing the number of such suppliers, Zambia's locally-produced-locally-consumed distribution structure can be expanded throughout the country, in addition to expanding the distribution and export businesses of Zambian processed products by considering the balance between supply and demand for foodstuffs with neighboring countries. From the above, the following five points can be cited as logistical issues from the viewpoint of value chain analysis of the items belonging to Zambia Group 4.

• Import model: In South Africa, which is a major importer, it is obligatory to obtain product labels indicating the origin of each raw material in advance, as well as food safety and quality control certifications and export permits. Subsequently, at least two to three days of lead time is required at the time of customs clearance at the Zambian border. • Import model: It is difficult to predict delays at the Zambian borders in advance, and it is difficult to adjust the timing and quantity of inventories and orders between suppliers and Zambian retailers. • Import model type: Because regulatory changes are not notified to retailers and suppliers in advance, lead time/cross-border time predicted by related parties such as retailers and suppliers are eventually changed and extended. • Locally-produced/locally-consumed model/ Export model: Although the current market size is small, there is a need for upgrading processing, manufacturing, and packaging skills in line with the future growth in the consumer market of the wealthy and middle-income groups, but it is difficult for the companies to improve their skills on their own. Therefore, it is desirable to receive technical and knowhow guidance from companies in other countries, but there are no opportunities to receive such guidance. • Export model: Zambia has a high self-sufficiency rate. Exports of processed foods can also be expected in the future through crop processing and production such as soybeans, corn, beef and freshwater fish, which have already been exported to neighboring countries. However, the country actually has limited domestic logistics expertise to date, and does not have enough logistics technology to export and advanced human resources in the field of logistics.

(e) Group 5: Cash Crops For the items in this group, the current state of logistics/distribution of agricultural products and foodstuffs in Zambia will be investigated as a start, and then the future expansion potential of cross-border distribution will be analyzed. Regarding the current research, products classified into this cash crop group include soybeans, rice, coffee beans, etc. According to FAO statistics, in 2017, self-sufficiency rate of soybean was 173.8%, with exports of

101 84,000 tons, indicating that it is one of major exports among agricultural and food products in Zambia. Although the self-sufficiency rate of rice was 95%, it is exported in small quantities with the export volume of 3,000 tons. Since Mozambique is a large-scale rice importer, it is possible that the export volume will increase in the future. Coffee beans and coffee products58 are also exported in small quantities, with a self-sufficiency rate of 233.3%. Next, regarding the possibility of future expansion of cross-border logistics, there is a major obstacle to use of the Nacala Corridor. Firstly, regarding soybeans and rice, which are major exports to Mozambique, if it is assumed that the Nacala Corridor is used, it will be necessary to go through the Chipata border located between Zambia and Malawi and then go through the Muloza/Milange borders located between Malawi and Mozambique via roads in Malawi. In doing so, as analyzed in Section 2.3.2 of Chapter 2, the biggest challenge in promoting logistics is the extreme vulnerability of road physical infrastructure, especially after entering Mozambique. According to the findings, when compared to the roads in Zambia and the roads in Malawi, the road conditions after entering Mozambique were below the average. The survey result also showed that the certain areas have few or narrow road lanes and some secondary roads bear similarities to branch lines. It also showed that it took less than one day to complete customs clearance procedures and go through each border, which suggested that there was no major problem. The time required to move from Lusaka to Nacala varies from 48 to 72 hours, but it is generally considered to be 2 to 3 days. As for cold-chain technology, there is no need to use that technology to crops exported from Zambia in particular, but because information on the bad road condition has been obtained, packaging technology and know-how are considered to be necessary. Next, in the marketability field, the research results has been obtained showing that it is rarely used for products in the agriculture product and food fields, and the volume of loads is absolutely small compared to the Beira Corridor, making businesses unprofitable. Soybeans and rice are exported from Zambia to Mozambique in connection with food safety supply, but it is said that they are exported through other corridors (the Beira Corridor or via Zimbabwe/South Africa). This may be attributed to the population distribution in Mozambique, i.e., the accumulation of population in the southern region.

58 According to FAO Stat data, production and export data are shown with coffee or coffee product category, so it is unclear whether data indicates export of coffee beans or export of coffee products

102 Table 35 Zambia: Value Chain Analysis of Group 5 (Cash Crops)

Country: Zambia VC Patterns: Export model type Procurement Domestic source: Basic Region of origin: Zambia Information Perishable or non- Perishable foods perishable: Temperature Not required control: Item: Soybean, rice, coffee bean, unprocessed tobacco Malawi- Logistics э Zambia-Malawi э э Retailers of Distribution flow Mozambique company/forwarde r (Transportation) border (Transportation) (Transportation) Mozambique border Scope of Domestic logistics Logistics Logistics Logistics Logistics Logistics Retailers/sales responsibility and procurement company/forwarder company/forwarder company/forwarder company/forwarder company/forwarder Means of ― Truck ― Truck ― Truck ― Value chain transportation (Distribution Muloza/Milange Chipater Stores in Lusaka (the structure) Location Zambia (Lusaka) ― (Malawi- ― (Zambia-Malawi) capital of Zambia) Moz am bique)

Based on contracts Import tariffs and Import tariffs and between retailers and Payment terms ― N/A N/A ― fees accrued fees accrued logistics companies (60-90 day period) The road infrastructure Standard as a Standard as a is fragile. There is developing country developing country plenty of room for improvement where Physical there is a lack of road lines (two lanes), and infrastructure there is no choice but to go through roads such as branch lines.

No problem was No problem was Barriers and identified since identified since customs/customs customs/customs bottlenecks Customs/Border procedures are quick procedures are quick in logistics (additional fees may (additional fees may be incurred). be incurred). Logistics Because of the vulnerability of road infrastructure, it is highly necessary to develop countermeasures regarding technology packaging technology and know-how in advance. Considering the low load capacity, low frequency, and relatively dangerous road conditions, the current The profitability of many Market access/ necessity of using the Nacala Corridor is low from the viewpoint of a logistics business. It may be utilized due crops that are expensive, but nutritious for Business to the expansion of the import/export markets in the future. consumers in northern feasibility Mozambique is expected to be high. Policies and ࠉ regulations [Source: JICA Survey Team, based on field interviews and store surveys]

From the above, the following three points can be cited as logistical issues from the viewpoint of value chain analysis of the items belonging to Zambia Group 5.

x Export model: Since the road development condition in Mozambique is poor, particularly compared with that of Zambia and Malawi, improvement needs to be made for narrow lanes and for increasing lanes when using the Nacala Corridor. x Export model: It is necessary to make full use of skills and know-how to pack products carefully in advance by considering the vulnerability of road infrastructure. x Export model: At present, the use of the corridor has very few advantages in terms of poor access to large markets (large markets are in the southern region), poor physical infrastructure, low load volume, and infrequent use of the corridor.

4.3.6. Summary: Bottlenecks and Barriers Concerning Logistics in Food Retailing

The obstacles and barriers to the future expansion of distribution/logistics within the regions identified in the survey conducted in Zambia (including logistics in the Nacala Corridor and the North-South Corridor) are as

103 follows.

1) Arbitrage of Customs and Customs Procedures at Borders (Import Model)

The logistical barriers in Zambia that are common to all agricultural products and foods imported from South Africa can be summarized as follows:

x In importing countries such as South Africa, it is mandatory to obtain product labels indicating the origin of each raw material used in the manufacture of the product. Also, food safety and quality control certifications and export licenses must be obtained from Department of Agriculture, Forestry and Fisheries of South Africa and Perishable Products Export Control Board (PPECB) in advance. x At the Chirundu Border, the process of issuing permits is inefficient, causing serious customs clearance delays, and importers (retailers) also incur the additional costs for obtaining permits and for delays. x In addition to frequent delays at the customs of the Chirundu Border, regulations concerning customs and customs clearance are changed frequently, and no prior notice of these regulatory changes is given to retailers. Therefore, retails have to take delay and default risks. x There are many problems in the system environment, such as lack of compatibility, poor system environment including communication environment, unified customs/customs clearance processes, frequent power outages, lack of customs staff familiarity with the system, resulting in inefficient use/operation of the system. These challenges are common in all groups from Group 1 to Group 5 for retailers exporting products from South Africa to Zambia via Zimbabwe.

2) Absence of Last-One-mile Refrigeration Transport (Import Model/Locally-Produced/Locally- Consumed model)

The following are the specific logistical issues and barriers concerning the above.

x There is no cold transport system such as refrigerated warehouses and DCs (distribution centers) in place within Zambia, so "last one-mile delivery" to stores is sent to warehouses. x In reality, however, there are many problems with stock of stores such as having no stock at all or insufficient amount of stocks, increasing a need for deliveries among stores. However, it is difficult to do so because there are hardly any cold-chain environments (e.g., refrigerated warehouses and trucks) in the country. x Because of the steep slope of the roads between the Chirundu Border and Lusaka, logistics companies consider that there is a danger to transport products around this area.

These challenges are common logistical bottlenecks of Group 1 (perishable products) and Group 3 (products requiring refrigerated transport).

3) Production Quality of Local Suppliers in Zambia is Low (Locally-Produced/Locally-Consumed model)

104 The following are the specific logistical issues and barriers concerning the above.

x As for Zambia's distribution structure, only few suppliers have direct contracts with retailers. Many suppliers listen to the intentions of wholesalers and produce/process agricultural products and foodstuffs that are available only in the vicinity of their production sites. x In other words, suppliers are not much interested in quality, and are likely to produce and process low- quality products without spending money on quality improvement or packaging, so they have almost no intention to produce products that can be distributed throughout Zambia. Consequently, there are hardly any suppliers who can meet the stringent quality standards and requirements of foreign retailers such as South African capital businesses. x Farmers have only little interest in quality control of agricultural water or chemical substances used in the cultivation of agricultural products. x Unlike the businesses described above, some suppliers are interested in producing high-quality products, and it is important to cultivate such suppliers.

These challenges are common barriers mainly identified in Group 3 and Group 4 in terms of aiming at adding value to products.

4) Low Logistics Capacity of Local Suppliers in Zambia (Locally-Produced/Locally-Consumed model)

The following are the specific logistical issues and barriers concerning the above.

x A characteristic of the distribution structure in Zambia is that retailers rarely enter into direct contracts with suppliers, and wholesalers often listen to retailers' requests and needs and impose them on suppliers. x Because wholesalers often have logistics functions, suppliers often outsource the product transportation job to wholesalers, because the main roads are geographically separated from their production sites. Therefore, profits of suppliers are reduced by the wholesalers taking the distribution costs. x Also, wholesalers only convey retailers' requests, and there are only few export-oriented businesses that intend to expand their logistics and sales operations throughout Zambia. Many of them are interested in logistics and sales operations in the neighboring area only, so they also have little interest in cold-chain transport technology.

These challenges are common among suppliers that are far away from mass-consumption areas. In terms of product categories, these challenges are common logistical bottlenecks of Group 2, Group 3, and Group 5.

5) Transportation Methods are Limited to Dry Transportation (Locally-Produced/Locally-Consumed model)

The following are the specific logistical issues and barriers concerning the above.

x Currently, the consumer market for high-end fresh agricultural products and value-added foods is small, and consumers are not much interested in food safety and quality. x In other words, consumers in Zambia strongly prefer cheap products to high-quality products, and the

105 Zambian government has not developed food safety standards or regulations, etc. x Therefore, from local suppliers, in Zambia, to wholesalers/logistics companies, and even retailers; these parties are currently reluctant to implement cold chain transport/packaging technologies that can increase value of products, and they do not intend to invest in those technologies from the viewpoint of feasibility either.

These issues are mainly related to freshness, and then quality, so they are bottlenecks commonly seen in Group 1 and Group 2.

6) Physical Road Infrastructure is Poor (the Nacala Corridor, etc.) (Export Model)

The following are the specific logistical issues and barriers concerning the above.

x Regarding the possibility of exporting from Zambia to neighboring countries (Mozambique, Malawi), it is difficult to export perishable products such as beef, fruits and vegetables, without transportation technologies related to the cold chain being widely used. x As for the road conditions of the Nacala Corridor via Malawi, when compared to the road conditions in Zambia, main roads are narrower and developed like branch lines in addition to the possibility of road floods during the rainy season, causing difficulty when importing food products and requiring a need in extra attention of packaging techniques and know-how. x Also, logistics companies do not possess sophisticated long-distance logistics know-how, and they have low intention to engage in transport operations in the corridors with a high degree of risk without experience.

These challenges are logistical bottlenecks (mainly targeted at the Nacala Corridor), which are commonly seen in Group 1 and Group 3, as they primarily apply to products requiring long-term cold-chain transport.

7) Absolute Lack of Cargo Volume at the Time of Export and Lack of Marketability (the Nacala Corridor, etc.) (Export Model)

The following are the specific logistical issues and barriers concerning the above.

x Zambia has high self-sufficiency rates for agricultural products and foodstuffs, and has already exported soybeans, corn, vegetables, fruits, beef, freshwater fish, etc. x However, the main export countries are countries in Europe (mainly Switzerland) and China, rather than neighboring countries in the African region. As for neighboring countries in Africa, Zambia exports a large amount of products to Zimbabwe and South Africa. x When considering marketability and exporting to Mozambique, it is common to export products to Maputo via Zimbabwe or export them by using the Beira Corridor. Using the Nacala Corridor is not profitable because there is a small volume of cargo and no regular delivery. These challenges correspond to high value-added processed products and perishable foods, so they are common logistical bottlenecks seen in Group 1 and Group 4 (primarily for the Nacala Corridor).

106 8) Limited Number of Suppliers Wanting to Learn Export-Worthy Processing, Producing, Packaging, and Logistics Skills (Export Model)

The following are the specific logistical issues and barriers concerning the above.

• Some suppliers are interested in the advancement of skills in processing, manufacturing, packaging, and transportation, given the current situation that the number of retailers who can purchase products at higher prices than they are now, is increasing. But only if suppliers can acquire the skills mentioned above. • However, these suppliers are aware of the issue that there are limitations to obtain high level processing, packaging, and logistics skills by themselves and it will be necessary to receive guidance from retailers in South Africa, etc. Therefore, they have begun negotiations with leading retailers. • Some suppliers believe that advances in their own skills will enable them to sell their products at high prices and increase their profitability, and they also believe that they need so-called Just In Time logistics techniques and know-how to deliver products to retailers. • Although these suppliers mentioned above are also located in the suburb of Lusaka, their absolute numbers are still limited. In the future, such needs are expected to increase as the market for wealthy and middle-income earners grows larger.

These issues are bottlenecks that consider not only the physical distribution of processed products seen in Group 4, but also the entire food supply chain in Zambia.

Mozambique

4.4.1. Current State of the Food Retail Industry

Mozambique relies on imports for a large proportion (about 90%) of its agricultural products and foodstuffs, and large volume of cereal, such as wheat, corn, and rice, are also imported. A large DC (distribution center) for retailers is located in the metropolitan city Johannesburg, where major foods in South Africa are clustered. A trunk road is laid between Maputo (the capital of Mozambique) and Johannesburg, and it is difficult to say that development situation of the road infrastructure in Mozambique is good, but it takes about 6 hours to get to Maputo from Johannesburg. In Mozambique, multiple retailers have made an entrance into the metropolitan area Maputo, and most of them are major realizers of South Africa. On the other hand, traditional retailers are still widely used in northern and central Mozambique. While it is expected that systematization of the food retail distribution will gradually evolve in the future, this market relies on the traditional distribution to transport most of products at present59

4.4.2. Main Products Handled in Mozambique

(a) Imported products In Mozambique, qualities of agricultural products and foodstuffs are not high, and the development of a

59 Based on interview research of local retailers and logistics companies.

107 logistics network that includes a domestic cold chain is insufficient. Therefore, the country must rely on procurement from other countries. According to FAO statistical data, the main imported foods were cereals such as rice, wheat and corn with self-sufficiency ratios of 10.8% for rice (942,000 tons imported), 2.2% for wheat (716,000 tons imported) and 72.5% for corn (173,000 tons imported) in 2017. The self-sufficiency rates of fruits, vegetables, meat and fish were relatively high at 70 to 90%. According to the field interview, nearly all retailers imported both perishable and non-perishable products from South Africa via inland transportation. According to one retailer who talked about the needs of local products consumed in the Maputo area, due to its close proximity in terms of distance, perishable food imported from South Africa can be kept fresh; therefore, the needs of local products from Mozambique are not necessarily high in reality, even in the Maputo area. It was also mentioned that the route from Johannesburg to Maputo is the mainstream for importing products, and prices were slightly higher (about 5 to10%) when compared with the same products sold in South Africa.

(b) Exported products Exported products are limited: bananas, sesame seeds, peanuts, etc. According to FAO statistical data, the export volume of bananas in 2017 was 94,000 tons (119.3% self-sufficiency), the export volume of sesame seeds was 43,000 tons (315.8% self-sufficiency), and the export volume of peanuts was 22,000 tons (128.6% self-sufficiency). In order for this country to become an exporter of agricultural products and foodstuffs, it will take a long time for farmers to acquire the capacity and know-how to improve varieties and raise productivity. However, the country is expected to be a LNG exporter worldwide, and investment in infrastructure development such as marine transportation and roads is increasing. In Mozambique, road infrastructure development such as the Nacala Corridor, the Maputo Corridor, and the Beira Corridor has been promoted. However, the export and import of agricultural products and foodstuffs among neighbouring countries are not active at present, and Mozambique does not import many agricultural products and foodstuffs from neighbouring countries except for imports from South Africa. In the future, it will be essential to expand the size of the food market in Mozambique in order for a certain amount of bulk to be transported regularly from neighbouring countries. In addition, as a condition for logistics expansion, the development of road infrastructure will be important in terms of market access.

4.4.3. Transportation Methods and Their Characteristics and Challenges

Major transport methods and their logistical challenges in Mozambique are as follows:

Table 36 Overview of Transportation Methods and Issues (Mozambique)

Domestic/Abroad Transportation Product Challenge60 method Domestic logistics Truck Perishable ࣭ Domestic procurement is restricted food/non- except for part of the Maputo area due perishable food to the lack of developed cold chain

60 Based on interview research of local retailers and logistics companies

108 networks. ࣭ Northern Mozambique is politically unstable and transportation in the north is often suspended. Cross-border logistics Truck Perishable ࣭ Corruption of the border management food/non- causes high cost and a long lead time perishable at customs food/frozen food Cross-border logistics Shipping Perishable food/ ࣭ Operations of the Beira port is non-perishable inefficient and it takes about 24 to 48 food hours to get into the port by truck (4 to 6 hours at the Maputo port). [Source: JICA Survey Team] Next, the logistical features/problems concerning the procurement types (local procurement, procurement from other countries) will be described.

(a) Local Procurement According to the annual report of the supermarket chain in Mozambique, supermarkets in the country are supported by sufficient road infrastructure61, indicating that the future growth prospects are bright. However, surveys for stores in Mozambique and interviews found little evidence of locally produced products in Mozambique. A specific case of a retailer shows that only products procured locally were cola, banana, beer, bread, and processed/frozen goods of chicken. One retailer noted that Tete and Gaza are among the most promising areas for agricultural development in Mozambique, and further development of agriculture can be expected if the two issues are overcome: "quality of logistics (freshness maintenance, packaging, shortening of transportation time, etc.)" and "quality of products (taste, shape, packaging, etc.)". In other words, in order to increase local procurement of agricultural products and foodstuffs, regardless of the regions mentioned above, the two problems must be overcome: vulnerability of infrastructure and low quality of products.

(b) Procurement from Other Countries62 In the interview with a local retailer, about 90% of the foods currently handled by Mozambique retailers were procured from other countries. In the food retail sector, IMF and World Bank suspended lending as debt concealment by several governmental enterprises in Mozambique became apparent. As a result, Mozambique experienced an inflation

61 According to the results of interviews with local logistics companies, it was pointed out that the roads of Maputo Corridor are normal, and those of Beira Corridor and Nacala Corridor have narrow lanes, collapse during the rainy season and have other dangers. 62 From Shoprite Annual Report 2017 and interviews with retailers and logistics companies in Mozambique

109 rate of about 23% in 2016 over the previous year. It negatively impacted the food sector in 2017, and it was found that grains, such as wheat, rice, and corn, which did not have sufficient self-sufficiency rates, could not be produced within the country. As a result, almost all food was imported and food prices nearly doubled. In countries such as Mozambique that rely on donor assistance, this has had a devastating impact on the domestic economy and the food sector. Despite the weak local currency, demand and imports of products produced in South Africa continue to grow. When looking at the shelves of food retailers in Mozambique, it is revealed that local retailers prefer imported products and foreign brands, even though they are ideally hoping to procure agricultural products and foodstuffs produced locally. This can be attributed to Mozambican consumers' lack of trust in product qualities of their country.

4.4.4. Distribution Channel63

Transportation of products through fragile road and port infrastructure is a serious challenge for Mozambique. At the same time, it is essential for Mozambique to establish a smooth logistics infrastructure in order to realize industrial development in manufacturing and other industries, and the Mozambican government also recognizes this issue as an important bottleneck. In the food retail sector, underdeveloped logistics infrastructure has raised logistics costs, resulting in higher final prices of products and price differences across the provinces in Mozambique. For example, there is a situation that beer prices in the province of Niassa are doubled when compared to those of the province of Nampula, where beer factories are located. This arises because the road infrastructure for delivering products from the point of production to markets is not well established. According to the research by Researchgate, food sold in Niassa can be about 40% higher than in southern Mozambique. For this reason, it is difficult for retailers to distribute their products to the province of Niassa, and this is hardly conducted at the current moment. The central and northern parts of Mozambique are said to be one of the most vulnerable areas in terms of road infrastructure. For example, it sometimes takes even 24 hours to travel for a 300 km distance (between Chimoio and Zambezia) and there is no efficient transport system for transporting commodities between the production point in the northern area and markets in the southern area. The use of ocean (or rail) freight as an alternative to local freight can be more efficient and significantly reduce transportation costs. The ports are constructed in Mozambique to accept bulk cargo, but export items are often sent to Durban and then re-exported from South Africa. At present, there are some opinions saying that most ports located in Mozambique are difficult to use64. There are hardly any companies that carry large volumes of freight to justify the use of marine transportation, and even if they are using small quantities of freight, the waiting times for transportation are very long. The government of Mozambique appears to be addressing the port problems in Mozambique by improving the capacity and efficiency of port infrastructure. However, this process has been slow. The inefficiency of transportation are further impeded by border systems and trade regulations that further inhibit logistics facilitation. Additionally, regarding exporting products to Zimbabwe in particular, if the import/export/customs processes are not well understood, it may be necessary to overcome a higher hurdle depending on whether the

63 EMIS "Market Overview (Freight Transport & Shipping Report Mozambique Freight Transport & Shipping Market Overview - Mozambique - Q1 2020) 64 Based on interviews with retailers and logistics companies in South Africa and retailers in Mozambique

110 requirements of the French international food testing, study and certification body, "Bureau Veritas" are met. Certificate of conformance is required for some foods, agricultural products, and packaging materials to demonstrate compliance with international standards. Obtaining this certificate can take seven to 15 days, and trucks have to wait around during that time. This document is needed for quality assurance, and it has been stressed that a reasonable process should be made to obtain this document, especially for small and medium- sized enterprises, but the duration for issuing product certifications is a major challenge for small-scale processors in Mozambique. Discussions with stakeholders show that if matters specified in the SADC (Southern African Development Community) protocol, which was approved in January 2008, are implemented, cross- border trades would be facilitated. It should be noted that products falling under SADC rules concerning the origin of place are exempted from tariff payments and assessments in cases where products are traded within South Africa, but this protocol is not complied with by all the member states of SADC.

4.4.5. Summary: Logistical Bottlenecks and Barriers in Food Retailing

Although Mozambique has a long territory stretching from north to south as well as many corridors, such as the Nacala Corridor, the Beira Corridor, and the Maputo Corridor, not all the ports and road infrastructures are well developed and many roads are physically fragile. Under these circumstances, the country also relies on import for the majority of agricultural products and foodstuffs, and leading logistics companies and forwarders in South Africa etc. supply products to local retailers. On the other hand, the logistics qualities of local logistics companies are low, and there are almost no cold chain transportation. First of all, it is essential to develop distribution networks to produce products locally and consume them locally and to develop logistics infrastructures. Given that the distribution of agricultural products and foodstuffs is currently entrusted to foreign-affiliated logistics companies and forwarders, the training of local logistics companies and the transfer of technology/know-how are required urgently to accomplish those purposes. Additionally, it is likely that local suppliers are small farmers with low productivity, and processing companies lack in both absolute numbers and skills. It is assessed that training of local suppliers is also highly necessary, in addition to the developments of logistics infrastructure and distribution networks.

Cote d'Ivoire

4.5.1. Current State of the Food Retail Industry

Cote d'Ivoire's food spending is expected to grow by 8.3% from 2019 to 2023, supported by robust economic prospects, rising disposable income, and low and stable inflation. Staple food of the bread, rice, and grain category is expected to continue to dominate food spending. Increased sales of dairy products, bread, rice, and cereals, and fresh vegetables are expected to be the main growth drivers in the food market between 2019 and 2023. Current grocery retail sales are $936 million, estimated to be equivalent to 14.2% of total grocery sales65.

4.5.2. Main Products Handled in Cote d'Ivoire66

65 Fitch Solutions "Côte d'Ivoire Food & Drink Report-Q1 2020" 66 Fitch Solutions "Côte d'Ivoire Food & Drink Report-Q1 2020" and based on interviews with local logistics companies

111 More than 70% of the products exported from the country are agricultural products such as cacao, coffee beans, cashew nuts, and bananas. Because the prices of these crops themselves are not high, local distributors transport these products by truck, and there are no major problems in terms of logistics infrastructure. According to a major logistics company, however, the reason why raw milk cannot be distributed lies in its poor quality and also in the lack of cold chain infrastructure. In the future, the development of cold chain transport technologies will likely bring new growth drivers to the country's food-related industries. In fact, the major local logistics companies are initiating their efforts in such technologies. Another challenge is the large number of inspection centers all over the West Africa Growth Ring, which is a major bottleneck and impediment to smooth logistics by distributers and logistics companies operating in the country and the Corridor countries.

4.5.3. Transportation Methods and Their Characteristics and Issues

Major methods and issues of transporting agricultural and food products in Cote d'Ivoire are as follows. Table 37 Transportation Methods and Their Issues (Cote d'Ivoire)

Domestic/International Transport mode Products Issues67 Domestic logistics Truck Fresh Food / ࣭The main roads extending to the north are Non-Fresh in good condition, but other branch roads Food are not in good condition. ࣭The public sector, such as the government and the national railways, has concluded private contracts with certain French subsidiaries and prioritizes the distribution of their products. Cross-border logistics Truck Fresh Food / ࣭ The quality of infrastructure such as Marine Non-Fresh roads, ports, and border facilities seems transportation Food / Frozen acceptable, but additional costs due to Food corruption including bribery culture in border management are high, and the lead time required for customs clearance is also long. [Source: JICA Survey Team]

4.5.4. Distribution Channel68

While Cote d'Ivoire's transport network is rated the most used and most developed among the West Africa Growth Ring countries, Cote d'Ivoire is still addressing a number of issues specific to Western Africa. The World Bank's "Doing Business 2017" report ranks Cote d'Ivoire 150 out of 190 countries in the ease of

67 Based on interviews with local retailers and logistics companies 68 PRS Group "Cote d'ivore Country Report" (2019), Word Bank "Doing Business 2017"

112 cross-border trading index. Western Africa, however, is currently making steady progress. One important step in improving trade ease is the establishment of a one-stop window for import procedures. Such measures have enabled companies to shorten the time it takes to meet all the documentation requirements for trade. As a result of these reforms, even though the country is still lagging behind developed countries, comparing the World Bank's aforementioned Doing Business 2017 report with the same report from five years ago, which ranked the country 161 out of 183 countries in the ease of cross-border trading index, a gradual improvement has been seen in the trade sector's performance. According to the World Bank, the cost of exporting containers from the perspective of border compliance was $423, while the average cost for Sub-Saharan countries remained high at $603 in 2019. Roads are an important component of Cote d'Ivoire's transport infrastructure, accounting for more than 99% of total domestic freight flows, enabling the country to establish the largest road network in West Africa in the last decades. The road network currently stands at 82,000 kilometers with 6,500 kilometers of paved roads as of 2015. Road infrastructure is not only important for the domestic economy. Cote d'Ivoire’s transport infrastructure also plays an important role in the economic expansion of neighboring inland countries such as Mali and Burkina Faso that import and export via the Port of Abidjan. In particular, the transport corridor between Abidjan and Ouagadougou has become an important transport route linking Burkina Faso’s capital, central region, and part of the northern region with the Atlantic coastal countries of West Africa. According to the World Bank, as of September 2016, 75% of freight in the corridor was accounted for by road transport and the rest by rail. This corridor also accounts for 35% of Burkina Faso's international trade, and is a source of strategic development for both Cote d'Ivoire and Burkina Faso, making it a target of a large-scale transport infrastructure development plan. With the recovery of political stability and rapid economic development, the Port of Abidjan is re-establishing its position as a gateway to the inland countries, but with the Port of Tema in Ghana playing a larger role in regional transport, its position has declined slightly. However, the total processing volume of the Port of Abidjan, the country's largest maritime trade asset, increased 3.8% from 21.7 million tons in 2016 to 22.5 million tons in 2017, and the number of containers handled increased from 612,410 to 640,863 during the same period.

4.5.5. Summary: Bottlenecks and Barriers in Logistics in Food Retailing

Cote d'Ivoire has railroads and its road infrastructure is of higher quality than other countries in the West Africa Growth Ring. In particular, major overseas logistics companies are expanding their operations into the country because the main road up to the inland country Burkina Faso, in other words, the road from Abidjan through Yamoussoukro to the border of Burkina Faso, is paved and developed. Even though the logistics network toward inland countries such as Burkina Faso is being developed, one of the issues is an absolute shortage of cold chain technologies, and related facilities and equipment such as freezer trucks, freezer warehouses, and distribution centers (DCs). At present, some products such as fresh products from Burkina Faso are imported by air transportation. The development of cold chain and related technologies described above has a potential to create business opportunities for Cote d'Ivoire to serve as a logistics hub to gather, control the inventory of, and ship fresh and

113 abundant agricultural products from inland areas. The results of interviews confirm that the level of agglomeration of the country's food industry is higher than that of its neighboring countries. According to interviews with logistics companies, Cote d'Ivoire was chosen as the center of West Africa in terms of future agglomeration of the food industry, and interviews with food manufacturers indicated that they would like to use the country as a production base to expand sales to the West African market. Major issues noted and informed by local logistics companies and food manufacturers are that the roads stretching north and south from Cote d'Ivoire, Ghana, and Togo to Burkina Faso are being developed, but there are many checkpoints, and that corruption is not uncommon. Other major issues include the lack of developed road infrastructure in some parts of the Abidjan-Lagos Corridor connecting Cote d'Ivoire, Ghana, Togo, Benin, and Nigeria, and the cumbersome customs procedures and inability to read the time required for customs clearance at the borders.69

South Africa

In this chapter, we have reviewed the results of surveys and analyses in the food retail industry in Kenya located in the Northern Corridor of East Africa and in Zambia located near the Nacala Corridor, as well as their overviews in the two target countries of overview surveys, Mozambique located in the Nacala Corridor and Cote d'Ivoire located in the West Africa Growth Ring. Based on the results of these surveys, it is noteworthy that food retailers of South African capital are expanding into a number of other African countries including the countries surveyed, and play an important role in each country. Therefore, we focus on the food retail industry in South Africa in this section even though the country is not located along the corridors mentioned above, and conduct surveys and analyses with the aim of obtaining implications for each country by examining and analyzing the overview of South Africa’s relatively developed food retail industry, the characteristics of products handled and transportation methods, and bottlenecks and barriers in logistics.

4.6.1. Current State of the Food Retail Industry

South Africa's food retail market is highly oligopolized, with the top seven companies accounting for about 80%. Specifically, the seven companies are Shoprite Holdings Ltd., Pick n Pay Stores Ltd., Cambridge Food (Pty) Ltd. (funded by Walmart), SPAR Group Ltd., Woolworths Holdings Limited, Food Lover’s Market (Pty) Ltd., and Choppies Enterprises Limited (funded by a Botswana company). South Africa's food retail sales totaled $52.2 billion in 2018 and consumer agricultural imports rose 9% to $2.6 billion in 2018.70 Local retailers in South Africa are expanding their presence in other African countries, thereby expanding their business scope with Sub-Saharan African markets and potential business partners. In South Africa, in addition to major retail chains, food courts, retail gasoline stations, fast food restaurants including small express stores, and convenience store services including small grocery stores corresponding to the convenience retail market are growing rapidly. The total sales of convenience stores were at $3.1 billion in 2018, up 6% from 2017. In addition, Woolworths and Engen Petroleum Ltd. maintained their superiority in the convenience store

69 Based on interviews with logistics companies in Cote d'Ivoire and Burkina Faso and food manufacturers in Cote d'Ivoire 70 USDR "South Africa - Republic of Retail Foods, The South African Retail Foods Industry", 2019

114 sector by expanding food chain stores, including a partnership with UberEATS provided by Uber Technologies Inc. Pick n Pay Stores and British Petroleum (BP p.l.c.) are also rebranding their stores as Pick n Pay Spaza and placing them at gas stations to provide retail services in low-income regions. In addition, there are many other collaborations between retailers and oil companies such as collaborations between Fruit & Veg City stores of Food Lover’s Market (Pty) Ltd. and Caltex, between Burger King and Sasol Limited, between Steers and Royal Dutch Shell plc, and between Wimpy and Engen Petroleum Ltd. Shoprite Holdings Ltd., the most important player in the convenience store sector, has its own corporate policies and characteristics, and has been successful with the franchise chain system that provides store facilities suited to its trading marketplace.

4.6.2. Main Products Handled in South Africa

(a) Imported products71 As of 2018, South Africa's imports of agricultural and food products totaled about $2.6 billion, which is a small percentage compared to South Africa's total food retail sales of about $52.2 billion. However, there are some products that rely on imports as follows:

x Chicken and chicken products x Dairy Products x Fish and fish products (canned fish, etc.) x Wines and beers

According to Global Trade Atlas, the amount of imports of above products exceeded $200 million in 2018. Regarding chicken and chicken products, it should be noted that imports from Brazil account for more than 50% of total imports, with the largest market share in categories such as semi-processed chicken leg parts, breast meat, and wing parts (chicken wings). Next, the United States is the largest exporter of lower thigh meat (drumstick) and the second largest exporter of leg and breast meat. In addition, imports from Denmark consist of thigh meat cutting a whole chicken in half. The reason why imports of chicken (products) are so large is thought to be that South African domestic chicken is not enough to meet the demand for chicken, which is considered to be a major protein source in South Africa. Next, many dairy products are imported from New Zealand, France, Germany, and the United States, enjoying the benefits of free trade agreements (FTAs). Imports from New Zealand mainly include butter, processed cheese, milk and cream, and casein (a type of protein contained in milk). South Africa mainly imports whey, buttermilk, and ice cream from France. It also imports dairy products for infants and toddlers from Germany, and lactulose and lactulose syrup from the United States. South Africa produces and processes ultra-high- temperature pasteurized dairy products and low-temperature pasteurized milk, and hard cheese and semi-hard cheese dairy products, while other dairy products are imported from the above countries. Looking at fish and fish products, South Africa imports fillets of hake (a family of cod) from neighboring Namibia, and sardines and tunas in the forms of cans and other similar products from Thailand. However, the

71 USDR "South Africa - Republic of Retail Foods, The South African Retail Foods Industry", 2019, and based on interviews with major local retailers

115 fishery industry in South Africa is strong in both production and processing, and it can be said that it imports fish that cannot be captured domestically and whose needs are high. Finally, in wines and beers, developed countries enjoying FTAs export products with competitive price and high brand power, but South Africa has a strong wine industry and a relatively weak beer industry, so it is considered that they are imported as luxury products.

(b) Export products72 Many South African suppliers (of agricultural and processed food products) are exporting to other Sub- Saharan countries using the distribution channels of major retailers in South Africa. Retailers in South Africa are relatively strong in terms of proper inventory and quality control at distribution centers and frozen logistics technologies compared with retailers in other African countries, so they export to Southern African countries such as Zambia, Botswana, Namibia, and Mozambique, including fresh products and processed products requiring frozen logistics. The distribution centers (DCs) of major retailers in South Africa are mainly located in Cape Town or Johannesburg, from which exports, including cross-border logistics, are flourishing.

4.6.3. Transportation Methods and Their Characteristics and Issues

In South Africa, for the domestic transportation of food products, cold chain technology is in place, and freezer and distribution centers (DCs) are also located near major cities such as Johannesburg and Cape Town. Therefore, land transportation by truck using cold chain technology is popular, and the logistics network spreads nationwide. As for imports, marine transportation is mainly used from Europe, the United States, Thailand, and Brazil. In the food sector, the volume of cargo unloaded at the Port of Cape Town is larger than the Port of Durban, an industrial port. Regarding fresh food imports, among retailers that emphasize quality, there are some retailers that use air transportation. Lastly, exports from South Africa are often transported to Southern African countries such as Zambia, Mozambique, Namibia, and Botswana by land transport using freezer trucks. However, exports to East African countries such as Kenya and West African countries such as Cote d'Ivoire may be transported by air for high- value-added fresh food products.73

4.6.4. Distribution Channel

(a) Local procurement74 In South Africa, many products can be procured locally, except for the limited products described in the previous section, such as chicken, dairy products, and fish products that are not suitable for local production and processing. Regarding fresh food products, according to an interview with a major retailer, fish, meat, and fruits and vegetables can be procured in a day without problems if within 200 kilometers.

72 Based on interviews with local retailers 73 Based on interviews with logistics companies, wholesalers, warehouse operators, and retailers in South Africa, Zambia, and Kenya 74 Based on interviews with the South African Association of Freight Forwarders (SAAFF), local logistics companies, and local retailers

116 Main roads are in place between the major cities of Johannesburg, Cape Town, Durban, and Port Elizabeth. Trucks are used for the transportation from Durban, a city with a large-scale loading port located in the eastern part of South Africa, to Johannesburg, taking about five hours. Many major retailers have distribution centers (DCs) in major western cities, and they have mentioned that the time required to transport products from Cape Town to Johannesburg is 16-18 hours, and it is common for them to transport products by truck over two days. In South Africa, cold chain technology is developing, and major retailers either own freezer trucks or outsource the job to logistics partners, so there are no major problems with long-distance fresh food product transportation. Regarding the structure of procurement from suppliers such as farmers and processed food manufacturers, it has been confirmed that in the South African market, major modern retailers rarely utilize wholesalers and brokers, and mostly procure products directly from suppliers, which is an extremely centralized form of distribution. Therefore, when agricultural products and goods are transported from suppliers, terms and conditions such as logistics and quality are stipulated in the contracts with suppliers, so the contracts specify whether suppliers transport products to retail stores by themselves or with support from retailers. In particular, modern retailers are strict on quality assurance including packaging, and they may order products not meeting quality standards to be returned based on the contracts. On the other hand, there are some retailers that provide guidance on distribution, logistics, and packaging. Traditional trade (TT) still remains in rural areas, in which case wholesalers tend to play a bigger role, namely in procurement, logistics, and financial functions. In general, in South Africa, modern trade (MT) accounts for a large proportion, which in turn leads to greater pricing pressure and buying power from retailers. According to a logistics company, South Africa, as an exception among African countries, has a slightly higher proportion of MT than TT, and more than 50% of agricultural and food products are supplied to consumers through MT.

(b) Procurement from abroad In South Africa, the proportion of agricultural and food products procured from abroad is low, except for some products that cannot be produced or processed locally. However, some products are imported from the EU countries, the United States, Brazil, Thailand, and other developed and central countries, and marine transportation is often used as means of importing goods. Because the distribution centers (DCs) owned by major retailers are often located in Cape Town or Johannesburg, many traders often transport products to the Port of Cape Town or to the Port of Durban relatively close to Johannesburg. The distribution network described above is shown in the map below. The following distribution channels are common in the agricultural and food product sector in South Africa with respect to imports and their domestic logistics, as well as exports. In particular, it should be noted that products are gathered at the distribution centers (DCs) in Cape Town and Johannesburg and delivered to stores, and that in Johannesburg, the DCs also play the role of an export base. Also, freezer trucks are widespread, but the range of procurement of fresh food products is often within approximately 150 kilometers of the metropolitan areas.

117 Zimbabwe pickup and Namibia shipment Botswana to stores in DC

Johannesburg Procured from ᵫᶍᶘᵿᶋᶀᶇᶏᶓᶃ within a 150 R km radius R R

pickup and shipment to stores in DC Durban

R 2 Procured from within a 150 km radius Durban Port

R Port of Port Elizabeth Entry 2 R 1 R Port of Entry 1 Capee Town Port

R Outlet of Retailers Landing Port Local Suppliers of Perishable goods Local Distribution Center

[Source: JICA Survey Team, on a white map obtained from SEKAICHIZU (http://www.sekaichizu.jp/), based on USDR "South Africa-Republic of Retail Foods, The South African Retail Foods Industry," 2019; and interviews with SAAFF, logistics companies, and retailers.] Figure 45 Distribution Network Map of South Africa

In addition, it is noteworthy that South Africa has tightened export requirements for the country by classifying export requirements for South Africa into "import eligible products" and "import ineligible products" under the legislation SF-173 (April 20, 2020) following the recent COVID-19 pandemic. Import regulations on mainly livestock products formerly slaughtered and processed have been tightened.75

4.6.5. Analysis of Characteristics and Issues Related to Logistics by Food Category

(a) Group 1: Fresh Food and Cold Chain Products For the items belonging to this group, first, the current situation of distribution and logistics of agricultural and food products in South Africa is surveyed. Then, the potential future expansion of cross-border logistics is analyzed. According to interviews with local retailers and logistics companies, in South Africa, fresh food products such as meat including chicken, fish, and fruits and vegetables have not faced major problems, as cold chain technology has permeated domestic distribution and freezer trucks equipped with such technology are provided

75 USDA "Export Requirements for South Africa" (https://www.fsis.usda.gov/wps/portal/fsis/topics/international- affairs/exporting-products/export-library-requirements-by-country/S-Africa) (April 20, 2020)

118 by major retailers or retailers' logistics partners. However, because the food product distribution structure in South Africa is highly concentrated with distribution networks centered around retailers, the power of retailers (buying power) is strong, and pricing and quality requirements for agricultural and food product suppliers are strict. Therefore, considering the balance in the value chain, it is necessary to think of a system to protect suppliers in the future. Recently, the sales volume of organic vegetables and fruits and other similar food products has been increasing due to South African people's growing awareness of food safety and health. As for imported food products, food items such as chicken and beef, and fish including tuna, sardines, and hake (a family of cod) that cannot be procured locally are imported, and most of them are transported by sea to the Port of Cape Town. The Port of Durban, a large-scale port of the country, has a strong aspect of industrial port, so the Port of Cape Town is often used for the agricultural food product sector. Latest information on import procedures and regulations can be found on USDA’s report "Food and Agricultural Import Regulations and Standards Country Report" (February 07, 2020). The biggest barrier is the fact that the procedures must be performed at many ministries and agencies in South Africa76, and that one-stop services are far from being offered. Next, regarding the potential future expansion of cross-border logistics of the products in this group, many logistics companies and retailers note the long time required for customs clearance and the need for additional fees at the borders as issues. In addition, while there are few problems with roads within South Africa, in fieldwork interviews, it is raised as an issue that it takes longer to transport products than expected due to vulnerable road infrastructure in other countries such as Zimbabwe and Mozambique, resulting in the lower quality of products. Therefore, it can be judged that cross-border logistics to the northern region will be promoted by making improvements on issues including the length of customs clearance time and additional fees at the borders in the future. Generally speaking, South Africa faces few challenges in domestic logistics, but there are many challenges in wide-area logistics from South Africa to other African countries within the Southern African region.

76 Specifically, it is required to contact each relavent division of the Department of Agriculture, Forestry and Fisheries, the Department of Health, and the Department of Trade and Industry.

119 Table 38 South Africa: Value Chain Analysis of Group 1 (Fresh Food and Cold Chain Products)

Country: South Africa VC Patterns: Export model type Procurement Basically, local procurement source: South Africa Region of origin: Basic (partially abroad) Perishable or non- Information Perishable foods ࠉ perishable: Temperature Necessary (reefer container) control:

Item: Fresh meat (such as chicken), fresh fish and fruit vegetables such as banana and orange Suppliers (Farmers or food processing э э э Retailers in Distribution flow companies: DC possessed Retailers (Transportation) (Transportation) (Transportation) markets of other some are by retailers countries imported from other countries) Inventory Acceptance of Production and management, Retailers (or logistics Retailers (or products in other Scope of ࠉSuppliers or Product purchase, manufacturing storage, and delivery companies entrusted logistics/trading countries, Value chain logistics companies sale/export responsibility /processing tasks at DCs by retailers) partners) Sales in markets of (Distribution (distribution center) other countries structure) Means of ― Refrigerated truck ― Refrigerated truck ― Refrigerated truck ― transportation The suburbs of Johannesburg and Stores in metropolitan Johannesburg, Cape City centers of Cape Town (some in Customs clearance areas of other Location Town, and Durban. ― Johannesburg and ― Durban and Port points in each country countries (Lusaka, Partially in other Cape Town Elizabeth) Maputo, etc.) countries

Stipulated in the Stipulated in the Payment terms ― ― N/A ― ― agreement separately agreement separately

City centers are extremely crowded, regardless of season or time. There are many places where road Physical conditions are bad infrastructure depending on the country.

The major issues for wide-area distribution are as follows. 1) The capacity available at customs is small and time- consuming, Customs/Border 2) It takes two days or more to go through the customs clearance 3) Customs clearance fee are collected separately. Without cold-chain The flow from production and manufacturing sites to DCs As for customs clearance/border point and Barriers and Logistics technology, there is (distribution center) and the flow from DCs to retail operators are transportation to other countries, there are no way other than less problematic because cold chain transportation is widespread only few problems due to the development of bottlenecks technology relying on and penetrated. cold chain transportation. in logistics logistics/wholesalers. The strength of The markets of the modern retailing neighboring countries prevents suppliers are small, and there Market access/ from making enough is a problem in the Business profits. profitability, and it is feasibility highly necessary to cultivate not only export model but also local suppliers. Due to infectious diseases, quarantine and restrictions on imports and exports have become stricter, Policies and and some products are banned. regulations

[Source: JICA Survey Team, based on field interviews and store surveys]

From the above, the following four points can be noted as issues in logistics from the viewpoint of value chain analysis of items belonging to Group 1 in South Africa:

120 x Export model: Length of time required for customs clearance and frequent collection of additional fees at the borders x Export model: Vulnerable road infrastructure from South Africa to other African countries x Local production for local consumption model: Suppliers are unable to generate sufficient profit due to high pricing and quality requirements for agricultural and food product suppliers. x Import model : Import procedures must be performed at many ministries and agencies. A one-stop service is not offered and the procedures are complicated.

(b) Group 2: Fresh Food and Non-Cold Chain Products For the items belonging to this group, first, the current situation of distribution and logistics of agricultural and food products in South Africa is surveyed. Then, the potential future expansion of cross-border logistics is analyzed. Currently, the main products of the group, such as egg products, wheat, and corn, are basically procured within South Africa.77 With the exception of farmers without developed roads in rural areas, there are few problems in logistics in particular, and the traditional trade has established a system in which major regional wholesalers come to pick up products produced by farmers and the products are gathered by wholesalers. Regarding egg products, however, the store inspection surveys revealed some problems such as cracks in products even among those handled by major modern retailers. In other words, more sophisticated packaging techniques may be required because quality deterioration during transportation is often unavoidable due to road conditions. From the United States, some egg products, table eggs, incubated eggs, and other products with superior packaging techniques are imported. Next, the potential for expanding exports from South Africa and wide-area distribution of the products in this group is not very high due to the high demand in the domestic market.

(c) Group 3: Non-Fresh Food and Cold Chain Products For the items belonging to this group, first, the current situation of distribution and logistics of agricultural and food products in South Africa is surveyed. Then, the potential future expansion of cross-border logistics is analyzed. Currently, the group includes dairy products such as yogurt, processed chicken, and frozen vegetables and fruits. Looking first at imported products, dairy products and chicken products are South Africa's major imports, accounting for the largest share. The marketability within South Africa is expected to increase in the future as the product categories of South Africa's locally produced dairy and processed meat products differ from those of imported products. Furthermore, frozen vegetables and fruits are appealing to the high-net-worth and middle- income groups of South African people, and these products are expected to expand in the future due to heightened health consciousness.78 As noted above, the biggest issue facing the products in this group is the need to contact the relevant division of the South African government’s ministries and agencies including the Department of Agriculture, Forestry

77 World Trade Atlas 78 Based on interviews with local retailers and local logistics companies

121 and Fisheries, the Department of Health, and the Department of Trade and Industry, in the process of importing to South Africa, and it cannot be denied that the import procedures are complicated. In addition, under the legislation SF-173 (April 20, 2020), products are classified either "import eligible products" or "import ineligible products." Livestock products in particular, if classified as "import ineligible products," they are no longer able to be imported from April 2020 onward. Next, regarding the potential future expansion of cross-border logistics, the export of high value-added chicken products, dairy products, and frozen vegetables and fruits will partly depend on the development of road infrastructure outside South Africa, the complexity of customs clearance procedures, and other factors. However, due to the increase in the size of the market for middle-income and high-net-worth people in neighboring countries, it is assumed that future expansion of exports can be expected as there are no problems with transportation-related technologies such as cold chain and packaging technologies.

122 Table 39 South Africa: Value Chain Analysis of Group 3 (Non-Fresh Food and Cold Chain Products)

Country: South Africa VC Patterns: Import model type Procurement Foreign countries source: Basic Region of origin: EU, US, etc. Information Perishable or non- Non-perishable perishable: foods Temperature Yes (reefer container) control: Item: Chicken products (frozen), dairy products such as yogurt, frozen vegetables and fruits

DC (logistics) э Customs in ports э э Domestic Distribution flow Importer centers of (Transportation) and harbors (Transportation) (Transportation) retailers retailers Acceptance, inventory Scope of Transportation to the Export and import Purchased and sold ― ― control and delivery of ― ports in South Africa procedures in the country responsibility imported products Means of ― Shipping (Frozen) ― Refrigerated truck ― Refrigerated truck ― Value chain transportation Stores in urban areas (Distribution Cape Town Port, City centers of Cape Location Cape Town, Durban ― ― ― such as Cape Town Durban Port Town and Durban structure) and Durban

If transported by logistics partners, this Payment terms ― L/C ― N/A ― ― will be based on the agreements

The physical infrastructure and the seamless value chain are in place when products are delivered from the ports Physical to DCs (distribution center) and then to each store after consolidation. infrastructure

Since international One-stop service at forwarders handle the customs has not import business, not been realized, and many problems import procedures related to are time consuming. transportation and In addition, there is a logistics are found. possibility that the Customs/Border import of livestock products (beef, etc.) will be banned from April 2020, which could become a major issue in the future. In Cape Town and other regions, refrigerated warehouses and DC (logistics) centers are Barriers and developed; therefore, bottlenecks not many issues with Logistics regard to the qualities in logistics of products and technology imported products are found

The item goods of Frozen meat and dairy local products in products are sold at South Africa are high prices in modern different from those of retails. Also, the Market access/ imported products, needs for frozen providing an vegetables and fruits Business opportunity for market are expected to feasibility expansion. expand in the future in response to the growing health consciousness of consumers. Policies and regulations [Source: Prepared by JICA’s Survey Team, based on field interviews and store surveys]

From the above, the following two points can be noted as issues in logistics from the viewpoint of value chain analysis of items belonging to Group 3 in South Africa:

123 x Import model: Length of time required for customs clearance and frequent collection of additional fees at the borders x Import model: Due to the recent revision on the import regulations, products are classified either as "import eligible products" or "import ineligible products." Livestock products in particular, if classified as "import ineligible products," they may not be imported from April 2020 onward.

(d) Group 4: Non-Fresh Food and Non-Cold Chain Products For the items belonging to this group, the current situation of distribution and logistics of agricultural and food products in South Africa is surveyed. The items in this group include palm oil and fruit juice. They are procured from neighboring farmers and processing and manufacturing companies in the country, and transported to distribution centers (DCs). Their inventory and shipments are controlled appropriately, so there are no problems with logistics. Similarly, with regard to pasta, coffee products, and tobacco products, there are no problems, especially at present, because they are being sold at stores throughout South Africa using distribution centers (DCs). However, for canned fish and fish imported from Namibia, each South African province quarantine station now requires, in addition to submitting a transfer certificate to verify the route of transportation, the label and serial number to be confirmed. Also, even though it partly depends on the revision of South African legislation, the government’s stance needs to be watched closely as to whether processed fresh food products will continue to be "import eligible products," and whether even processed products are subjected to further special quarantine.

(e) Group 5: Cash Crops For the items belonging to this group, the potential future expansion of cross-border logistics in South Africa is surveyed and analyzed. This group includes coffee beans, unprocessed tobacco, soybean raw materials, and polished rice. According to FAOSTAT's export and import statistics, South Africa uses processing technologies to re-export the above products imported from neighboring countries such as Mozambique, and there seem to be no particular logistical barriers. On the other hand, considering the future industrial development of neighboring countries such as Mozambique and Zambia, it is raised as an issue that such trade does not contribute to the development of processing and manufacturing industries in neighboring countries, or the enhancement of added value of retail distribution. Also, it will be necessary to develop local suppliers in order to promote cross-border logistics in the future.

4.6.6. Summary: Bottlenecks and Issues in Logistics in Food Retailing

Based on the value chain analysis described above, considering the local-level awareness of barriers in logistics of agricultural and food products as well as the potential future expansion of cross-border logistics, the following bottlenecks and barriers in logistics are identified in South Africa.

1) Complexity and tightening of import procedures and regulations (Import model)

The following are the specific logistical issues and barriers related to the above:

124 x The biggest barrier in import procedures and regulations is the time and effort required due to procedures involving various ministries and agencies in South Africa. x A one-stop service is far from being offered at customs clearance, and the complicated customs clearance procedure is also an issue. x Furthermore, based on the legislation SF-173 that took effect on April 20, 2020, products are classified as either "import eligible products" or "import ineligible products." In particular, if livestock products and similar other products are classified as "import ineligible products," they are no longer able to be imported from April 2020 onward, which has become the latest biggest bottleneck on imports. x For canned fish and fish imported from Namibia, each South African province quarantine station now requires, in addition to submitting a transfer certificate to verify the route of transportation, the label and serial number to be confirmed. x Even though it also depends on the revision of South African legislation, it is unclear whether processed fresh food products will continue to be "import eligible products," and whether even processed products are subjected to further special quarantine when they are imported.

These issues are particularly true for the processed meat group (Group 3), the fresh fish group (Group 1), and the canned fish group (Group 4), but they are recognized as common issues for all groups.

2) Strict quality and pricing requirements from retailers of domestic suppliers (Local production for local consumption model and export model)

The following are the specific logistical issues and barriers related to the above:

x Because the food product distribution structure in South Africa is, unlike other African countries, concentrated to retailers as well as enhanced value chains developed around retailers, the power of retailers (buying power) is strong. x As a result, pricing and quality requirements for agricultural and food product suppliers are strict, so suppliers are in a difficult situation in terms of profit. It is necessary to think of a system to protect suppliers in the future.

These issues are particularly true for the products in Group 3 and Group 4, but they are recognized as common issues for all groups.

3) Length of customs clearance time and additional fees at the borders (Export model)

The following are the specific logistical issues and barriers related to the above:

x For exports abroad from South Africa, it takes a long time to pass through the border, and also it is unclear how long it will take (four days or more at the Chirunduthe border in Zimbabwe). x Many logistics companies and retailers cite additional fees for customs clearance procedures and customs clearance delays as an issue.

These issues are recognized as major issues common to all groups.

125 4) Vulnerability of road infrastructure in markets abroad (Export model)

The following are the specific logistical issues and barriers related to the above:

x It is an issue that it takes longer to transport products than expected due to vulnerable road infrastructure in countries such as Zambia, Zimbabwe, and Mozambique, resulting in the lower quality of products. x Especially in Zimbabwe and Mozambique, even main roads are narrow and they are at risk of being flooded during rainy seasons.

These issues are also recognized as common issues for all groups.

5) Need to develop suppliers abroad (Importing raw materials/exporting processed products model)

The following are the specific logistical issues and barriers related to the above:

x South Africa imports raw materials from neighboring countries such as Mozambique and Zambia, and processes and manufactures them domestically in South Africa for re-export. x South Africa's business model is highly profitable in the sense that it provides and exports value-added products, and also it is expected to promote logistics. On the other hand, from the perspective of the development of the above neighboring countries, such trade does not contribute to the development of the retail and distribution sectors in those countries. Unless local suppliers offering value-added products are developed, mutual logistics will not be promoted. Therefore, this model is considered to be an issue in promoting logistics among neighboring countries in the future.

These issues are considered to be particularly true for cash crops in Group 5 and processed products in Group 4.

126 Case Study: Business Overview at an African large retailer

Structure of this Chapter

This chapter provides a case study of the business models and business strategies of a leading contemporary South African retail operator (anonymously), which has made significant inroads in sub-Saharan African countries in recent years, to compare and analyze the business models and strategies of a representative contemporary South African retail operator (anonymously) with retail/distribution operators in Kenya, Zambia and other countries that are currently at a stage of development, and to compare and analyze the business models and strategies of the South African retail operators from advanced The purpose of this study is to obtain factors and suggestions for the low logistical barriers as a case study. In addition to web research, the research method used was web-based research and interviews with Company A's head office, branch offices and business partners.

Business Model of an African Large Retailer

5.2.1. Procurement

Supplier relationships are considered a key competitive advantage for retailers. The scale in the Fashion, Beauty and Home businesses drives speed-to-market. This is enabled by sourcing the majority of products sold in Australia from Asia and just over 50% of Fashion, Beauty and Home products sold in South Africa from suppliers based in the SADC (The South African Development Community which consists of 16 countries) region. The Food businesses benefit from exclusive regional supplier relationships, particularly in a retailer’s strategic categories. Various GBJ-related policies and programmes direct the company’s sourcing activity and includes the requirement that suppliers must comply with the retailers’ Supplier Codes of Conduct. This compliance manages both operating procedures and the Group‘s requirements for ethical sourcing, people, and environmental management. This also ensures that the retailer only sells quality products, using production processes that reduce negative environmental and social impacts. The procurement and sourcing team is continuously working with their exclusive suppliers to develop new products or additional varieties on the existing range. There is also a movement towards bringing SMEs onto the supplier base, however rigorous auditing and quality checks are continuously performed on both new and existing customers to ensure the products are meeting expected quality requirements and aligns with the company’s values. The development of SMEs is considered a long-term journey, as aggressive growth and volumes targets tend to exhaust the supplier’s cash flow and ultimately cause bankruptcy.

5.2.2. Network with contract farmers

Another big retailer in Africa has over 1,400 direct suppliers. The relationship between the retailer and their suppliers is seen as the key competitive advantage for the Group and the quality products that it sells. The relationship enables them to receive exceptional and often exclusive products from their suppliers. From a South African supplier perspective, it is seen as an honour to supply your goods to the retailer as all products sold in store are deemed as being of the highest quality.

127 Contracts are fixed with the local farmers and orders are based on a 2 week forecast made by the retailer’s planning team. No sub-quality products will ever be accepted at a lower price. Expanding the local supplier base in the 11 African countries outside of South Africa, is limited due to the following:

x Meeting the quality standards set by the Supplier Code of Conduct for both product specifications (i.e. size and colour of fruit) as well as raw material used in the production/cultivation process is a challenge. x To meet the above mentioned requirements, suppliers would need to invest to transform their plant/operating activities. Most suppliers are comfortable to continue supplying other supermarkets with their produce which do not necessarily meet the high-standards of the retailer. x There is not a large demand of the retailer’s level of quality food products in the market outside of South Africa, due to the majority of consumers not being as educated in health risks and food safety as in South Africa. x The retailer seeks and supports exclusivity with their suppliers. In-country demand does not always warrant the scale of produce that comes with establishing exclusivity and procuring all produce from a supplier. x The retailer does not have in-country teams focused on sourcing local suppliers and supporting them in meeting the quality requirements. x There are very limited value added stakeholders/services in the value chain. This includes both processing plants as well as packaging and labelling facilities. Processed foods will continue to be predominantly imported products until further industrialization of the countries.

5.2.3. Logistics network

African large retailers use a centralised distribution system in both the Southern African regions. This system ensures the delivery is trustworthy, timely and accurately executed to both stores and online orders. Fashion, Beauty and Home products are regularly replenished to ensure availability of products and staying on trend with the latest fashion styles. Food deliveries are made daily to maintain retailers’ strict cold chain disciplines and quality requirements. Online orders are fulfilled from selected stores, as well as a dedicated ‘dark store’ in South Africa. African retailers in another country also have a dedicated Omni-channel Fulfilment Centre. Various GBJ-related operational efficiency initiatives are in place throughout the distribution centres, transport, and logistic operations to reduce their environmental impact. The figure below shows the distribution structure within South Africa.

128

[Source: JICA Survey Team (Interviews with retailers)] Figure 46 large retailers’ typical distribution in South Africa

[Source: JICA Survey Team (Interviews with retailers)] Figure 47 larger retaliers’ distribution channel in South Africa

A – Local Suppliers x ~90% of goods are sourced locally for the group. x Suppliers predominantly delivers their products to the Distribution Centres via their own logistics partners, with the odd supplier using retailers services to collect the products from their premise at an additional cost. x A small portion of suppliers will directly deliver products to the South African retail stores. This however only happens in cases when local suppliers adheres to their preferred packaging and the scale/volume of delivery does not warrant delivery to the warehouse first. B – Global Producers x From a foods perspective, only 4-5% are imported and consists predominantly of frozen and long life products from Europe. Other beauty and fashion goods are also imported from Europe, France and China respectively, as well as the US. x All goods are imported via sea freight to the Cape Town port and the importing process and clearance activity are managed internally. Airfreight will only be considered in case of emergency. C – Distribution Centres x A retailer has distribution centres in Durban, Port Elizabeth, Johannesburg and their main DC in Cape Town. D – Stores x Retailer stores are located across South Africa and consists of both Fashion, Beauty, Home and Food stores, as well as a combination thereof. x Stores act as both picking centres for the online channel and experience centres for shoppers. E – Road Freight x A retailers outsources their logistic leg in South Africa to third parties, namely DSV and Imperial Logistics.

129 x Rail would have been of great use if it was in a mature state, however limited governmental investment in maintaining and growing this offering, as well as cable theft does not allow them to move into utilizing the mode of transport. Logistics costs can be cut to a third of its current price by making use of rail. x The cold chain is required to not be broken within 5 hours for a longer than 8 mins at a time. F - Sea Freight x A retailer makes use of the Cape Town port when importing goods, due the high congestion at Durban, as well as the Cape Town port being closest to the main DC. x It takes approximately 4 days for items to be cleared at the port and transported to the DC. x The delay is predominantly caused by the clearing process. One can pre-clear, but you can only start the process if you have clearance of your last/final vessel. Approval by the ANF before docking the goods can also take up to 48 hours.

The next section describes the distribution structure for the company's exports from South Africa to Zambia. Most of the products are transported by refrigerated trucks from South Africa's local distributor or directly from the company's DC (distribution) center in Johannesburg, either by truck or, in the case of an emergency, by air freight, and from a storage warehouse in Lusaka, the capital of Zambia, the products are transported from there to the stores.The following figure shows the distribution flow of the retailer in Zambia.

Suppliers Warehousing & Stores Customer Distribution

A Local Fresh Distributor

Customers C Warehouse D Stores

E Road Freight B SA Distribution Centre Air Freight F

[Source: JICA Survey Team (Interviews with retailers)] Figure 48 larger retaliers’ distribution in Zambia

A – Local Fresh Distributor x A retailer makes use of one local distributor for certain fresh vegetables & fruits. The distributor sources both locally and from South Africa. All sourcing and procurement activities are managed from the retailers’s South Africa’s Head Office for all countries outside of Africa.

130 x Difficulty is experienced in procuring more local suppliers, as they are not willing to submit under their quality requirements. From a foods perspective, local suppliers will make a significant difference to product availability, due to: o South African deliveries only being made once a week o Lead time is too long to transport fresh produce to Lusaka o The current catalogue is limited due to strict product import permit requirements that is altered frequently B – Retailers SA Distribution Centre x All other goods are supplied from the retailers’s South African DC. x Food are delivered directly to the stores via both air- and road freight. x FBH products are delivered to their warehouse in Lusaka from where labels are added and distributed to the allocated stores. C – Lusaka Warehouse x The local warehouse only acts as a storeroom. D – Stores x 5 stores include food offering, 2 stores are only stocked with FBH. x Food stores mostly hold frozen and long life products due to delivery lead time (see “A”). E – Road Freight x A retailer is partnering with a logistics company that also has Zambian footprint. A large challenge is the ability to transport products at multiple temperatures x A retailer has a reputable clearing agent that allows for on-site assistance at the border. x Roads are considered to be in a very bad condition from the Chirundu border to Lusaka, thus the route through Botswana is currently the most popular choice. x Cold chain logistics vendors that complete shorter domestic routes are hard to find. F - Air Freight x Air freight will only be used in emergencies, as air freight is not consider feasible in most cases. x There are vendors with cold chain facilities at the airport that can assist with the warehousing of fresh produce in the future. This stakeholder is also willing to look into providing freezing facilities if the customers would need this

The company's distribution structure for exports from South Africa to Kenya is shown below. All products are transported by air from the South African DC (distribution) center to a warehouse in Nairobi and then directly to the store.The following figure shows the distribution flow of Company A in Kenya.

131 Suppliers Warehousing & Stores Customer Distribution

SA Distribution A Centre B Warehouse C Stores Customers

D Road Freight

Air Freight E

[Source: JICA Survey Team (Interviews with retailers)] Figure 49 A retailer’s distribution in Kenya

A & E –The retailers’s SA Distribution Centre via Air Freight x All products are imported using air freight from Johannesburg to Nairobi on a weekly basis (products from Cape Town DC are trucked to Johannesburg). x Air freight is reasonably priced due to high volumes of flowers being exported via airfreight and “empty” planes returning to Nairobi. x Only store equipment and layout goods are shipped to Mombasa and transported via the SGR rail to Nairobi. x KEBS (Kenya Bureau of Standards) is very strict on quality and labelling standards, which causes cost and frustration to adhere to. B – Nairobi Warehouse x The warehouse is only used to receive and unpack stock for stores with limited backroom space. C – Stores x Stores in Kenya has 11 stores that only offers FBH products. D – Road Freight x Road freight is only used to move products between the warehouse and stores.

The distribution structure in exports from South Africa to Mozambique is that the food sector is delivered directly from the DC (logistics) centre in Johannesburg to the food stores.The following figure shows the distribution flow for Company A in Mozambique.

132

[Source: JICA Survey Team (Interviews with retailers)] Figure 50 A retailer’s distribution in Mozambique

A & B - South African Warehouses x All food products are delivered on the same day from the Midrand Food DC per truck (Approximately 5 trucks per week). x All FBH products are transported from the Cape Town DC every 2nd week per truck (2 tucks will be sent during peak season). C – Road Freight x All road freight arrives via Komatiepoort/Lebombo, where their experiences seamless clearing due to being cleared as an “economic operator”. x Even though clearing is effortless the government cannot keep up with the demand for permits to be issued. The retailer had to reduce food and toiletries in Mozambique due to permit availability and change in regulations. D – Local farmers x Only one local banana supplier is used, who delivers directly to the stores. E – Local Producers x Multiple beverages are sourced from local producers, who also delivers directly to the stores.

Business Strategy

5.3.1. Overall Strategy

The company's corporate business objectives, vision and value proposition are described below. The company's business objective is "Adding Quality to Life", which means to pursue excellence in quality in every product and shopping experience provided to customers and employees. The company's corporate vision is "To be one of the World's Most Responsible Retailers", a passionate commitment to doing good business for customers, employees, and the planet. The company's value proposition for its customers is defined in five key value propositions

133 • Customer Centricity: In Company A's world, the customer always comes first • Inspiration: company A always looks ahead and leads • Responsibility: to be responsible means to do the right thing • Cooperation: means Company A is one team working together • Quality: company A sees quality as the heart of the business and commits to quality in whatever they do and wherever they do it

5.3.2. Levers used to create value

The following levers are used to strategically create value across the group. A retailer obtains in-depth knowledge of what the stakeholder values and what challenges they experience and then proactively respond to these through targeted initiatives.

• Employees It is the dedication, talent, and knowledge of the 46 831 employees across the Group, along with efficient value-creating strategies and operations, that allow them to meet the customers’ wants and needs and contribute materially towards the communities in which they operate. • Suppliers The relationships with over 500 Fashion, Beauty and Home (FBH) direct suppliers and over 900 Food direct suppliers are a key competitive advantage for the Group, as they provide exceptional and often exclusive products. • Customers The over 11 million customers in sub-Saharan Africa are the largest stakeholder base and their purchases are the main source of revenue. • Shareholders & debt funders Equity and debt investors are the sources of capital for the Group and enable business continuity and growth. • Group The Group aims to deliver sustainable short-, medium- and long-term returns in a responsible manner. • Government & Regulators This retailer s is passionate about the role they play in building a thriving society. They does this by engaging with the governments and regulators in the markets in which they operate, enabling regulation to allow for a trustworthy business environment, and contributing towards business sustainability by fostering societal growth and aligning our efforts with the sustainable development goals. • Communities and others The retailer acknowledges the importance of their relationships with the communities in which they operate, academic institutions, the media, industry bodies, NGOs and interest groups as they create an enabling business environment as well as the pipeline of future customers and employees.

5.3.3. Immediate strategic focus

Company A expects to grow both sales and profits by focusing on the execution of its key strategies.

134 • Build business resilience by effectively managing capital and costs • Ensuring adequate capital allocation to improve cash flow and working capital balances • Strengthen the balance sheet by reducing investment in areas of current focus • Investing in areas of medium- and long-term growth and opportunity

Value Chains of Major Products

The retailer in South Africa is the home of the group and the focus is to boost the economy and source as much product as possible locally. The rest of the locally sourced goods follow a standard pattern of delivery to their distribution centres within the guidelines of the Supplier Code of Conduct.. The following is an analysis of the individual value chains of a South African retailer, analyzing the barriers to facilitating logistics and the logistical advancements, compared to other operators that can be extracted from understanding the distributional reality.

(a) Group 1: Fresh and cold chain products This company has essentially developed cold chain logistics both domestically and internationally, making good use of logistics partners to transport fresh and cold chain products. Fresh products such as fruits and vegetables (bananas, oranges, etc.), fresh fish, fresh poultry and other perishable products are basically sourced domestically during the harvest season. Vegetables, fruits, and poultry are sourced directly from the company's contracted farmers and livestock producers within roughly 150 kilometers of the company, not through wholesalers. For fresh fish, the company uses cold chain technology to consolidate and store fish that can be harvested in coastal waters at the company's DC (distribution) centers, and then delivers the fish to stores. Since South Africa is located in the southern hemisphere, the timing of harvesting and shipping of items may be different from that of the northern hemisphere, and during seasons when shipping time is different from that of South Africa, import partners are used to import a relatively small amount of each perishable item compared to domestic procurement. It should also be noted that, as already mentioned in Section 4.6, Law SF-173 came into effect on 20 April 2020, classifying the food sector into "import-eligible products" and "import-ineligible products," and that export requirements to South Africa have been tightened, particularly in the livestock sector. In the future, it is likely to become more difficult to import products such as poultry and beef. In addition, the company wants to see improvements in customs and clearance for perishable products, especially when exporting to Zambia, as Zimbabwe sometimes requires more than four days for export procedures (including quarantine) and charges customs fees. The biggest challenge is their own poor service due to the inability to read the arrival time (lead time) of products from South Africa to Zambia. To avoid such unpredictable customs clearance times, and poor commission and logistics infrastructure, the company often uses the Botswana route instead of the Zimbabwe route, although it is longer. The reason for the company's low logistical barriers in Group 1 compared to other African countries is that it has established a value chain for cold chain transport.

• Possession of refrigerated transport technologies from suppliers owned by retailers and logistics companies.

135 • DC centers have been established in major cities with large markets, and the products can be transported together to the centers. • Know-how of transportation to delivery. • Standardization of proper storage and inventory management for each product collected • Establishment of efficient transportation operations for the "Last Mile Delivery," which enables the bulk shipment of frozen products to each store.

(b) Group 2: Fresh and non-cold chain products This company also sources wheat, raw rice and eggs domestically, which are purchased by the retail operator's procurement department directly from farmers near major cities. In particular, the company has large distribution centers in Cape Town and Johannesburg, where it can flexibly transport goods between the Cape Town and Johannesburg DCs by refrigerated trucks depending on the needs of consumers. In terms of maize, the company imports its own direct imports and has a distribution network that is primarily transported from the Port of Cape Town to the DC (logistics) centre for delivery to stores across South Africa. According to the store survey and retail interviews, the company has a high level of packaging technology and emphasizes the importance of advanced packaging technology as a value-added product, and has improved its own packaging technology through the introduction of technology from foreign companies. Similar to Group 1, the company has identified long customs clearance times and fees for exporting perishable products as challenges. The company has fewer logistical barriers in Group 2 than in other African countries because of its advanced packaging technology and the relatively high level of road infrastructure from the production areas to the main roads.

• In-house advanced packaging technology that allows the company to properly protect "fragile products" such as egg products. • The relatively good state of the road infrastructure, such that logistics operators can procure not only trunk road infrastructure between major cities, but also branch lines and suppliers' production sites

(c) Group 3: Non-perishable and cold chain products Dairy products such as yoghurt, frozen poultry and other frozen meats, and frozen vegetables are mostly procured within South Africa, and are delivered to stores in each country using cold chain transportation via DCs (distribution) centers that have freezing capabilities with no problems. However, the distance to Zambia, the time it takes to complete customs clearance procedures, the problem of collecting customs fees, and the lengthy transport time from the Johannesburg DC to Lusaka are major issues. Due to weak infrastructure in terms of procedures and physical roads, the company often does not ship goods to the Zambian capital, Lusaka, at the expected time, and has problems with insufficient inventory stock (empty shelves). The company faces fewer logistical barriers in Group 3 than in other African countries because of its excellent processing plant and freshness-preserving technology, and its established supply chain for frozen transportation.

• Not only do they have meat slaughterhouses, but they also have cold storage warehouses near the slaughterhouses and a supply chain capable of delivering the products to stores on a "just in time" basis.

136 • Processing manufacturers have technology that keeps dairy products and frozen vegetables fresh for long periods of time.

(d) Group 4: Non-perishable and non-cold chain products This group includes processed foods such as pasta, palm oil, canned tomatoes, and canned fish, but the company's corporate policy is to only carry high-end products (the premium segment, which is considered to be the highest end of the market), so processed foods rely on imports, with the exception of fruit juice. Store surveys also confirmed that the labeling indicates that the products are from Europe and the US and, for fish, Thailand. The challenge for the group is that, as mentioned above, there is concern that the importation of sexual relics of animal and plant origin will be tightened in the future due to Law SF-173, which came into effect on 20 April 2020. In addition, South African processed food products are in very high consumer demand, including in terms of quality and packaging, in neighbouring countries such as Zambia, Mozambique, Botswana and Namibia, but as with other Group products, the perceived challenges related to the length of customs clearance procedures and collection of customs fees in Zambia and some Mozambique have been cited as The company has a large global supply chain and standardized procedures for imports and customs clearance. Group 4 has fewer logistical barriers than other African countries because of its extensive global supply chain, standardized import and customs clearance procedures, and packaging expertise for long-distance transport. Our extensive global supply chain, which has been developed over many years to import products that cannot be procured in our own country.

• Standardized and relatively transparent import and customs procedures at the time of importation. • Advanced packing and packaging know-how for long-distance transportation

(e) Group 5: Cash crops This group includes soybeans, green coffee beans and milled rice, but while the soybeans are sourced domestically, the green coffee beans are imported by air from Uganda and Rwanda, and the milled rice is imported from neighboring countries in-house. South Africa has an advantage over other African countries in processing and manufacturing, processing coffee products and manufacturing rice and soybean products (soybean oil, soybean meal, etc.) for export to neighboring countries such as Mozambique. While there are few logistical problems with importing and exporting processed products, there are still medium- to long-term issues with the continuation of the current value chain, including the development of the processing and manufacturing industries in Zambia and Mozambique, and the lack of industrial (including logistics-related) human resources. The reason why the company faces fewer logistical barriers in Group 5 than in other African countries is that it has the expertise to export large volumes of grains, soybeans, etc. from its DC (distribution) centers to overseas markets using appropriate transportation methods, as well as a well-defined packaging and transportation pattern for delivery.

137 Case Study Results

On the whole, this company has a smooth value chain of cold chain transportation, warehouses, and distribution centers in place both domestically and internationally, and there are no major logistical obstacles. However, the company has identified the following import and export issues

• Stricter customs clearance and quarantine procedures at ports of entry, which will make it more difficult to import products derived from animals and plants. • Lost business opportunities for exporting South African products to neighbouring countrieas products do not reach overseas markets as predicted due to lengthy customs clearance times, collection of customs fees, and weak road infrastructure (especially on routes through Zimbabwe).

The reasons why the company has fewer logistical barriers and bottlenecks compared to other African retailers are analyzed below.

Table 40 Logistical advantages of South African advanced retail operators compared to retail operators in other African countries

Item Group South Africa Advanced logistics operator's logistical advantage over other country retailers Group 1 (Fresh and cold 䞉 The ability to maintain the freshness and quality of the chain products) supplier's products through the refrigeration and transportation technologies possessed by the retail and logistics businesses. 䞉 DC centers are located in major cities with large markets, and the company has the transport know-how to deliver products to the centers in bulk. 䞉 Standardization of appropriate storage and inventory management for each product collected 䞉 Establish efficient transportation operations related to the "Last Mile Delivery" that enables the bulk shipment of frozen products to each store. Group 2 (Fresh food and 䞉 Possession of advanced packaging technology to properly non-cold chain products) protect fragile products, such as egg products 䞉 Relatively good road infrastructure that allows logistics providers to procure not only trunk road infrastructure between major cities, but also branch lines and suppliers' production sites. Group 3 (Non-perishable 䞉 A meat slaughterhouse is in place and a supply chain is and cold chain products) established that can freeze and deliver meat properly in the vicinity after slaughter. 䞉 The processing manufacturer must have technology to

138 maintain the freshness of dairy products and frozen vegetables for a long period of time. Group 4 (Non-perishable 䞉 Longstanding experience in cultivating extensive global food and non-cold chain supply chains that import products that cannot be procured products) at home 䞉 Standardized import and customs procedures at the time of importation and relatively high transparency. 䞉 Advanced packing and packaging know-how for long- distance transportation Group 5 (Cash crops) 䞉 Establishment of know-how for exporting large quantities of grains, soybeans, etc. from DC (distribution) centers to overseas markets using appropriate transportation methods, as the packaging and transportation methods for these crops have been established. [Source: JICA survey team]

South Africa's major retailers have few bottlenecks in domestic logistics. However, logistical barriers to import and export, such as cumbersome customs procedures at import and export, long lead times in customs clearance and the collection of customs fees, have been cited as a common logistical facilitation challenge, as in other African countries.

139 Recommendations for Promoting Corridor Development

Structure of this Chapter

In this survey, we summarized the present state of distribution and logistics of agricultural products and foodstuffs in African countries. In addition, we identified issues that need to be addressed in order to particularly further promote logistics of representative corridors and improve inland logistics. The uniqueness of this survey is that it carried out value chain analysis on commodity distribution from a micro perspective through interviews with major retailers, suppliers, logistics companies, wholesalers, etc. and on-site store surveys in African countries, and also grouped according to the characteristics of the subject items, and identified the impediments and issues in logistics promotion for each of these groups in each corridor. In this chapter, regarding the logistics issues and bottlenecks identified in Chapter 4, we will confirm the relationship with the Master Plan on the 3 priority corridors in Africa, and make recommendations on measures to promote the development of corridors in Africa from the perspective of promoting the logistics of corridors in the future. Regarding the North-South Corridor, we analyzed and compared the differences between the advanced case studies in South Africa analyzed in Chapter 5 and the North-South Corridor, and then proposed the appropriate corridor development measures. This survey illustrates an overview of the current state of distribution and logistics of agricultural products and foods in African countries. In addition, it also explored the necessary measures to further improve the logistics especially in central countries of the representative corridors. The uniqueness of this survey was that it identified critical issues from a micro perspective, through interviews with major retailers, their suppliers, logistics enterprises, and wholesalers in their respective business fields.

Recommendations on Measures for Promoting Corridor Development in Africa

6.2.1. Recommendations on measures to promote the development of the Northern Corridor

In this section, we will first analyze the relationship between the Master Plan for the Northern Corridor and the logistical issues identified in this survey. Then, the development promotion measures corresponding to each issue are proposed. In conclusion, with regard to the important issues in each corridor and 6 barriers and bottlenecks, specific concerns, background and causes will be organized, and then the recommendations for development promotion measures will be shown in a visible and easy-to-understand format. “The Project for Master Plan on Logistics Networks in the Northern Economic Corridor " published in March 2017 by JICA mentions concrete measures for the development of logistics networks in the Northern Corridor. The development vision states that it will become Africa's leading economic corridor with comprehensive transport and logistics systems. Under this vision, 3 strategies are formulated: a regional strategy, an industrial strategy, and a transport strategy. Hereinafter, the relationship between the impediments and issues for the promotion of logistics confirmed in this survey and the master plan will be outlined, and the development promotion measures corresponding to them will be recommended.

140 Issue 1. Delay in customs clearance procedures at ICD Nairobi

As an inhibitory and challenge factor for the distribution promotion identified in this study, it was found that cargoes transported in SGR (railway) from the Mombasa Port to the ICD Nairobi were time consuming in the commuting procedure, and that additional charges could be paid as retention charges if they caused a delay of about 4 days or more. This issue is strongly related to the "linkage of industrial regions and logistics hubs through logistics-oriented development," which is set as an objective in the industrial strategy of the Northern Corridor Master Plan. Specific programs include the installation of logistics hubs (Standard Gauge Railway stations), strategic cities, and the development of key industry areas. At least 3 sites in Kenya and at least 4 sites in Uganda have been described, but in fact cargo is concentrated in the ICD Nairobi, and it is likely that cargo volume and workload are too high for the capacity of the cargo handled, even when compared to other ICDs in Kenya, ICD Kisumu, ICD Eldoret, and ICD Naivasha. Regarding the time length of customs clearance operations for cargo, it is conceivable that measures will be taken, such as increasing the capacity of cargo handled by expanding the infrastructure of the ICD Nairobi and recruiting more customs staff, decentralizing operations outside the ICD Nairobi. z Development promotion measure 1: Decentralized ICD Nairobi operations and training for capacity building of tax staff for simplification and transparency of customs clearance

Due to the active utilization of the railway (SGR), ICD Nairobi is currently facing extremely tight customs related operations. This may be due to various factors, such as the accelerated rail transportation (arrival of cargo between Mombasa and Nairobi in about 6 hours), an increase in cargo destined for Nairobi, and shortages in the absolute number and quality of tax officials. To overcome this situation, the decentralization of operations for transit shipments to Uganda and other countries through the use of an electronic customs clearance system with other ICDs besides Nairobi ICD, such as Kisumu ICD, Eldoret ICD, and Naivasha ICD, or the expansion of the physical infrastructure of Nairobi ICD and the increase in the number of customs officers, will help to One of the immediate measures to be taken is to expedite the processing of slow customs and clearance operations. In order to achieve this, it is necessary to build a system and network that is compatible with each ICD in the electronic customs system. In the medium term, however, it is believed that it is essential to improve and simplify customs procedures in order to resolve the fundamental problem that customs procedures are complex and somewhat uncertain processes exist. Therefore, it is considered effective to standardize operations through the improvement of the work processes of customs officials, create a manual and provide it. In addition to the simplification and standardization of business processes, ongoing training to enhance the capabilities of customs officials (including the effective use of an electronic customs clearance system, support for the establishment of a standardized customs clearance system, and the acceleration of the H.S. Code and its verification process) and the establishment of a simple and transparent customs clearance process will greatly reduce bottlenecks in logistics at the time of product imports, because it is expected to continue increasing the volume of imports to Kenya in the future.

141 Issue 2. The lack of popularization of cold-chain-related transport technology

In Kenya, short-haul transport is common, and there are product transport issues, such as limited distance for procurement and transport, for perishables or products that require cold chain transport. This issue, though indirectly, is closely related to "the promotion of growth drivers to expand exports, reduce imports, and develop regional economies" within the industrial strategy of the Master Plan. Specific program content does not include perishables and products that require cold-chain transportation as products aiming to expand exports. But in order to expand exports of vegetables and fruits, fresh fish, fresh meats, processed meats, dairy products, etc. in Kenya and inland countries, transportation technologies related to cold chains (trucks with freezing functions, freezing warehouses, distribution centers with freezing functions, etc.) are considered essential because of the long border transit time and long-haul transportation. z Development promotion measure 2: Training and seminars for cold chain transport technology dissemination and pilot project implementation

For vegetable and fruit horticulture farmers, livestock producers dealing with fresh meats such as chicken and beef, and dairy product manufacturers and meat companies, technology for maintaining the freshness and quality of products are extremely important issues which also affect prices. Nevertheless, permeation of cold chain-related transportation technologies are limited in Kenya. For horticultural farmers and livestock producers, whose production areas are far from Nairobi, it is difficult to say that technologies for maintaining freshness and quality are well established. Therefore, in the medium-to long-term, these farmers and livestock producers are judged to be able to raise their income and profits through human resource development measures concerning knowledge and utilization methods related to freshness and quality preservation. However, considering that the high-value-added food market with freshness and high quality will grow in the next few years, as described in Chapter 3.2.1, in the short term, it is possible to hold seminars in the inner-city area for the government, agricultural and food-related industry associations and farmers, in order to promote the technology related to cold chain transportation, such as truck transportation with cold chain related refrigeration technology, refrigeration storage warehouses and distribution centers, to stakeholders of the Kenyan government. Practical training in cold-chain transport technology in the inner-city area is also highly significant in order to promote the upcoming expansion of the Kenyan domestic market and future increases in exports and logistics to the Northern Corridor. From the suppliers’ point of view, they have to share their own profits with retailers, wholesalers and distributors, and intermediary agents due to Kenya's current multi-layered distribution structure, and are struggling with a structure in which each party earn only a slight profit. To overcome this structural problem, it is necessary to measure the impact on selling prices by introducing technologies for maintaining freshness and managing quality to farmers who are evaluated by freshness. In order to do so, it is need to prepare several demonstration sites for small-scale farmers, and deepen the examination of differences in market prices according to distribution time and form of distribution from rural areas to urban centers, using as indices the difference between existing sales prices and sales prices after introducing technologies for maintaining freshness and managing quality, and commissions (profits) taken by intermediary agents, wholesalers, distributors, and retailers. It is considered that examining these prices and the commissions (profits) of each related entity and

142 considering whether a large number of related entities are necessary for the distribution structure can analyze the effects on income improvement of small-scale farmers (such as simplification of distribution and substantial improvement of market prices by introduction of cold chain transportation technology), and make it possible to propose an ideal form of distribution model.

Issue 3. Undeveloped road infrastructure

In the northern and western parts of Kenya, roads and other logistics infrastructures are not well developed. In particular, small-scale farmers who produce corn, wheat, fruit trees and vegetables have difficulty transporting agricultural products to the suburban cities and main roads. Currently, they are searching for their own means of logistics and transporting them to main roads. This issue is closely related to the "linkage between agricultural production areas and mineral resources through the development of secondary cities," which is set as a goal in the regional strategy of the Master Plan. Specific programs include "realizing balanced growth and efficient logistics networks in the Northern Corridor Economic Region through strengthening the urban functions of 12 secondary cities; and the secondary cities, which are the center of the regions, provide urban services and logistics hub functions to the regions and play a role in connecting regional production bases to the inner-city area." This is recognition that the logistics hub functions and urban service functions of secondary cities have not yet been sufficiently provided to the regions. As a means of strengthening local distribution hub functions, i.e., a measure for linking local production bases to the metropolitan areas, supporting the organization of agricultural product distribution in the suburbs of major agricultural districts, expanding and developing branch roads, and developing distribution functions in the suburbs of urban areas (collecting agricultural products and food, storage, inventory control, shipments to urban centers, etc. in warehouses) will be essential for establishing a smooth supply chain from farmers to consumers. z Development promotion measure 3: Organization of distribution and sophistication of logistics services for building a consistent logistics supply chain from rural areas to central urban areas, targeting administrative organs in secondary cities

In northern and western Kenya, there are many producers in the fields of corn, wheat, fruit and vegetables, but many of them are small-scale farmers, and they do not have the ability to carry out distribution/logistics from the place of production to the inner-city area. On the other hand, it is presumed that local core cities such as Eldoret, Kisumu, and Nakuru, which are also described in the Northern Corridor Master Plan, are not able to provide their producers with functions as logistics hubs at present. When the supply chain (flow of goods) of agricultural products is breaking down into elements, it becomes transportation/collection/storage from production sites to primary collection sites, next, shipment/transportation/storage to secondary cities, then, shipment and transportation (including last-mile delivery) to retail stores in inner-city areas such as Nairobi. Given the above, it can be understood that it is difficult to construct supply chains from production sites to retail stores in inner-city areas. Secondary cities play a major role in this. In order to make secondary cities logistics hubs, it is essential to provide a series of processes (collection, storage, and transportation) as close as possible to the upstream

143 producers. As specific measures, it is required to organize and unify the distribution of each agricultural product, to provide policy guidance for constructing supply chains from production sites to primary collection points, warehouses in secondary cities, and stores in inner-city areas, and to improve the efficiency and sophistication of logistics management functions (collection, storage, and transportation). As a realistic measure, both hardware-type support such as warehouse installation on the organization of distribution of small-scale farmers and soft-type support such as the construction of efficient delivery system will be necessary, after grasping the present state and problems of the distribution of small-scale farmers. Therefore, it is important to work together with those in charge of the secondary cities transportation logistics strategy, private-sector logistics companies located in secondary cities, and distribution and logistics specialists invited from overseas in order to organize distribution in stages. In the sense of raising income and profits of small farmers in rural areas, this measure is considered to be a medium-to long-term initiative that contributes to the solution of social issues.

Issue 4. Traffic congestion in central Nairobi

Roads around the metropolitan area of Nairobi are constantly crowded, but many modern retailers do not have outlets in rural areas or suburban areas of Kenya from the standpoint of profitability. For this reason, suppliers/wholesalers face the problem of difficulty in delivering their products to retailers in a timely manner. Suppliers who need to deliver fresh food on a daily basis, in particular, face considerable time and operational challenges. It is related to "the linkage of the industrial region and the logistics hub through logistics oriented development" which is set as the goal of the industrial strategy of the Master Plan corresponding to this. Specific programs include the establishment of logistics hubs (Standard Gauge Railway stations, strategic urban areas, and key industry areas; at least 3 in Kenya and at least 4 in Uganda). In addition, the regional strategy refers to "major proposal projects for regional strategies," which include the program content of "formulation of strategic urban development plans for urban areas." It seems to be related to the reconstruction of the traffic network in the city center of Nairobi. z Development promotion measure 4: Review of the Project on Integrated Urban Development Master Plan for the City of Nairobi, implementation of proposals for data utilization of the relevant project, and proposal of time-varying regulations, etc.

Roads around metropolitan areas, such as Nairobi, are constantly crowded, but many modern retailers do not have outlets in rural areas or suburban areas of Kenya from the standpoint of profitability. As a result, suppliers/wholesalers face a continuing logistics problem that makes it difficult to deliver their products to retailers' stores by a specified time. Suppliers that need to deliver perishables on a daily basis, in particular, face considerable time burdens and operational and cost disadvantages. Although the Northern Corridor Master Plan does not mention the above issues directly, JICA has implemented the Project on Integrated Urban Development Master Plan for the City of Nairobi (2012-2014) with the aim of alleviating traffic congestion. In addition, "rationalization of logistics to reduce the number of vehicle trips (promotion of joint distribution systems)" was cited as a short-term measure in the project, and

144 development of other public transportation systems was also recommended. Measures such as the utilization of data such as traffic volume obtained from the previous projects, alleviation of traffic congestion by the implementation of the above-mentioned "rationalization of logistics (promotion of joint distribution systems)", and improvement of convenience for retailers and suppliers by establishing a public distribution center, etc. are considered. If traffic is too high, based on data on road and hourly congestion levels, it is realistic to develop a smooth joint distribution system from suppliers to retailers at fixed times, such as at night and early morning, and to formulate time-specific traffic restrictions as regulations to avoid delays in delivery. In the future, after accumulating data on congestion by road and by time period, model design and prototype supply of navigation system which proposes a non-congested route may also contribute to the solution of the problem.

Issue 5. Deterioration of quality and freshness of perishables in the Kenya-Uganda border area

The lack of the cold chain transport function described in issue 2 has made it difficult for Kenya to supply perishables and products requiring cold chain transport from Kenya to the interior through the Northern Corridor. Specifically, since there are no freezer warehouses and DC (distribution) centers in Malaba, the border between Kenya and Uganda, if customs procedures and customs clearance take more than 2 days, there is concern that freshness and product quality will decline. If there is a distribution center with a freezing (refrigeration) warehouse or a freezing (refrigeration) function, it is possible to unload, store the products at a low temperature for customs clearance procedures. Thus, a systematic collection, stock, and re-shipment system can be constructed, but it is not possible at present. In relation to the above issues, the objective of the industrial strategy of the Master Plan is "consolidation of logistics hubs accompanied by inland container depots and distribution centers," which is a program called "implementation of multimodal functions and distribution center functions as an ICD." This content points out the high necessity of establishing the distribution center in the logistics hub, but it seems that the establishment of the distribution center has not yet been planned. If frozen (refrigerated) warehouses or distribution centers are placed in Malaba near the border, it is possible to unload, store the products at a low temperature for customs clearance procedures, and a systematic collection, stock, and re- shipment system can be constructed. Although whether it is installed in Malaba, which is the first pass point of inland logistics, or in Kampala, the capital of Uganda, which has a large volume of shipments specified as logistics hubs, is open to discussion, the establishment and appropriate operation of distribution centers can be important measures to promote inland logistics. z Development promotion measure 5: Expand exports of high-quality perishables by establishing and operating distribution centers in the Kenya-Uganda border area

The lack of a cold chain function is a bottleneck in cross-border logistics, particularly in the promotion and expansion of inland logistics in the Northern Corridor. In particular, for perishables and processed products that require cold chain transportation, it is difficult to supply perishables in inland areas of Uganda and Rwanda.

145 In light of these circumstances, in order to export products that do not diminish freshness or quality to inland countries, there is a need to establish a distribution center in Malaba, which is located at the border of Kenya- Uganda, under the concession agreement including from international aid agencies with a public–private partnership. Specifically, this enables efficient operation of product collection, refrigeration, and shipment within the distribution center during the customs clearance process. In addition to the establishment of distribution centers as a tangible measure, it is extremely important to have expertise in systematically constructing and operating systems for collection, stock, and re-shipment. Therefore, the operation of the distribution center requires support from international aid organizations at the beginning, and the build–operate–transfer method is considered to be desirable. Adjustments with customs operations are also necessary for seamless cross-border transit, and it will be important to design distribution centers with appropriate sizes and temperature controls, taking into account the optimal flow of operations and conditions such as logistics volume and a time length required for customs clearance. Currently, some surveys have found that the customs clearance time in Malaba is shortened within 2 days. Therefore, it is highly appropriate to examining in parallel establishing and operating a distribution center in Kampala, the capital of Uganda, as a site of accumulation of products in the interior of the Northern Corridor.

Issue 6. Lack of manufacturing skills in processing, manufacturing, and packaging in inland countries

The business model of importing coffee beans, fresh rice, and soybean raw materials at low prices from such countries as Uganda and Rwanda, which are located inland areas of the Northern Corridor, processing and manufacturing them in Kenya, and then re-exporting processed products to inland countries is common in the Northern Corridor. However, this business model has low profits for raw material suppliers in Uganda, Rwanda, etc., and retailers in Uganda and Rwanda also do not necessarily enjoy large profits. Therefore, the development of industries and the promotion of logistics are major concerns for Kenya's logistics and food industries, but from the viewpoint of the development of industries in Uganda and Rwanda, it is a problem that these industries are impeding the development of their food sectors. "Major proposal projects for industrial strategy" is mentioned in the industrial strategy of the Master Plan related to the above, and as "industrial development project in Uganda" the development of industrial estates (Bujogellee Industrial Park, Mbarara, Masaka, Mbale, Solti, Gulu, and Kasese) is stated in this content. It is judged that the necessity of guidance and technology transfer on processing, manufacturing and packaging technologies to Uganda, Rwanda, etc. is high in order to also mutually promote the distribution of inland agricultural products and foodstuffs. z Development promotion measure 6: Adding value to agricultural products and promoting exports in Uganda, Rwanda, and other inland countries by establishing strategic export crops and introducing processing, manufacturing, and packaging technologies

Kenya imports coffee beans, fresh rice, and soybean raw materials at low prices from such countries as Uganda and Rwanda, which are located inland areas of the Northern Corridor, and after processing and packaging them in Kenya, often re-exports processed foods to inland countries. However, this business model

146 is not likely to be profitable for raw material suppliers in Uganda, Rwanda, etc. and retailers in Uganda and Rwanda, who are the sales destinations, may not always make a big profit. The Master Plan also mentions the development of industrial parks as an "industrial development project in Uganda," but the development of agricultural products and foodstuffs is limited. Therefore, in Uganda and Rwanda, there is a strong need to develop a product concept and strategic export items, namely, what value- added processed foods are produced from local agricultural products. When the concept is determined, it is necessary to select the appropriate industrial estate, introduce production technology, manufacturing technology, and packaging technology suitable for the realization of the product concept, and promote advancement. In doing so, it is extremely important to conduct test marketing using subsidies from international donor organizations and their own countries, and to localize various technologies that contribute to the upgrading of industries in the medium term. In order to further promote logistics in the northern corridor in the future, not only promoting exports from Kenya but also industrial development in Uganda and Rwanda and an increase in exports of processed foods from inland regions based on this development are necessary, and are also indispensable for increasing imports and exports of inland logistics.

Issue 7. Trade conflicts between Kenya and other EAC countries including Uganda

Competition in dairy products is occurring between Kenya and Uganda, and Uganda has until now exported cheap milk to Kenya and other countries. However, Kenya is now able to produce cheap milk through the mass production of large enterprises by utilizing the economies of scale because of the wave of mergers and alliances among milk companies in Kenya. At present, Kenya imposes a special 16% value-added tax on Uganda-made milk as import tariffs, even though the EAC rule does not originally impose any taxes, including tariffs. Thus, Kenya has caused trade friction without complying with the relevant rule. Kenya had previously imported cheap eggs from Uganda and Tanzania, but because of the trade friction mentioned above, Kenya has imposed high import duties in violation of the EAC rule, making it difficult to import them into Kenya. Such trade frictions impede smooth intra-regional trade and logistics, and hinder the industrial strategy of the Master Plan's goal of "promoting growth drivers to expand exports, reduce imports, and develop regional economies."

In the next page, important logistics barriers, concrete concerns, background and causes identified up to now are arranged on the vertical axis, and the proposal of development promotion measures is illustrated. As shown in the value chain analysis methodology in Chapter 1, there are 4 stages of development promotion measures in Kenya and the Northern Corridor: the import model, the local production for local consumption model, the export model, and the model of importing raw materials and exporting processed goods. Therefore, the horizontal axis is organized along these 4 stages. Issues 7 "Trade frictions between Kenya and other EAC countries including Uganda" are not referred to in this recommendation, as they are a rule to be observed on the assumption that the northern corridor development should take place.

147 Issues 6. Manufactures in inland 2. Cold-chain and the 5. Degraded quality and 1. Delay of customs 4. Heavy traffic and countries are lacking in related transport 3. Undeveloped road freshness of fresh clearance procedures at congestion in central skills of processing, technologies are not infrastructure products in the Kenya- the Nairobi ICD Nairobi manufacturing and proliferated Uganda border area packaging

B. local production for local VC A. import model B. local production for local B. local production for local C. export model D. importing raw materials/exporting consumption model Model consumption model consumption model processed goods model

ʀ Shortage of physical ʀ Major retailers and logistics ʀ In northern and western Kenya, ʀ Retail stores are ʀ There is no cold-chain ʀ Kenya often imports raw rice, infrastructure at the Nairobi ICD for companies do not have their own the main roads are distant from concentrated in central Nairobi, technology or equipment for coffee beans, and soybean Concerns shipments made from Mombasa freezer trucks and cold storage main road; transportation is not but traffic congestion constantly exporting fresh foods from Kenya ingredients from inland countries, warehouses processes them, and re-exports them Port via SGR easy for suppliers occurs and products cannot be to the inland part of the northern ʀ Lack of capacity to handle large ʀ Due to the above reason, fresh ʀ In rural areas, secondary cities corridor ʀ In inland countries, processing, foods and other products can be delivered on time manufacturing and packaging volumes of containers; therefore do not sufficiently work as ʀ Customs and customs transported only for a limited ʀ For products delivered on a technologies/know-how are not customs clearance at Nairobi can logistics hubs, such as providing clearance exist in important traffic distance; suppliers must transport accumulated and imports are always be delayed (4 days) logistics support daily basis, direct delivery ("last areas such as border areas (e.g., ʀ Customs clearance takes them on a daily basis with high one milen) is used and the excessing exports. As a result, transportation costs ʀ Transportation from local Malaba). Freshness and quality of logistics between EAC countries are approximately 4 days. If it takes production sites to the urban area burden and delay arises on the fresh foods and products more, additional demurrage fees ʀ Products provided by suppliers not promoted in an expected way is not efficient way to the supplier’s stores deteriorate after two days of are collected distant from cities can be low in quality customs clearance

Factors Backgrounds/ ʀ The Kenyan government also ʀ High-quality food markets that ʀ The concept of making a ʀ Major retailers have stores ʀ Suppliers have the intention to ʀ Kenya has several strategic intends the effective use of SGR require the cold chain transport secondary city a logistics hub has located in the center of Nairobi, export, but hardware such as export items, including tea, flowers ʀ Customs clearance processes technology remain in small scale just begun where profitability is expected, and freezer trucks, cold storage and coffee products, and it excels at are concentrated in Nairobi ʀ Logistics are often provided by ʀ Secondary cities’ logistics support few stores are located in suburban warehouses, and distribution processing and packaging know- capacity and their capability as a ʀ Lack of customs staff in terms of wholesalers, and suppliers earn or rural areas centers (DC) are not in place how for raw materials supplier to major cities is still not high both capacity and capability only minor profits ʀ It is unclear whether Kenya’s ʀ At the same time, there is little ʀ In Uganda, Rwanda, and other ʀ Verification is required if ʀ Distribution is not well organized; ʀ A business practice exists that Strategic Urban Development Plan knowledge on the promotion of countries, the number of companies additional demurrage fees are the unified process that covers prevents farmers from sufficiently considers improvement efficient logistics (i.e., collection, that have processing, legally reasonable (investigation of collection to storage/shipment does of traffic access inventory management, and manufacturing, and packaging contracting directly with retailers transparency) not yet exist shipping by DC) technologies is small.

ʀ Avoid concentration in the ʀ Capacity building that enables ʀ Strengthen the logistics and ʀ Confirm if Nairobids Strategic ʀ Consider establishing DC ʀ Uganda and Rwanda also Nairobi ICD; allocate some farmers especially producing fresh collection functions of secondary Urban Development Plan on the Kenya-Uganda need to have strategic export operations to the Kisumu ICD, the foods to directly contract with cities located in the western and includes measures to improve crops like Kenya and develop Eldoret ICD about transit cargo border or Kampala where retailers through capability northern areas near production traffic congestion/urban roads them as value added products ʀImprove/simplify large volumes of cargoes development of production and sites ʀ Monitor major roads and (including packaging). Through customs/customs clearance cultivation technologies (e.g., ʀ Under the lead of secondary plan traffic regulations by time are expected, based on the the assistance from international procedures, and attain transparency horticultural and livestock farmers) city administrative agencies, donor organizations and by manual creation period, which may contribute to needs of suppliers and ʀ Hold seminars and training organize activities to support subsidies granted by ʀ Provide training for customs staff reducing traffic; or design logistics companies sessions for the spread of cold- neighboring farmers’ collection governments, manufacturing and to improve their capabilities (training navigation systems for ʀ Transfer not only chain technology, and conduct and shipment processes. Then, packaging industries should be on the use of the international pilot projects using cold-chain distributors and provide their hardware but also customs clearance system, review discuss how they can construct nurtured. (It is difficult to activate transport technology (verification prototype products to logistics of the work flows on classification of supply chains as well as how to technology and know-how logistics unless products from of impacts on quality and prices, HS codes, etc.) form a technology transfer project companies about how to operate DC inland areas increase) etc.) [Source: JICA Survey Team] Figure 51 Summary of important logistics issues and concerns identified in the Northern Corridor and development promotion measures related to thereto

148 6.2.2. Recommendations on measures to promote the development of the Nacala Corridor

Impediments and issues for the promotion of logistics identified in this survey (Chapters 2.3, 4.3, and 4.4) are as follows79.

• Low production quality of local suppliers • Low logistical capacity of local suppliers • Transportation means are limited to dry transportation • Poor physical road infrastructure (e.g. Nacala Corridor) • Absolute shortage of freight volume and lack of marketability at the time of export (e.g. Nacala Corridor) • Limited number of suppliers wanting to learn processing, manufacturing, packaging, and logistics technologies worth exporting

In this section, we will first analyze the relationship between the master plan of the Nacala Corridor and the logistical issues identified in this survey. Then, the development promotion measures corresponding to each issue are proposed. In conclusion, with regard to the important issues and 6 barriers and bottlenecks in each corridor, specific concerns, background and causes will be summarized, and then the recommendations for development promotion measures will be shown in a visible and easy-to-understand format. According to "The Project for Nacala Corridor - Economic Development Strategies in the Republic of Mozambique: PEDEC-Nacala: Final Study Report (Summary)" published by JICA in April 2015, the 7 key development strategies consisting of the 3 main strategies and the 4 sub-strategies that support the realization of these strategies are formulated as key development strategies in line with the directions of the 7 overall development strategies. "iii. Sustainable agricultural development through support for small farmers and utilization of private sectors" is cited as an important development strategy. The content includes "expansion of agricultural production by small farmers, diversification of products, and improvement of productivity," and "construction of supply chains for agricultural products and creation of added value." The implication of this strategy is that small farmers have not yet been fully organized, and the value chains for agricultural products have not yet been fully constructed along corridors. In addition, "V. Strengthening basic education and industrial human resources development" is cited as the sub-development strategy that supports the realization of the Key Development Strategies (I-III). Industrialization of agriculture, in other words, it is pointed out that the importance of human resources development that adds value to agricultural products. The following is an overview of the relationship between the Master Plan and the important impediments and issues for the promotion of logistics identified in this survey.

Issue 1. Low production quality of local suppliers

There are few local suppliers who directly contract with retailers in Mozambique and Zambia. Many suppliers produce and process agricultural products and foodstuffs that are used only in the vicinity of their production

79 In this chapter, while touching on Mozambique's survey, we identified issues after we judged that the logistical issues and barriers in Zambia, which are located along the Nacala Corridor where the detailed analysis of the value chain was conducted, have a lot of commonalities with those in Mozambique and high importance.

149 sites, based on the intentions of wholesalers. This is because local suppliers are not concerned about quality, and they tend to produce and process low-quality products that do not pay for quality improvement or packaging. They are not very willing to produce products that are distributed throughout Mozambique and Zambia. This has also impacted distribution and logistics, and has hindered smooth distribution and logistics throughout Mozambique and Zambia. According to the Nacala Corridor Economic Development Strategies (hereinafter referred to as the Nacala Corridor Master Plan), the key development strategies include " sustainable agricultural development through support for small farmers and utilization of private sectors" and the specific action plan specifically identifies the region as "to start from the region around the major corridor between Nacala, Nampula, Cuamba, Mandimba and Lichinga." It is also stated that "expansion of agricultural production by small farmers, diversification of products, and improvement of productivity." This is an issue which is consistent with the Master Plan from the viewpoint of expansion of agricultural production, improvement of productivity, and creation of added value of agricultural products. At present, therefore, few local suppliers have met the stringent quality standards and conditions of foreign retailers such as South African capital. Some suppliers, however, are willing to add value to their agricultural products. z Development promotion measure 1: Establishment and operation of institutes for human resources development and technical education to improve agricultural production and processing product development technologies

Mozambique has a large number of small farmers, and it is thought that the productivity of farmers is low in each stage of production technology of agricultural products, i.e. development of varieties, sowing, cultivation, and harvesting. Specifically, it can be inferred that there are many problems such as pest control, fertilizer application, and water source management at the time of cultivation, and harvest loss at the time of harvest. Consequently, it is essential for the self-sufficiency rate of grain, etc. to be improved by dispatching technical experts to help improve the yield and productivity of agricultural products, and by providing ongoing agricultural management guidance and specialist training. For Mozambique, which depends on imported foods, the most important development challenge is to overcome the low self-sufficiency rate of wheat and rice (2.2% wheat and 10.8% rice in 2017) in particular, and to reduce poverty by improving the yields and productivity of farmers and healthy lives through nutritious food taking. Regarding the processing of agricultural products, processing technologies are still immature, and the quality of processed foods including manufacturing and packaging is low, and there are not many types of processed foods processed domestically. In Mozambique, a market-oriented marketing of relatively abundant fish, meat, fruits and vegetables, and the manufacture of processed foods that can be sold in local and overseas markets through test sales, etc., is expected to contribute to the industrial development. In order to continue to train agricultural producers and manufacturers of processed foods, it is essential in the medium and long term to establish a specialized institution for technical education, such as for improving

150 agricultural productivity and turning food loss into processing, and to build their capacity through training and seminars tailored to local issues and needs. Issuse 2. Low logistical capacity of local suppliers

A characteristic of the distribution structure in Mozambique and Zambia is that retailers rarely enter into direct contracts with farmers and suppliers, and traditional wholesalers often listen to retailers' requests and needs and impose them on farmers and suppliers. Because local wholesalers often have logistics functions, and because the production location is geographically separated from the main road, farmers and suppliers often outsource the logistics and product transportation to wholesalers. Consequently, the profits of farmers and suppliers are reduced by the distribution costs being taken up by wholesalers. As a result, farmers and suppliers rarely have their own logistics functions, and their capacity for transportation and logistics is not accumulated, and there is no special logistical innovation for transporting products from production sites to main roads. This challenge is articulated as "creating supply chains and adding value for agricultural products" in the specific action plan within the key development strategies of "sustainable agricultural development through support for small farmers and utilization of private sectors." Supply chains and logistics are split between farmers/suppliers and wholesalers (also serving as logistics companies), as well as wholesalers and retailers. In the sense of constructing supply chains for agricultural products, there is a high degree of consistency with the Master Plan, and there is a strong need to promote the construction of supply chains. z Development promotion measure 2: Establishment of logistics warehouses to establish agricultural supply chains, and development of human resources for logistics management and implementation of specialist training

A major development challenge in Mozambique is that the food supply chain of production, processing, distribution, and consumption is not organically linked, and the supply chain is fragmented at each stage. In particular, production areas are often far from inner-city areas, and transport of agricultural products to main roads and branch roads is also challenging. As described in Chapter 4.4.4, this can be inferred from the case in which prices is about 40% expensive when selling in areas where road infrastructure is not adequate (In Niassa Province, beer is sold at twice the price in Nampula Province, where the beer factory is located). To solve this problem, we propose the development of human resources for logistics management. As a specific measure, it is important to introduce the concept of logistics management that selects regions that are convenient for collecting agricultural products, establishes warehouses and stores them in, and ships them in a lump, rather than individually transporting them directly to the market from the producing areas where many agricultural products are harvested. This is important for an efficient shipping system. Strategic allocation and operation of warehouses are important in order to prevent quality deterioration and decrease in freshness in transportation from undeveloped areas of road infrastructures, taking into account the position of warehouses and storage forms (temperature control, humidity control, etc.). With regard to the above proposal, consumers have been forced to purchase products at a high price, as in the case of the above-mentioned beer, due to the poor progress in the development of roads and logistics

151 infrastructure, so the need for reducing logistics costs is extremely high. If procurement costs can be reduced through logistics management, such as warehouse placement, it is assumed that the potential for logistics services is high, as the retailers wants to choose a business that can perform logistics management as a partner. However, the startup environment is inferior to other sub-Saharan countries in terms of procedures, costs and time. As warehouses can be constructed relatively quickly, it will be necessary to raise productivity in the agricultural field, improve basic education, and invite investment and financing from international financial institutions, etc80. Holding instruction courses and vocational training by experts for human resource development that enables logistics management, as described above, by establishing specialist education institutes and holding training and courses as described in the development promotion measure 1, will make it possible for the concept of logistics management and supply chain construction to permeate within Mozambique in the medium to long term.

Issue 3. Transportation means are limited to dry transportation

In both Mozambique and Zambia, consumer markets for fresh agricultural products and value-added foods are currently small, and consumers in both countries are less concerned about food safety and quality, and prefer cheaper products to high-quality products. Therefore, local suppliers, wholesalers and logistics companies, and retailers in Mozambique and Zambia are currently reluctant to introduce cold-chain transport technologies on their own, and are not willing to invest in this area in terms of profitability. Wholesalers themselves have no strong intention of expanding their logistics and wholesale operations throughout Mozambique and Zambia, and tend to be concerned only with logistics and sales operations in neighboring areas, so they are less interested in cold-chain transportation technologies. Although this issue is not specified in the Master Plan, the sub-strategies that support the implementation of the key development strategies include "consideration for new social issues, vulnerable people and remote areas," and the specific action plan "start by implementing measures for people in remote areas," which is indirectly related to the Master Plan from the perspective of transporting perishables to consumers in remote areas. z Development promotion measure 3: Ongoing development of human resources for logistics management, and implementation of a pilot project on cold chain transportation and measurement of effects

In addition to participating in training courses for logistics management personnel at educational institutions as described in the development promotion measure 2, continuing human resource development and training through practices such as collection, warehousing, and shipment management from agricultural product producing areas is effective for promoting efficient logistics in Mozambique. While Maputo, the capital of Mozambique, is currently the largest city in Mozambique, Nampula has the largest population along the Nacala Corridor. In Mozambique, where many fresh products, including meats, fish

80 World Bank "Doing Business 2019"

152 (both seawater and freshwater), fruits and vegetables, can be harvested, demand for cold-chain transport, such as truck transportation and refrigerated warehouses equipped with freezers, and temperature and humidity management by distribution centers, may arise in the future. Along with training for human resource development for logistics management, it is also important to consider the introduction of cold chain transportation technology. For this purpose, it is recommended to exchange opinions with Nampula City, etc. on the possibility of introducing cold chain technologies after the outline of them is explained in the classroom training, if they show an interest, and to conduct demonstration of cold chain transportation as a field trial in Mozambique. Specifically, after selected several agricultural products from the meat, fish, and fruit and vegetables produced along the Nacala Corridor, with cooperation of retail stores located in rural areas and central Nampula, test transportation to retail stores will be conducted. At that time, freezer trucks, simple refrigerated warehouses, etc. are brought in on a trial basis, and how much there is a difference in freshness retention and quality evaluation compared with the distribution method by general truck, etc. transportation means and warehouse is examined by item. As described above, the effect of cold chain transportation is measured, and an interview/questionnaire survey on the effect on taste, freshness and price is conducted for consumers. Through these field trials, the development of the Nacala Corridor should not be specialized only in the mining and resource fields, but should be promoted at the same time in the food retail and logistics fields. It is important for the development and the promotion of logistics of the Corridor. With the cooperation of Nampula City and other government agencies, considering the development of cold chains as part of value-added agricultural value chains located in the Nacala Corridor will promote the development of the corridor in the medium to long term.

Issue 4. Poor physical road infrastructure

Considering the possibility of expanding cross-border logistics between Mozambique and Zambia, agricultural products and exports from Mozambique to Malawi and Zambia rarely have not been carried out at present. Rather, Mozambique depends on imports for most of its agricultural products and foodstuffs, such as cereals. Tracks, which are the main means of transportation of cross-border logistics, pass through main roads such as the Nacala Corridor. However, the road development situation of the Nacala Corridor is not good compared to the road situation in Zambia. The road width of the main roads is narrow, and those roads are unpaved similar to branch ones. In addition, there is a risk of flooding in the rainy season. Therefore, it is difficult to transport food, and attention must be paid to packaging technology and know-how. Logistics companies also do not possess sophisticated long-distance logistics know-how, and they have little intention of engaging in transport operations in corridors with high levels of risk and without experience. This issue is consistent with the strategy of “strengthening multimodal transport function in the Nacala Corridor, which is stated at the first of the key development strategies, and suggests its importance. The concrete action plan states that "the transport functions of the major corridors (Nacala- Moatize) will be secured by utilizing existing and planned transport projects."

153 z Development promotion measure 4: Repair and improvement of main roads and branch roads, and securing and improvement of import and export routes

The results of this survey indicate that the Nacala Corridor is more difficult to transport food compared to the road development status in Zambia and Malawi because of the narrowness of the road width of main roads, the condition of the road like the branch line, and the risk of the road being flooded in the rainy season, and that attention should be paid to the packaging technology and know-how as well. Logistics companies also do not possess sophisticated long-distance logistics know-how, and they have little intention of engaging in transport operations in corridors with high levels of risk and without experience. Therefore, as a development promotion strategy, it is highly probable to repair and expand main roads within Mozambique between Nacala-Nampula-Cuamba. It is also highly probable that construction will be carried out for the renovation of roads flooded in the rainy season, the expansion of the range of roads, and that the branch roads will be constructed on large agricultural production areas. Zambia is a food producer and exporter with a high self-sufficiency rate. Exports from Zambia are often made via the Beira Corridor or via Zimbabwe due to the road situation on the Mozambique side of the Nacala Corridor. However, if the status of road development progresses, and the potential as the consumer market in the northern Mozambique market and as a major procurement region for agricultural raw materials in Mozambique can be confirmed, there is a possibility that food export from Zambia through the Nacala Corridor will be activated in the medium-to long-term. This can contribute to the promotion of logistics from Zambia, an inland country of the Nacala Corridor.

Issuse 5. Absolute shortage of freight volume and lack of marketability at the time of export

Zambia has a high self-sufficiency rate for agricultural products and foodstuffs, and has already exported soybeans, corn, vegetables, fruits, beef, freshwater fish, etc. However, the main export countries are Europe (mainly Switzerland) and China, rather than neighboring countries in the African region. As neighboring countries in the African region, there are many exports to Zimbabwe and South Africa. When considering marketability, it is common for Zambia to export to Maputo via Zimbabwe or use the Beira Corridor when exporting to Mozambique. The use of the Nacala Corridor poses a problem that it cannot be profitable because it has less amount of freight and no regular runs. This problem is not directly mentioned in the Master Plan, but is closely related to the "poor physical road infrastructure " in issue 4. The sub-strategies supporting the key development strategies include "building an organizational framework to coordinate and promote comprehensive regional development and capacity strengthening," and the specific action plan states "building an institutional framework to promote and coordinate the integrated development of the Nacala Corridor region and strengthening the capacity of special organizations," which can be regarded as measures to enhance the development and marketability of the Nacala Corridor. z Development promotion measure 5: Supporting the introduction of manufacturing equipment to develop the Northern Mozambique market and developing manufacturing human resources

154 Exports from Mozambique to inland countries using the Nacala Corridor are currently of low volume and have very limited export loads. On the other hand, exports from Zambia are relatively large, and some are exported to South Africa and Zimbabwe, but the exports to Mozambique are relatively small. This is largely due to marketability, and in Mozambique, exports to the Maputo economic zone in the southern region are relatively large compared to the northern region. In order to promote the inland distribution of the Nacala Corridor, it is necessary for Mozambique to create "strategic export products" based on the needs of inland countries. As noted above, Mozambique produces a large amount of fish, bananas and other fruits and vegetables, and meat. The northern part of Mozambique will develop by exporting products processed from these perishables to the inland countries located in the Nacala Corridor and overseas markets. In order to do so, it is necessary to change the industrial structure, which has been dependent on agriculture and mining, and to develop the manufacturing industry, including the food processing industry. Mozambique has to strategically set Nampula and Cuamba as bases for the development of processing and manufacturing, where it gathers information on market needs and manufactures processed foods in an accumulated way. To achieve this development, support must be provided for the introduction of processing and manufacturing facilities from international donor organizations as a tangible measure, and programs must be formulated for the development of manufacturing human resources as an intangible measure. Activation of the manufacturing industry by means of support for equipment introduction and operation, dispatch of specialists, etc., will lead to the revitalization of the northern economy of Mozambique and contribute to an increase in the import and export of raw materials and products using the Nacala Corridor.

Issue 6. Limited number of suppliers wanting to learn processing, manufacturing, packaging, and logistics technologies worth exporting

Developing suppliers and adding value to their manufactured products is an important condition for the development of the corridor. If the supplier itself has the skills in processing, manufacturing, packaging, and transportation, retailers may buy at a higher price than they currently do, so some suppliers are interested in the upgrading of processing, packaging, and logistics described above. In particular, supplying modern retailers requires not only high-quality products, but also so-called Just In Time logistics techniques and know-how. Although there are a small number of such suppliers in Lusaka, the suburb of Zambia, the absolute number of such suppliers is still limited in Mozambique. This event is articulated as "creating supply chains and adding value for agricultural products" in the specific action plan within the key development strategies of "sustainable agricultural development through support for small farmers and utilization of private sectors." Suppliers can contribute to the development of the corridor by providing technologies and know-how not only in upstream production areas of the supply chain but also in processing, manufacturing and distribution areas. z Development promotion measure 6: Efforts to strengthen food processing capacity, promote exports, and strengthen transportation networks in cooperation with neighboring countries

Mozambique has strong economic ties with South Africa. On the other hand, although it is possible to travel

155 to and from Zambia through the corridor, economic cooperation has not been as active as it has been in South Africa. However, from the viewpoint of the effective use of the Nacala Corridor, because Zambia has a close population to Mozambique and is expected to increase exports to Mozambique, it is presumed that there is a possibility of dialogue and technical cooperation for food processing, cold chain construction, and transportation network development. For example, it is assumed that Zambia has a need to export agricultural products and foods to Mozambique as a result of the economic development of Mozambique. Therefore, a " joint working group on agriculture and food for the development of the Nacala Corridor (tentative name)" can be formed based on the promotion of exports to Mozambique from Zambia, and measures can be taken to promote the development of the Corridor by cooperation between the Ministry of Agriculture in Zambia and the Mozambique side. The joint working group meeting may be held several times a year on a regular basis to identify potential areas for cooperation, for example, in the following areas, and to formulate a cooperation agenda on technical and know-how.

x Fruit and vegetable subcommittee (assumed agenda: promote exports of each country's products, listen to the needs of processed foods, share technologies and know-how, and consider the possibility of future technical cooperation) x Fisheries and livestock subcommittee (assumed agenda: Zambia has been already exporting beef and freshwater fish, and Mozambique is planning exports of chicken, seawater fish and freshwater fish. Listen to the needs of processed foods including canned goods, share technologies and know-how, and consider the possibility of future technical cooperation) x Logistics related subcommittee (assumed agenda: exchange information on developing road infrastructure for the Nacala Corridor and cold chain transport technologies, and consider the possibility of future technical cooperation in the both countries with large volumes of fresh foods )

The above is a proposal made by JICA Survey Team as an idea from the viewpoint of the development of the Nacala Corridor and the promotion of inland logistics. It is necessary to confirm the intentions of both governments regarding the need and feasibility for cooperation.

156 6. Limited number of Issues 1. Local suppliers’ 2. Local suppliers’ 3. Transportation means 4. Physical roads as 5. Export faces absolute suppliers who want to learn processing, manufacturing, logistics capabilities are infrastructure are poorly production quality is are limited to dry lack of freight volume and packaging, and logistics low low transportation developed poor marketability technologies that lead to products worth exporting

VC A. local production for local A. local production for local A. local production for local B. export model B. export model B. export model Model consumption model consumption model consumption model

࣭ Production and processing is ࣭ Suppliers' production areas ࣭ Transporting agricultural ࣭ Road construction and ࣭ Mozambique currently has ࣭ Mozambique’s processing and manufacturing industries are mainly Concerns limited to agricultural products and for agricultural products and products and foodstuffs to remote paving conditions in key few export products; therefore comprised of simple primary products that do not take cost for foodstuffs are distant from main areas costs very much since the areas of the Nakara Corridor export cargo is extremely quality or packaging. Their intention infrastructure is underdeveloped processing, and the country has not roads, and suppliers often (Nakara, Nanpra, Kuwanba, limited done a lot about food processing in its to distribute them nationwide is low. ࣭ In particular, fresh foods and Few suppliers have direct contracts outsource product etc.) are poor, and it is difficult ࣭ On the other hand, Zambia own country; therefore there are few those requiring frozen transport human resources who have with retailers, and according to transportation and logistics to has many export products and tend to end in deteriorated to transport large vehicles processing, manufacturing and wholesalers‘’ intentions, they wholesalers freshness/quality. This is because due to the narrow roads some are exported to South packaging skills ࣭ Due to the above reasons, produce/process agricultural the cold chain-related ࣭ In rainy seasons, roads as Africa and Zimbabwe, but the ࣭ The northern region did not benefit products and foodstuffs that are suppliers cannot acquire transportation technologies are export volume to Mozambique from the cooperation with the accepted only in the vicinity of the infrastructure may be flooded technology or know-how related not yet fully spread is relatively small neighboring Malawi/Zambia in terms district to transportation and logistics of agriculture, processing and logistics Factors Backgrounds/ ࣭ The market and general ࣭ Transportation of agricultural ࣭ Arterial and branch roads ࣭ Until now, railways specialized in ࣭ In Mozambique as well, ࣭ Mozambique itself is a long consumers demand reasonable products are often outsourced to are undeveloped /unpaved in coal transportation have been a relatively large volumes of country that extends north to south. products more than quality wholesalers, and wholesalers many areas; it transportation mainstream in the Nacala Corridor. cargoes are transported via the While the south has a deep products; therefore there is no need transport them only in short Cargo and general passenger takes time and accompanies Beira corridor rather than the relationship with South Africa, the to supply high-quality products distance. Their intention to distribute transportation, and road north has not had enough capacity dangers Nacala corridor. Distributors do ࣭ On the other hand, some wealthy and sell to remote areas is low development have not been not use the Nacala corridor much to promote technical cooperation ࣭ Consumers are barely people tend to purchase high- ࣭ Therefore, development of the sufficiently organized to date ࣭ Maputo, the capital of with neighboring countries ࣭ The roads are aging but the quality products like made in South smooth supply chain for agricultural making a living; therefore they Mozambique is located in the ࣭ There is a certain potential in the country lacks the financial resources Africa products and they do not products is not achieved. Instead, do not worry so much about the southern region, and the Nakara fishery, livestock, and fruit and place confidence in products made to repair and expand them; therefore production, processing, distribution, freshness of fresh foods or the Corridor in the northern region vegetable fields, but logistics routes in their own countries and logistics procedures are all these works are reliant on quality of foods that need does not have that large food to supply these products is not yet divided into each procedure international donor agencies frozen transportation market developed

࣭ Provide guidance on production ࣭ Establish strategic logistics ࣭ Provide continuous education ࣭ First, renovate and improve ࣭ In order to expand the market in ࣭ Encourage South-South strategies Development technology to expand farm warehouses to realize a and vocational training on value- the domestic road infrastructure northern Mozambique, set Nampra cooperation with Zambia, Malawi, and production and improve systematic collection, storage, added logistics technologies for centered on the main roads of Kuwanba as a strategic base for the others located along the Nacala Corridor, and hold regular joint productivity for farmers and shipping processes from building supply chains (same as the Nakara-Nanang-Pla-Kuwanba, production and processing of agricultural products, and develop agricultural and food working groups ࣭ In order to diversify agricultural farmers' production sites left) and develop and expand branch products, implement mid-to long- ࣭ Implementat and verify the strategic products and human to explore the possibility of technical ࣭ Nurture human resources roads to major agricultural resources in the processing and cooperation term human resource development effects of pilot projects on the catered to logistics management, product producing areas ࣭ possibility of introducing cold chain manufacturing industries Promote mutual promotion of the related to product development and provide vocational training for ࣭ As the next step, develop food ࣭ transportation technology in urban To realize the above goals, import and export of agricultural based on market-oriented value-added warehousing and provide production and products by holding the fruit and areas, particularly for the import and export routes by marketing; establish and operate a logistics technologies for building manufacturing facilities, guidance on vegetables subcommittee, the transportation of fruit vegetables constructing roads that extend to technical education institution for production and quality control, and fisheries and livestock subcommittee, agricultural supply chains and dairy products Malawi and Zambia this purpose dispatch food processing experts and the logistics subcommittee [Source: JICA Survey Team] Figure 52 Summary of important logistics issues and concerns identified in the Nacala Corridor and development promotion measures related thereto

157 6.2.3. Recommendations on measures to promote the development of the West Africa Growth Ring

“The Project on the Corridor Development for West Africa Growth Ring Master Plan” (survey-type technical cooperation development) Final Report, published by JICA in March 2018, outlines 10 basic strategies, which are further classified into 4 groups as basic strategic groups. In the above research, the survey for Côte d'Ivoire is mainly done by desk reviews, so in this survey, after reorganizing the West Africa Growth Ring Master Plan, we focus on the highly probable strategies and then extracts important issues for the Master Plan. Based on the results, we explore the approach of examining and proposing development promotion measures in this section. In conclusion, with regard to the important issues and barriers and bottlenecks in each corridor, specific concerns, background and causes will be summarized, and then the recommendations for development promotion measures will be shown in a readable and easy-to-understand format. First, this paper arranges the Master Plan as shown in the figure below. There is a circle mark in the strategies which refer to agriculture and food, and which are related to logisticsࠊ(including exports (with a triangle mark: partly refer to).

Agriculture and Food Logistics Basic Strategy 1: Develop diverse growth economic sectors to contribute to the development of the Strategies measures region as a whole

Basic Strategy Group 1: Basic Strategy 2: Increase investment in growth economic sectors utilizing the integration and Develop the economic expansion of regional markets sector

Basic Strategy 3: Develop basic infrastructure for economic sectors to support the development of growth economic sectors in inland and coastal areas

Basic Strategy 4: Implement and strengthen customs alliance on boarders, seaports and transport Basic Strategy Group 2: corridors, and promote regional trade among WAGRIC countries Expand the scale of coastal markets Basic Strategy 5: Strategically enhance Abidjan-Lagos corridor transport infrastructure (the super mega economic corridor)

Basic Strategy 6: Strategically upgrade long-haul freight infrastructure (railroads, multimodal/dry Basic Strategy Group 3: ports, water transport, pipelines) Reinforce consolidation between coastal and Basic Strategy 7: Strategically upgrade transport corridor infrastructure (expressway, four-track high- inland areas standard roads, air transport, and ICT) emphasizing the importance of high-speed transport and services to promote investment in inland areas

Basic Strategy 8: Support SMEs, develop industrial human resources, and enhance basic social services, with the aim of encouraging people to participate widely in corridor development opportunities in a wide area Basic Strategy Group 4: Develop industries, Basic Strategy 9: Develop environmental management activities to respond to environmental and manage environment, social risks due to the corridor development that spreads in the entire region and increase security Basic Strategy 10: Increase security measures to maintain a safe and stable society as well as the economy [Source: Prepared by JICA Research Group from The Project on the Corridor Development for West Africa Growth Ring Master Plan (survey-type technical cooperation development) Final Report (March 2018)] Figure 53 Summary of strategic policies identified in the Corridor Development for West Africa Growth Ring Master Plan

As for logistics measures, they are mentioned in all strategies below: Basic Strategy 3 "development of basic infrastructure for the economic sector," Basic Strategy Group 2 policy "expansion of coastal markets," and Basic Strategic Group 3 "enhancement of coastal and inland connectivity." Regarding agriculture and food policies, are mentioned in Basic Strategy 1 "fostering diverse growth economic sectors" in detail, but there are no other

158 areas that mention agriculture and food policies81. First, the agricultural and fishery products mentioned in Basic Strategy 1 are rice, poultry, freshwater fish, vegetables/fruits, live cattle, livestock, and processed beverages. Distribution and logistics measures for each product are specified below.

• Increased production and expansion of vegetables/fruits in regional sales markets: Establishment of transportation technologies for preserved products • Increased production and expansion of vegetables/fruits in regional sales markets: Simplified border transit procedures for products in the region • Increased development and production of processed foods and beverages for the mid-market segment: Expansion of industrial areas with the required basic infrastructure and high added value • Rice production enhancement: Private supply of plants and rice storage facilities • Increased production and expansion of vegetables/fruits in regional sales markets: Construction of a part of the North-South expressway, construction of bypass roads, and expansion of roads to high-standard 4- track roads (long-term)

As this survey has deepened the analysis of the possibilities for the future promotion of distribution of agricultural products and foodstuffs so far, we focus on agricultural products and foodstuffs as the main target items, and summarizes the relationship between the adaptability of logistics measures for "expansion of coastal markets" in Strategic Group 2 and "connectivity between coastal and inland markets" in Strategic Group 3.

Issue 1. Increased production and expansion of vegetables/fruits in regional sales markets: Establishment of transportation technologies for preserved products

The vegetables/fruits sector is one of the most popular agricultural products in the 4 countries of the West Africa Growth Ring. In particular, the production of vegetables in Burkina Faso is the largest in terms of both value and weight82. Cold chain transportation is efficient in rapidly delivering fresh vegetables to large consumption areas. However, there are now many cases of vegetables and fruits being transported by air with freezing equipment from Burkina Faso to Cote d'Ivoire, a major exporter83, and transportation costs are high. The reasons for using air transportation include the fact that the prices are very high in coastal countries despite the low prices in inland countries, and that cold chains on land are not popular in coastal countries. The Master Plan for the Corridor clearly states that transportation technologies are necessary to increase production and expand production of vegetables/fruits in the regional sales market. To realize this measure, it is necessary to introduce cold chain-related transportation technologies that can maintain freshness of perishables in order to maintain freshness and quality of vegetables and fruits. z Development promotion measure 1: Accumulation of cold chain-related transport technologies in

81 Basic Strategy 4 refers to "water resource development of agricultural irrigation facilities and inland development," but has no relevance to logistics measures 82 FAO Stats (2017) 83 Based on interviews with Burkina Faso fruit farmers and Cote d'Ivoire logistics companies

159 Ouagadougou, and strengthening the connectivity between coastal areas and inland areas by making Ouagadougou a logistics hub as an export base for perishables

The West Africa Growth Ring has benefited greatly from coastal areas, as coastal countries such as Cote d'Ivoire and Ghana, which have large ports, have closely linked land transportation and ports. On the other hand, inland countries such as Burkina Faso tended to sell perishables to coastal countries at low prices before the value of their products declined due to spoiling because they did not have the management capacity for transportation and logistics. In order to eliminate the disparities between coastal and inland countries, the Directorate General for the Promotion of the Rural Economy (DGPER) under the Ministry of Agriculture also plays a role in processing and distribution of agricultural products. Therefore, it is considered appropriate for DGPER to play a role in promoting and enlightening distribution-related measures in agricultural unions about while leading the measures. Specific measures include the establishment and operation of cold-chain-related freezer trucks and distribution centers in Ouagadougou, and the addition of roles and functions as a logistics hub for perishables such as meat as well as vegetables and fruits. At the same time, instruction course and vocational training will be provided for the development of human resources who can manage the logistics of cold chains, and a direction will be set for the development of a system that enables Burkina Faso itself to store and ship perishables. Specifically, DGPER will take the initiative in creating a mechanism for organizing the distribution of perishables in Ouagadougou and Bobo-Dioulasso, where perishables are gathered, and it will transfer the techniques and know-how of organization of the agricultural unions' distribution that DGPER accumulated. In the medium-to long-term, it will build a logistics network in which inland countries and coastal countries can maintain "WIN-WIN." In such cases, holding training courses by overseas technical experts and the provision of hardware (e.g. trucks) to local private-sector logistics companies are considered appropriate as a promotion system. The concept of constructing a logistics hub centered on Burkina Faso is realized through the accumulation of technologies and know-how that they can be actively involved in exporting and the development of human resources that can make this possible. This is important for the mutual development of the corridors and considered to contribute to eliminating the income gap, one of the development issue.

Issue 2. Increased production and expansion of vegetables/fruits in the regional sales market: Simplified border transit procedures for regional products

The Basic Strategy 4 of the Growth Ring Master Plan clearly states that "to stimulate intra-regional trade and promote investment in growth industries targeting the intra-regional consumer market, we will strengthen the implementation of the WAGRIC 40,000-tonne customs union and strengthen our response to harassment at each intra-regional customs point". Furthermore, in order to stimulate the above mentioned intra-regional trade, it is stated that measures to strengthen "the preparation of a manual and training for zero tariffs on intra-regional products" and "control of harassment at borders, ports and corridors" will be implemented84.

84 Based on interviews with logistics companies in Cote d'Ivoire, Ministry of Agriculture and logistics companies in Burkina Faso

160 To give a practical example, when transiting the north-south corridor from Burkina Faso to Côte d'Ivoire, Ghana and Togo respectively, and going through border procedures, customs and clearance in Côte d'Ivoire often takes less than a day, but in the opinion of one transport operator in Côte d'Ivoire and Burkina Faso, the Ghana border Customs officials said that customs clearance took more than two days, and that additional fees were demanded for which the basis was unclear. In any case, logistical barriers need to be overcome by strengthening controls on the above cases, including quarantine at checkpoints. z Development Promotion Measure 2: Preparation of manuals that make customs procedures transparent and simpler for both ECOWAS and UEMOA which have large economic areas, and the penalty provision in the event of breaking rules

It cannot be denied that in the past, the core countries of ECOWAS, such as the West African Growth Ring and Nigeria, as well as the UEMOA countries, have tended to be very opaque and snobbish in their customs and clearance procedures, with the exception of some borders. In fact, the cumbersome customs procedures at the borders and the problem of delayed clearance of customs clearance and fees have been a major impediment to the promotion of logistics within the West African Growth Ring, and there is a strong need to continue to steadily implement the plans of the Master Plan, and the direction is right. Therefore, the preparation of a transparent and simplified manual on customs and clearance procedures and the implementation of extensive and cross- country training to disseminate it in ECOWAS and UEMOA countries would contribute to the penetration of the standardized process of customs and clearance procedures. The establishment of strong penalties and other measures at customs and checkpoints for officials who violate this standardized customs and clearance process in their respective economies could have the effect of instilling broad-based distribution/logistics promotion in the medium term and mitigating one of the major logistical impediments that has persisted for a long time through the enactment of penalties.

Issue 3. Increasing the development and production of processed food and beverages for middle-income groups: expanding the industrial area with the necessary basic infrastructure and adding more value

In the West African growth ring, Côte d'Ivoire has the highest share of all industries in the manufacturing sector, with manufacturing accounting for about 21.4 percent in 201785. Among the manufacturing industries, the agricultural processing industry is the main one, and this compares to the data on the share of manufacturing in 2012 of 13.8 percent86. The food and beverage processing and manufacturing industry is concentrated in Abidjan and produces many value-added products such as canned tomatoes and palm oil. The master plan in question, which is necessary to expand this concentration of manufacturing industries in Abidjan, is the "Strategic Strengthening of the Abidjan-Lagos Corridor Transportation Infrastructure (Ultra- Mega Economic Corridor)" of Basic Strategy 5, which is one of the most dynamic initiatives in the development of the economic corridor. Develop a corridor coastal highway to facilitate investment promotion and industrial business development in industries targeting the expanded market through market integration. Specifically, the highway will connect

85 Oxford Economics “Country Economic Report - Côte d'Ivoire” ,2019 86 Informatoin of Ivorian Economy, Ministry of Industry and mines of Côte d'Ivoire, 2017

161 the 1,000km coastal area between Abidjan and Lagos, connecting the large metropolitan areas such as Accra with medium-sized cities such as Sekondi-Takoradi, Lome and Cotonou and other smaller cities in between. The highway and the existing roads will be used as a pivot point to develop not only the surrounding urban infrastructure such as electricity, water and ICT industries, but also international infrastructure such as an international airport, airport city and international ports, creating a large industrial belt zone (Gulf Economic Corridor) through industrial concentration. Although it remains to be seen to what extent the technologies listed in the above strategies can be realized, the potential of the economic corridors in the Gulf region is extremely large, and it is highly worth taking up as a measure to promote corridor development. z Development Promotion Measure 3: Tightly connecting the East-West Highway between Lagos and Abidjan, a major metropolitan area, to promote mutual logistics and the creation of a mega-economic corridor through diverse industrial development and functional differentiation within the region.

In the coastal countries of this corridor, there have been many large and medium-sized cities such as Abidjan, where manufacturing industries, mainly food processing, have been concentrated, Lagos, which has one of the largest urban populations in the world, Accra, and Sekondi. However, until now, these cities and medium-sized cities did not actively cooperate with each other in terms of industry and technology, and there was a history of competition between them. From now on, segregation between the cities will be important, and it is hoped that the exchange of opinions on segregation of the key industries and manufacturing industries of each country will be actively carried out at international conferences such as ECOWAS and UEMOA, with the aim of achieving mutual industrial development and promoting imports and exports within the corridor region. Moreover, if these exchanges of views and policy dialogues make it possible to segregate industries and manufacturers and to differentiate the functions of cities, it will be possible to promote mutual imports, exports and logistics in the coastal areas and to accelerate the development of advanced logistics infrastructure by revitalizing logistics.

Issue 4. Rice production enhancement: Private supply of plants and rice storage facilities

With regard to rice, the challenge is the lack of rice storage facilities in the production areas. This is closely related to this measure, since the Basic Strategy 3 of the Growth Ring Master Plan calls for "east-west road improvements from the North-South Corridor Road to access areas with high potential for peripheral agricultural development (within the coastal country and to rural areas in the interior)". Rice is produced in Côte d'Ivoire, Ghana, Togo, etc., and it is stated that there is room for improvement in the access of roads in the east- west direction from the north-south corridor. However, the JICA ex-post evaluation of the "Ivory Coast Domestic Rice Promotion Project" does not mention the lack of road access. According to a survey conducted by the Ministry of Agriculture, Forestry and Fisheries (MAFF) seven years ago, the accessibility of roads from farmers within 2 km of a farmhouse was 32.2%, which is higher than the average of 31.5% for middle-income countries and 23.1% for low-income countries. In the future, as a policy of rice import substitution, the development of not only north-south corridors but also east-west branch roads, storage and processing facilities, etc., will be important, as this is an important development issue for expanding domestic rice production in Côte d'Ivoire, Ghana and other countries. Côte

162 d'Ivoire will play an important role in this, including the fact that it is the largest producer of rice in the corridor. z Development Promotion Measure 4: Establishment of a storage, processing and distribution model for domestic rice, modeled on Côte d'Ivoire, and its lateral deployment to rice producing countries in the corridor.

As stated as a development issue in JICA's "Detailed Plan Study Report on the Project for the Promotion of Domestic Rice in the Republic of Cote d'Ivoire" (April 2014), most of the West African Growth Ring countries depend on imports of rice from Vietnam, Thailand and other Asian countries, and the significance of promoting domestic rice production is also important as an import substitution policy, and it has been identified as the most important crop in the project. The challenges in Côte d'Ivoire in terms of rice production, processing, and distribution are: (1) the land utilization rate is declining because arable land is not used effectively, and (2) Côte d'Ivoire's competitiveness against rice imports from Asia in terms of quality, price, and volume is inferior due to weak facilities and technology in post-harvest processing, including rice milling. In addition to this, it is necessary to solve not only the processing aspects of rice milling and other processes, but also the duplication of the domestic distribution network in terms of distribution. Access to areas with rice production potential needs to be improved on branch roads, including in the east-west direction, and it will be particularly important to improve roads in Abidjan from production areas to large consumption markets. In addition, there is a lack of equipment and processing know-how in the subsequent storage, milling and parboiling processes, and continued hardware and software support is likely to be needed. Although it would be desirable to have storage warehouses and processing plants in neighboring areas, in reality there are only a limited number of storage and processing plants, so the need to establish a value chain for processing, storage, research and development, etc., after rice production and harvest is an issue that needs to be considered in the future, including in the private sector. In addition, compared to imported rice, there is no systematic distribution structure such as cooperatives, rice millers, parboilers, and middlemen, which makes the distribution system more complicated. In light of the above development issues, it is considered appropriate to take the following measures to promote development: (1) the construction of a branch road from the production area, especially near Yamoussoukro, to Abidjan; (2) the provision of hardware support for storage facilities and rice milling plants, as well as continuous support for training and human resource development in storage and milling; and (3) the development of a systematic domestic distribution network centered on cooperatives for distribution.

Issue 5. Increasing production and expansion of vegetables/fruits in the region's markets: construction of part of the North-South Expressway, construction of bypass roads, widening of roads to four-lane high standard roads (long term).

Under Strategy 7 of the Growth Ring Master Plan, under the vision of breaking the "transportation time barrier" between inland and coastal areas and speeding up the movement of "people, goods, and information" between the metropolitan area and inland bases, specific road development measures include the "development of highways and four-lane high-standard roads in the North-South Corridor" and "strengthening of the existing

163 major North-South Corridor road infrastructure". Trade between Côte d'Ivoire and Burkina Faso is not limited to the fruit and vegetable sector, but the volume of exports from Burkina Faso to Côte d'Ivoire is high, and the development of highways and railways southward from southwest Burkina Faso as an alternative to air transport is important, but the transport time is 2 hours for air transport (Ouagadougou Abidjan) In contrast to the strongest, the land transport in this section of the corridor requires at least three days, including customs clearance, and there are concerns about deterioration in the freshness and quality of fresh vegetables. In particular, when exports from inland countries to coastal countries are made, there are many censors, and this is fully considered to be a logistical bottleneck in the North-South Economic Corridor. z Development Promotion Measure 5: Construction of highways and bypass roads in the North-South Economic Corridor (especially between Côte d'Ivoire and Burkina Faso), thereby building and promoting logistics human resources and logistics networks from inland areas.

As a measure for the development of the West African Growth Ring, coastal countries have tended to take the lead in developing and influencing the logistics network not only in the coastal areas but also in the inland logistics infrastructure. However, under this measure, by training and fostering human resources for logistics management and expansion of logistics in inland areas, as mentioned in the development promotion measure 1), landlocked countries, which have been leaving distribution/logistics to coastal countries, will be able to build highways and bypass roads to add value to their own agricultural products and improve the efficiency of their supply chains. The aim is to be involved in the planning of That is, until landlocked countries are able to handle future transit exports at ports as well as land transport in the future, they will need to develop inclusive roads and ports that also meet the logistics needs of inland areas. Of course, economic growth of the coastal countries is important, but if the structure of the coastal countries continues to develop by importing inland agricultural products at low prices, promotion of inland logistics and thus industrial development in the region in the medium to long term cannot be expected. In order for the corridor and the economic zone to develop as a whole, it is expected that not only the coastal countries will cooperate with each other, but also the inland countries will gain economic strength to promote industrial development and logistics that will overwhelm the other corridors, and that the corridor will develop as a further export base in the medium to long term. The important logistical barriers, specific concerns, and background and causes identified above are summarized along a vertical axis, and recommendations for development promotion measures are summarized in the figure on the next page. As shown in the value chain analysis approach in Chapter 1, the West African Growth Ring has two types of development promotion measures: an export model/import model for the most part, and an export model for processed goods, which is based on the import of raw materials. The horizontal axis is therefore organized in the figure below along these two stages.

164 3. Develop and increase

Issues 1. Increase and expand 4. improving rice 5. Increase and expand 2. Increase and expand production of processed production of vegetables production: there is no production of vegetables production of vegetables foods and beverages: and fruits: establish private supply of plant and fruits: Construct the and fruits: simplify cross- develop infrastructure, transportation technology and storage facilities North-South Expressway border transit procedures expand industrial areas, for preserved products (partial) and by-pass and enhance added value A. export/import model A. export/import model A. export/import model A. export/import model B. Exporting goods processed VC with imported raw materials model Model ࣭ Fmost in Burkina Faso, ࣭ When exporting from Burkina ࣭ There are many processed ࣭In the country, there is a ࣭ In Burkina Faso, an inland which is transported by air Faso in the inland country, there are food/beverage industries in Abidjan, problem of low quality and high country, it had been exporting many customs offices/checkpoints but when exporting these products prices of domestic rice cheap-price raw materials to

Concerns due to lack of storage and in Ghana and other countries, to coastal countries, problems such ࣭ transportation technology There are also problems with coastal countries and the coastal where many corruption and as underdeveloped road road access to rice production countries had been selling them ࣭ Cold-chain transport harassment activities occur infrastructure and delays in customs areas and lack of processing at high prices ࣭ In coastal areas as well, customs clearance occur technologies are rarely found facilities/plants such as storage ࣭ Coastal countries had taken clearance processes take time and ࣭The country has the intention to in Burkina Faso warehouses and rice mills. the lead in distribution/logistics, commission or other fees are build mega-road infrastructure ࣭ resh vegetables are produced required in border areas mainly in local cities in Lagos, Distribution is also complicated, and there had been no price Abidjan, and Accra causing high sales prices claims or negotiations

࣭ Burkina Faso itself is blessed ࣭ Although ECOWAS ࣭ Processed foods and ࣭Consumers do not like ࣭ Burkina Faso had no Factors Backgrounds/ with abundant agricultural and declares zero tariffs, in reality, beverages have been long domestic rice in terms of price regional distribution and livestock resources, but there are customs duties that made in each country, and and quality, as it is dominated logistics management commercialization is mostly demand tariffs or the governments do not want by rice imported from Asia capability that utilize carried out by coastal countries compensation for harassment to accept products from other Lack of storage warehouses highways and railways in the ࣭ Cold chain transport ࣭ Due to differences in countries technologies are also used in and processing facilities has North-South Corridor languages used (French or ࣭ Technical cooperation for some coastal countries. These led to a decline in rice quality ࣭ On the other hand, coastal English), customs and high value-added products technologies have been Distribution is very countries had a large number customs procedures are transferred from European has not been mutually complicated and access to of export items and abundant countries becoming more complicated provided within the area the point of consumption is know-how on logistics poor strategies Development ࣭ To widely spread development ࣭ Prepare standardized manuals ࣭ Develop excellent expressways ࣭Construction and maintenance of ࣭ Develop and train human in the corridors, inland countries for customs procedures and and other infrastructure to promote a branch road from the area with resources to build distribution should also possess cold chain- customs clearance procedures in inter-metropolitan exports and high rice production potential (near and logistics networks in their the ECOWAS, UEMOA regions, imports Yamoussoukro) to Abidjan. related transportation own country by constructing and obligate the relevant staff to ࣭ Mutually share technical ࣭Storage warehouses and rice technologies and developing expressways ࣭ Eliminate disparities with take continuous training information on value-added polishing plants are set up near the ࣭ and bypasses coastal countries by constructing Disseminate to the wide areas processed products among production areas to provide training the concept of zero tariffs, and countries in the region; form plans in storage and processing know- ࣭ Accumulate logistics know- a framework for exporting fresh establish penalty provisions in to develop wide-area industries and how. how to promote industrial foods using cold chain cases where commissions are infrastructure not only in their own ࣭Systematize the complex development and cross-border technology with Ouagadougou as imposed, etc. countries but also in their own domestic distribution structure into a logistics in their own country a logistics hub markets distribution system centered on cooperatives [Source: JICA SurveyTeam] Figure 54 Summary of key logistical issues and concerns identified in the West Africa Growth Ring and development promotion measures related thereto

165 6.2.4. Recommendations on Measures to Promote the Development of the North-South Corridor

With regard to the North-South Corridor, since the volume of distribution and exports from South Africa to Southern African countries is extremely large, we will identify important issues and adopt an approach for examining measures to promote corridor development after examining the logistics situation of major retailers in South Africa and other Southern African countries, which were analyzed in Chapter 5. With regard to the North-South Corridor, which South Africa took the initiative in promoting the project, we will analyze the factors that make it difficult to promote the distribution in the North-South Corridor while referring to the advanced examples of domestic logistics in South Africa, which were analyzed in Chapter 5.5. The present state of logistics in South Africa is compared with the present state of logistics in the North- South Corridor, and barriers and bottlenecks in logistics are analyzed for each product group.

Table 41 Current Situation and Challenges in Domestic Logistics in South Africa and Logistics in the North-South Corridor

Item Current Situation and Advantage of Current Situation and Issues in Logistics Group Domestic Logistics in South Africa in the North-South Corridor Group 1 ࣭ The ability of retailers and logistics ࣭ Not possessing refrigerated transport companies to maintain the freshness and technologies other than advanced foreign (perishable quality of their suppliers' products through retailers foods and their refrigerated transport technologies ࣭ DCs (distribution centers) are not located cold chain ࣭ DCs (distribution centers) have been at important points in terms of established in major cities with large transportation such as national borders, products) markets. Possessing know-how in and there is no standardized transportation transporting products to the centers in bulk know-how for collection, transportation, (standardization of inventory management inventory, and delivery. and appropriate storage of each collected ࣭ Absence of refrigerated transport product). technologies for "last one mile delivery" to ࣭ To establish efficient transportation each retail store causes deterioration in operations for "last one mile delivery," freshness and quality of products which enables the refrigerated transportation of products to each store in bulk Group 2 ࣭ Possession of sophisticated packaging ࣭ Not possessing sophisticated packaging technologies that can protect 'fragile' technologies in their own countries (perishable products, such as eggs ࣭ Road infrastructures are not yet paved or foods, and ࣭ The state of development of the road underdeveloped in many places. Road non-cold infrastructure that is relatively superior, not width and lanes are narrow. There are only only for the trunk road infrastructure among 1 or 2 lanes in border areas. There are no chain major cities, but also for the logistics lanes dedicated to perishable foods, and products) companies to procure products through large congestion occurs in the vicinity of branch lines and to the production areas of borders. suppliers. Group 3 ࣭Meat slaughterhouses are in place, and a ࣭ Frozen warehouses are not necessarily supply chain is established, where meats are available after meats are slaughtered, and (non- frozen in the vicinity after slaughter and there are many cases where meats are perishable delivered appropriately delivered quickly to stores in city centers. foods and ࣭ Processing manufacturers possess freshness ࣭ Information on freshness preservation retention technology that maintains the long- technology of processing manufacturers is cold-chain term freshness of dairy products and frozen not clearly identified products) vegetables.

166 Group 4 ࣭Extensive global supply chains have been ࣭ A supply chain structure that mainly relies cultivated for many years to import products on imports from South Africa (non- that cannot be procured domestically. ࣭ Time-consuming monetary procedures perishable ࣭ The import procedures and customs (about 4 days) at the time of import, and foods and clearance procedures at the time of import frequent occurrences of delays of more are standardized and relatively transparent. than 4 days due to unfamiliar reasons, non-cold ࣭ Advanced packaging and packing know- resulting in the collection of fees. chain how for long-distance transportation ࣭ Information on packaging and packing products) know-how is not clearly identified Group 5 ࣭ Packaging and transportation methods for ࣭ Lack of centralization at DCs (distribution delivering large quantities of grains, centers) where large quantities of grain can (cash crop) soybeans, etc. have been established, and be collected and delivered know-how for exporting products from DCs (distribution centers) to markets in other countries with use of appropriate transportation methods has been established. [Source: JICA SurveyTeam]

(1) Logistical barriers identified in Group 1

For perishable foods and cold-chain products classified in Group 1 (fresh meats, fish, fruits, etc.), a value chain of cold chain transport has been established within South Africa. Specifically, there are only few logistical barriers in South Africa, since products are transported by frozen trucks and appropriate inventory management and delivery processes are in place at DCs (distribution centers) consolidated in Johannesburg. When using the corridor from Johannesburg to the Zambian market, it is faster to transport products via Zimbabwe. However, the following challenges arise when crossing the Zimbabwe border.

Table 42 Customs and Customs Clearance Issues between South Africa and the Zimbabwe Border

Challenges Description Customs clearance processes and No standardization process is established between the countries. procedures Not convenient for exporters Electronic customs clearance system is not being used correctly Customs and customs clearance officials are not authorized to make adjustments and judgments Communications and information Unstable telecommunications environment systems Excessive amount of paper-based documentation is required Product damages are not monitored Policies and cabinet orders Optional Arbitrary and skewed among local specialists There are no clear statutes and no unified regulations/rules Measurement method Complex procedures, slow Records are not taken systematically Not using the latest technology Infrastructure Insufficient space for load traffic

167 Infrastructures are getting old and deteriorated, and the conditions (roads, vacant spaces, etc.) suitable for OSBP are not in place. Fees-Permits, additional taxes, Unnecessary questions and quarantines hinder intra trade within taxes and customs fees SADC Additional permissions (which are imposed many times) Additional taxes and fees [Source: FESTRA (East African and South African Road Transportation Federation)] In addition to the above-mentioned customs clearance problems, there is no freezing warehouse or DCs (distribution centers), so there is a risk that the quality of products will deteriorate. In addition, because it is difficult to predict the time required for customs and customs clearance, delivery to retail stores in Zambia will not be made in time, and the risk of "out of stock” products will increase. These are challenges in logistics. To summarize, the logistical barriers in Group 1 are as follows:

• Arbitrary customs/customs clearance procedures, the length of the customs clearance time (4 days), and the obligation to pay fees due to the delay (4 days or more) • Decrease in fresh food quality and degradation of fresh food

(2) Logistical barriers identified in Group 2

Perishable foods and non-cold chain products (e.g. corn, wheat, fresh rice, and egg products) classified in Group 2 share the same issue with Group 1 regarding the customs and customs clearance Refrigerated warehouses are not necessarily required. However, the North-South Corridor has a weaker road infrastructure than that of South Africa, and there are many underdeveloped places that are not being paved. Because egg products are "fragile" products, there are serious problems in the packaging and quality of the products themselves during transportation. To summarize, the logistical barriers in Group 2 are as follows:

• Arbitrary customs/customs clearance procedures, the length of the customs clearance time (4 days), and the obligation to pay fees due to the delay (4 days or more) • Vulnerable road infrastructure and in many areas that are not being paved, resulting in product quality decrease and breaking of packaging

(3) Logistical barriers identified in Group 3

As Group 1, issues related to non-perishable and cold-chain products (dairy products, frozen meats, frozen vegetables, etc.) classified in Group 3 share the common customs and customs issues. In addition, the lack of refrigerated warehouses at the Zimbabwe border is common with the barriers of Group 1. However, it is not very realistic to introduce cold chain transportation technology for the transportation of items in this group only from the viewpoint of cost-effectiveness. In addition, when products are transported without using cold chain technology at the time of entering Zambia, refrigerated warehouses

168 To summarize, the logistical barriers of Group 3 are as follows:

• Arbitrary customs/customs clearance procedures, the length of the customs clearance time (4 days), and the obligation to pay fees due to the delay (4 days or more) • Freshness deteriorates due to the lack of refrigerated warehouses as well as trucks and other equipment equipped with refrigerated technologies in “last one mile delivery" after entering Zambia.

(4) Logistical barriers identified in Group 4 It should be noted that non-perishable and non-cold chain products classified in Group 4 (canned fish, canned tomatoes, fruit juice, pasta, palm oil, coffee products, etc.) are of minimal particular concern except for the common customs and customs clearance barriers, but may cause product damage and require sophisticated packaging and packing know-how. To summarize, the logistical barriers of Group 4 are as follows:

• Arbitrary customs/customs clearance procedures, the length of the customs clearance time (4 days), and the obligation to pay fees due to the delay (4 days or more) • Requires strict packing of product packaging and packing of cargo, depending on the type of processed product, due to the vulnerability of road infrastructure

(5) Logistical barriers identified in Group 5 With regard to cash crops classified in Group 5 (polished rice, soybeans, raw coffee beans, etc.), there are no problems except for the common barriers to customs and customs procedures described above, because of the possession of know-how in mass transportation. [Summary: Barriers to logistics] Up to now, we have analyzed the barriers in logistics through group analysis by product item. In summary, the logistical barriers to the North-South Corridor can be summarized in the following 4 points.

(1) Arbitrary customs/customs clearance procedures, the length of the customs clearance time (4 days), and the obligation to pay fees due to the delay (4 days or more) (2) Deterioration of freshness and decrease in quality due to long-distance transportation of perishable products (3) Decrease in product quality and damage of packaging due to the vulnerability of road infrastructure (4) Cold chain transportation cannot be used for "last one mile delivery" after entering Zambia.

Concerning the above-mentioned 4 barriers and bottlenecks, specific concerns and background/causes are summarized, and then development promotion measures are recommended. The following figure summarizes these points. Note that there is only an export model in the North-South Corridor, as shown in Chapter 1, Value Chain Analysis.

169 Issues 1. Customs/customs 3. Vulnerability of road 4. Cold chain 2. Degraded freshness clearance procedures are infrastructure causes transportation cannot be and quality due to long- arbitrary, lengthy, and deteriorated product used for "last one mile distance transportation of tend to delay, and require quality and damaged delivery" after entering fresh products fee payment packaging Zambia

A. export model VC A. export model A. export model A. export model Model ࣭ Customs clearance procedures ࣭ Often due to the long- ࣭ After going beyond South ࣭ Cold chain transportation on the Chirundu Border are distance transportation of fresh Africa, Zimbabwe/Zambia's technology is used for long- arbitrary, complicated, and takes as foods for several days, long as 4 days or so road infrastructures are fragile, distance transportation, but Concerns ࣭ If customs clearance takes more products tend to lose and there are many unpaved there are no refrigerated than 4 days, it means delay and will freshness and quality and underdeveloped roads warehouses in Zambia be subject to additional fees ࣭ For fruits, vegetables and ࣭ "Fragile products" and ࣭ Consequently, product ࣭ The customs clearance system fish, switching to local quality declines during delivery is incompatible and the "Soft packaging products" procurement is desirable, but cause damaged packaging between stores in Zambia, communication environment is not few local suppliers meet where inventory shortages and stable and poor product quality quality requirements out-of-stocks often occur

࣭ Standard business processes ࣭ South African retailers have ࣭ It is true that physical ࣭ In Zambia, short-haul Factors Backgrounds/ have not been established because cold-chain transportation infrastructure is weak, but it transportation is common, customs staff is frequently replaced technology; therefore they want costs huge amount of money to ࣭ There are multiple additional and a finely tuned "last one to promote domestic products repair the entire road mile delivery" system has not inspections/quarantines, which whose quality is guaranteed even takes time infrastructure for food in a long-distance transportation been developed ࣭ Electronic customs clearance transportation ࣭ On the other hand, there will ࣭ Cold chain-related systems are not properly used ࣭ The government budgets be room for considering local transportation technologies ࣭ Laws and regulations are are insufficient; in a short term procurement if good local are not well established in frequently changed without prior perspective, it may be better to suppliers exist Zambia notice consider alternative solution

࣭ Provide customs staff with ࣭ Construct cold storage ࣭ In a short term perspective, ࣭ Understand the importance of continuous training through a warehouses and DC at the further promote research and “last one mile delivery" and strategies Development systematic program (e.g. how to Chinrundu border (or development on packaging according to that, transfer use electronic customs clearance Beitbridge) technology in South Africa technologies and know-how for system, standardization of ࣭ Not only install these ࣭ In a medium term perspective, small-scale transportation and business processes, making facilities, educate shipping in order to promote domestic warehousing record taking mandatory, etc.) processes as well as inventory procurement in Zambia by ࣭ Because it is cheaper than ࣭ Simplify and make transparent management in terms of fostering the packaging industry constructing road infrastructure, the customs and customs collection, refrigeration, and in Zambia, lease packaging implement a pilot project on the processes, and prepare standard possibility of introducing cold humidity. This will help fresh equipment and provide manuals chain transportation technology, food logistics knowhow be education and training on and then verify and grasp its packaging technology established effectiveness and needs [Source: JICA Survey Team] Figure 55 Summary of key logistics issues and concerns identified in the North-South Corridor and development promotion measures related thereto

170 The development promotion measures for addressing the issues related to the future expansion of logistics in the North-South Corridor shown in the previous figure are described in detail below.

z Development Promotion Measure 1: Training of tax officials through systematic programs, simplification and transparency of customs and customs clearance processes, and preparation of standard manuals

The North-South Corridor is a corridor that South African capital retailers frequently use, and a further promotion of logistics can be expected there. However, customs procedures and customs clearance procedures take about four days at the border of Chirund due to various factors, including the large number of procedures, arbitrariness, the inability of the electronic customs clearance system to function, incompatibility with the international customs system, the repeated implementation of inspections and quarantine, and the limited physical space. In addition, arbitrary business flows often delay customs clearance for more than 4 days, creating the business risk of default and a number of logistical barriers, including the collection of additional fees for more than 4 days, which are a major bottleneck to smooth cross-border transit. Measures to promote development include the establishment of a systematic program for customs officials and the provision of long-term training. There is a high likelihood that the greatest impediments to smooth logistics in the North-South Corridor will be resolved through a wide range of lectures and practical training, including how to use the electronic customs clearance system, examination of the ideal state of the business process, requirement for recording, and approximate time for business execution. At the same time, customs and customs clearance processes are too complicated, so it is also important to simplify them and create a work manual that thoroughly enforces them with standardized work flows and rules. Many expert visits will be required, but we believe it is effective to work with government agencies and customs to build a platform that will enable them to conduct continuous training and vocational training.

z Development Promotion Measure 2: Establishment of frozen warehouses and DC (Distribution) centers near the border of the North-South Corridor, and transfer of operation know-how and technology to build an efficient logistics management system

The time required for border clearance is extremely long, more than about 4 days at the border. For a logistics provider that transports fresh and frozen products, it must carry out its business while facing bottlenecks that pose the risk of degradation in the freshness and quality of its products. Therefore, in such border areas, by establishing a refrigerated warehouse and a DC (Distribution) center capable of controlling temperature and humidity, it is possible to realize efficient and smooth flow of product collection, loading management, and shipment for the waiting time at customs and borders. Of course, since there are various technologies and know-how in the operation of these cargoes, not only hard installation support but also education on the operation know-how of DC centers will not only preserve the freshness of fresh foods, etc. stored in cargoes at DC (Distribution) centers, but will also improve the

171 efficiency of customs duties and customs clearance operations, which is considered to be an effective measure. z Development Promotion Measure 3: Packaging industry and fostering packaging suppliers in Zambia

In long-haul transportation from South Africa to Zambia, packaging technologies for "fragile" eggs and thin paper, etc. pose the risk of quality degradation, such as packaging breakage and quality degradation of packing of processed goods, considering the vulnerability of road infrastructure in which they pass through in Zimbabwe and a part of Zambia. On the other hand, although there is a strong need to continue to renovate and expand the road infrastructure in the medium to long term, considering the cost-effectiveness of transportation of commodity products, it is difficult to think that the renovation of the road infrastructure is an effective development promotion measure. Therefore, the development of the packaging industry and the transfer of packaging technology in the destination, Zambia are considered to be effective in the short term. Considering the spillover effects of the development of the packaging industry and the human resources engaged in packaging, it can be expected that value be added to high-quality agricultural products and foodstuffs through advanced packaging technologies, which will lead to the cultivation of local suppliers, including packaging suppliers, and also to a reduction in transportation costs. Therefore, it can be judged that it is highly appropriate to promote the localization of packaging. z Development Promotion Measure 4: "Last one mile delivery" in the field of hardware and software

After passing the Zimbabwe border, delivery to retail stores is awaited as the last transport, but there is no refrigerated warehouse in Zambia, and it is common to deliver directly to stores. However, it should be noted that "last one mile delivery" requires technology and know-how that is different from that of trunk road transportation. In the case of products requiring fresh or refrigerated transportation, in the case of small-lot delivery, it is possible to prevent the degradation of freshness and quality by improving hardware aspects such as small refrigerated trucks and small refrigerated warehouses. At the same time, it will need to have its own logistics know-how for last-one-mile delivery, specifically, delivery at a fixed time on the day and the following day, efficient handling at the time of redistribution, pricing, and improved services for sorting various products and delivering them quickly and without errors. Therefore, it will also become important to provide technical and know-how guidance in terms of software. These measures will improve the quality of logistics from South Africa to Zambia retail stores as the smooth base.

172 Future Corridor Development Measures from the Retail Business Perspective

In this study, common logistical barriers have emerged from an overview of the logistics of each corridor in Africa from the perspective of retailers and wholesalers and other distributors. In the following section, eight logistical challenges and barriers of particular importance are identified, and measures to promote corridor development against these barriers, as well as differences among countries or corridors, are discussed. z Common Issues (1) : Delayed clearance time and uncertainty in customs and clearance operations in border areas

The most common logistical barriers identified in this study were the lengthy and unreadable customs clearance procedures in cross-border logistics, which cause delays in product delivery. At the same time, the lack of standardized work flow in customs and clearance procedures was also identified. As a measure to promote development in each corridor at the barriers, it would be appropriate to implement human resource development and continuous training of customs officers, and simplification and standardization of the work flow at the time of customs clearance. On the other hand, looking at the differences in each corridor, the time taken for customs clearance at the Beit Bridge border between South Africa and Zimbabwe in the North-South Corridor is more than 48 hours, and more than 24 hours at the Chilund border between Zambia and Zimbabwe, which is a major constraint to smooth logistics. Next, the clearance time at the Mombasa port in the northern corridor is one to two days, but there has been an improvement with one-third to one-half of the cargo being cleared within four hours. In addition, the clearance time at the Malaba border between Kenya and Uganda, which is within 48 hours, has also been improved. Furthermore, in the Nakara Corridor, the results of the survey showed that customs clearance at the Chipata border between Malawi and Zambia varied from one hour to one day, but the customs clearance process did not take long. These differences in the time taken for customs clearance procedures may be due to differences in road congestion and the efficiency of customs officials in operating their operations. z Common Issue (2) : In cross-border logistics, product quality and freshness deterioration due to the lack of cold storage warehouses and distribution centers

In relation to the barriers to cross-border logistics in Common Issue 1), another major challenge is the deterioration of freshness and quality of perishable foods and products that require frozen transportation due to delays in customs clearance procedures in the border areas. As a development measure to prevent this, the research results indicated that the establishment of frozen warehouses and logistics (DC) centers capable of controlling temperature and humidity in the border areas of the corridors and their proper operation could minimize the deterioration of quality and freshness. On the other hand, differences between the corridors include the strength of the need to establish and operate cold storage warehouses and distribution centers, depending on factors such as the volume of cargo and the transparency of customs, but in the Northern Corridor, a logistics (DC) center was established and operated at the Malaba border between Kenya and Uganda or at Kampala, the capital of Uganda. There is great potential for facilitating inland logistics by Although the North-South Corridor also has a particularly

173 high volume of cargo from South Africa to other sub-Saharan countries, many respondents said that training of customs officials, standardization of operations, and the lack of an electronic customs system should be improved first. It should be noted that the Nacala corridor did not hear any particular need for the installation of these systems at present due to the relatively low volume of cargo in the Nacala corridor. z Common Issue (3): It is currently difficult to procure perishable food products in each country only in nearby areas from retail outlets

The transportation of fresh food products depends on the penetration of cold chain-related transportation technology in each corridor. Looking at the differences between countries and corridors, cold chain-related transport technology is widespread within South Africa, and there are no major logistical challenges for the transportation of fresh food within South Africa due to this transport technology. On the other hand, it was observed that in the vicinity of Lusaka, the capital city of Zambia, fresh food needs to be transported from an area within 120km of the store, while in Nairobi, the capital city of Kenya, fresh food can only be sourced from neighbouring areas where fresh food is sourced from within 20km to 50km of the store. On the other hand, this depends on the maturity of the consumer market, meaning that in markets like South Africa, where the consumer market is not only about price but also about quality, cold chain-related transport technologies are more prevalent. Since Nairobi, Kenya is also a large consumer market, and the consumer market is shifting to focus on quality in the next few years, cold chain-related technologies will begin to be introduced, which will improve the quality of fresh food and expand the scope of incoming fresh food procurement. On the other hand, in the consumer markets of Mozambique and Zambia, which are located in the Nacala Corridor, it is expected that consumers will continue to be more concerned about price than quality, and thus the diffusion of cold chain-related technologies will still take some time. z Common Issue (4): Small-scale farmers and other suppliers have weak bargaining power with retailers and wholesalers due to transportation and quality problems, making it difficult to pass on production costs to market prices

From the point of view of retailers and wholesalers, it was confirmed that suppliers, including smallholder farmers, have weak bargaining power over retailers and wholesalers because they often leave transportation to retailers and wholesalers and the quality of agricultural and food products is not high, although there are differences among countries. On the other hand, looking at the differences in each country, in South Africa, retailers often set their own quality standards, and if the conditions are met, retailers and suppliers sign a contract, and the bargaining power with retailers, including prices, is strong and stable supply is possible. On the other hand, in Zambia and Mozambique, few suppliers meet retail quality standards, so they can only sell their products at a certain "asking price" of the distributors (retail and wholesale), and there are not enough mechanisms to protect smallholder farmers. In addition, although there are a certain number of retail operators in Kenya that have certain quality standards, they are obliged to deliver products to the retailers on a daily or bi-daily basis and therefore, being located near major cities is a requirement for proximity to major markets as a condition for continued transactions with the retailers.

174 Since this requirement for suppliers to be located near major cities is particularly pronounced in the case of fresh food products, as discussed in (3), as a future corridor development measure, it may be effective in the medium term as a development promotion measure to protect and develop suppliers away from major cities by centralizing a series of logistics operations, such as collection, storage, inventory management, and shipment to major cities, by agricultural cooperatives and wholesale and logistics operators located in secondary cities following the capital city, to organize distribution. z Common Issue (5): Suppliers want to increase their bargaining power with retailers and add value to their products by having their own product quality control, processing and packaging technologies.

One of the barriers to promoting sales is that suppliers themselves do not have quality control, including freshness transport, nor do they have the technology to process or package their own agricultural products. Their suppliers are conditioned to process and package their agricultural products under instructions from major retailers on the packaging and processing methods they specify and provide to the retailers. Naturally, the supplier's profits are squeezed in that case as they are provided with processing and packaging know-how. Common Issue (4) has similar challenges, and while this may help suppliers to promote and maintain retail sales in the short term by reducing store prices, by taking away room for reinvestment in production efficiency and quality improvement, in the long term it is considered to be a disincentive to expand distribution The same can be said for the other countries. On the other hand, looking at the differences by country, South Africa has a certain number of suppliers with the ability to process and pack their products in-house, and they are aiming to add value to their products. Some suppliers, such as the beverage manufacturer in Kenya and the meat producer in Zambia, are selling their products to retailers using their own processing and packaging technology that they have devised. They also transport and distribute their products themselves. On the other hand, no such suppliers could be identified in Mozambique. In summary, becoming a supplier that has its own processing and packaging technology will also increase the bargaining power of suppliers to retail operators. Retailers also generally have a strong need to find suppliers with such value-added technologies. Therefore, in order for the suppliers to develop their own bargaining power and competitiveness, it is important for them to have their own processing and packaging technologies, while initially receiving technology transfer and licensing, in order to ensure a continuous supply of products to retailers. z Common Issue (6):Lack of "last mile" delivery technology and know-how to retail stores, the final destination

The African market often faces challenges in the delivery of the "last one mile", which is the logistics of getting products to their final delivery point, the retail store. Compared to highway transportation, "last mile" logistics requires different logistics technology and know-how because it requires logistics know-how to separate and deliver various products without error, on-time delivery services and efficient transportation means for redelivery.

175 On the other hand, looking at the differences between countries, South Africa has established a certain amount of "last mile" delivery know-how. However, Zambia has no cold chain-related transport means, and Kenya has no cold chain-related technology, as well as constant traffic congestion in Nairobi's urban centers, among other problems. In order to overcome these logistical bottlenecks, it will be necessary to develop small cold chain trucks, secure transportation means for joint delivery services, and accumulate logistical know-how for these services in terms of hardware. z Common Iuuse (7): Transportation of perishables is difficult due to the absence of cold storage and distribution centers.

In transporting perishable and frozen products, in addition to the use of refrigerated trucks for transportation, it will be possible to prevent deterioration in quality and freshness for the first time by having cold storage and a DC (distribution) center that can control temperature and humidity during standby periods, such as when crossing a border. On the other hand, looking at differences by country, South Africa has distribution centers at key logistics locations, while other countries have warehouses, but only temporary warehouses or warehouses without refrigeration functions (in Zambia, a case of cold storage warehouses at an international airport was confirmed). ) In the transportation of perishables, in order to prevent quality deterioration, it will become essential to establish shared cold storage warehouses or distribution centers (DCs) in key locations such as urban centers, in order to meet the future needs of the consumer market for quality. z Common Issue (8): Lack of management technology and know-how for proper logistics management even with the establishment of cold storage warehouses and distribution centers

When a cold storage or distribution center is established, it is important to understand its various functions. Specifically, it is difficult to make use of the functions of DCs and build an efficient logistics network without establishing an operational system that can facilitate the flow of bulk product collection, temporary storage, appropriate inventory management, and reshipment. On the other hand, looking at the differences among countries, the accumulation of management methods and know-how for DC (logistics) centres and other such facilities is still an issue for the future, except in South Africa, where the accumulation of management methods and know-how for DC (logistics) centres and other such facilities is still an issue for the future, because it is realistic to contribute to the promotion of corridor logistics, including inland logistics, by being able to operate DC (logistics) centres and other such facilities appropriately. Receiving technology and know-how transfer of the center's operational know-how will become even more important in the future.

176 Appendix: Reference Materials

177 Appendix 1. Macroeconomic data etc.

A-1.1 Kenya

Market Overview

Kenya has made significant political, structural and economic reforms that have largely driven sustained economic growth, social development and political gains over the past decade. However, its key development challenges still include elevated poverty, high unemployment levels, inequality, climate change, continued weak private sector investment and the vulnerability of the economy to internal and external shocks. Devolution remains the biggest gain from the August 2010 constitution, which ushered in a new political and economic governance system. It is transformative and has promoted greater investments at the grassroots, strengthened accountability and public service delivery at local levels. In addition to aligning fostering economic development through the country’s development agenda to the long-term development plan, Vision 2030, the President in December 2019 outlined the “Big Four” development priority areas for his final term as President. “The Big Four” will prioritize manufacturing, universal healthcare, affordable housing asnd food security. While economic activity faltered following the 2008 global economic recession, growth resumed in the last five years reaching 5.7% in 2019 placing Kenya as one of the fastest growing economies in Sub-Saharan Africa. The recent economic expansion has been boosted by a stable macroeconomic environment, positive investor confidence and a resilient services sector.

Economy

GDP Growth As shown in the figure below, medium-term gross domestic product growth (GDP) is expected to be 5.2% in 2020 and 6.6% in 2024 underpinned by private consumption, a pick-up in industrial activity and still strong performance in the services sector. Inflation is expected to remain within the government’s target range while the current account deficit is projected to remain manageable. Growth will also be driven by ongoing key investment to support implementation of the “Big 4” development agenda and improved business sentiment. Growth could have been stronger in the absence of interest rate caps that continue to derail recovery in private credit growth.

178

[Source: The Economist Intelligence Unit (2020)] Figure A-1 GDP Growth Estimation

The following items are future growth prospects for Kenya:

x Domestic demand is expected to increase, especially through the increase in private consumption and investment. x Increased investments in infrastructure and regional integration will also drive growth. x Sustained expansion is expected in private consumption and demand owing to favourable agricultural harvests, low inflation, greater private sector credit growth, urbanisation and ongoing public infrastructural investments (despite fiscal consolidation). x Regional integration - from regional trade and trade between African trade blocs - is also expected to play a role in economic growth in the medium term.

Even though the above points indicates a bright future and amongst the highest in Africa, Kenya’s growth may be hindered by a number of factors:

x Lending and interest caps that might dampen growth in private consumption and the banking sector. x Kenya’s dependency on rain-fed agriculture creates some risks should drought occur.

(2) Consumer Price Inflation Consumer Price Index (CPI) change refelcts an average of 5.9% over the period from 2018 till forecasted in 2024. The annual inflation rate in Kenya shot up to 6.37% in February of 2020 from 5.78% in the previous month. It was the highest inflation rate since April 2019, driven by prices of food (10.58% vs 9.6% in January), especially tomatoes (62.4%), amid widespread shortages probably linked to the locust plague. Additional upward pressure came mostly from housing & utilities (3.02% vs 2.66%); transport (5.02% vs 4.16%) and clothing & footwear (1.77% vs 1.78%).

179

[Source:The Economist Intelligence Unit (2020)] Figure A-2 Consumer Prices Inflation

(3) Contribution to GDP

The expenditure distribution graph below gives the percentage contribution of agriculture, industry, and services to total GDP. Agriculture includes farming, fishing, and forestry. Industry includes mining, manufacturing, energy production, and construction. Services cover government activities, communications, transportation, finance, and all other private economic activities that do not produce material goods. Sector contribution to GDP is forecasted to stay constant over the next few years with only the industry sector showing potential growth to the contribution of overall GDP, whilst agriculture, forestry and fishing are seeing a steady decline since 2018. This can be contributed to the foreseen drought Kenya is heavily dependent on for its argiculture performance.

[Source: 2020 The Economist Intelligence Unit] Figure A-3 GDP Contribution

180 (4) Growth Change in sectors

The below graph illustrates the % growth change in various sectors, namely Agriculture, Industry, Manufacturing and Services, over a time period up to and forecasted till 2023. The biggest changes will be seen in both the Manufacturing and Industry sectors due to the following factors:

x Increased agriculture volumes resulted in a greater supply of inputs for agro-based manufacturing industries. x The Kenya Investment Authority registered 47 manufacturing projects worth over R1.8 billion of capital investment in 2018 and this investment has seen its effect in 2019 and 2020.

[Source: The Economist Intelligence Unit(2020) Figure A-4 GDP Contribution Estimation

(5) Exchange Rate

The Kenyan Shilling (KES) is forecasted to weaken against the dollar with ~13% from 2018 up to 2023 showing a forecasted 115 Kenyan Shilling against the US Dollar in 2023.

[Source: The Economist Intelligence Unit(2020)] Figure A-5 Exchange Rate Estimation

181 (6) Developments and Foreign investment inflows

The World Bank Group’s (WBG) strategy for Kenya is to support the government’s strategy of ending extreme poverty and increasing shared prosperity. The Country Partnership Strategy (CPS) FY14-18, revised under the Performance and Learning Review (PLR) in June 2017, focuses on improving the economy’s competitiveness and sustainability, protecting and helping the vulnerable to develop their potential, and building consistency and equity through devolution. The CPS/PLR period, extended to FY20, envisages investment of $1 billion a year, through the International Development Association (IDA), The International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency (MIGA). The current IDA portfolio is approximately $7.38 billion in 38 projects: x 30 national projects ($6.15 billion) x 8 regional projects ($1.23 billion) The biggest investments are in infrastructure followed by the social sectors. Others include: agriculture; devolution; governance; justice, law and order; disaster risk management; forced displacements; private sector development; and statistical capacity building. IFC’s committed investment portfolio in Kenya stands at $884 million as of June 30, 2019. 67.3% of IFC’s portfolio is attributable to the financial sector, followed by manufacturing, agribusiness and services (20%) and infrastructure (12.7%). Kenya remains critical to IFC’s operations in Africa because this is IFC’s fourth largest country portfolio in Sub Saharan Africa (10% of total). IFC remains committed to scaling up Investment and Advisory support especially in the current fiscal climate and within the context of the President Kenyatta’s Big Four focus areas. On the advisory side, total funds under management amount to approximately $45.6 million as of June 30th, 2019, supporting work across all four advisory business lines - access to finance, sustainable business, public-private partnerships (PPPs) and investment climate. Multilateral Investment Guarantee Agency (MIGA) has a gross exposure of $148 million in the portfolio including three projects to support private investments in the energy sector. The pipeline includes one large project (to cost roughly $1 billion) in the transport sector and is currently underwriting two projects in the energy sector. MIGA is engaged with the PPP Unit within the Ministry of Finance to work upstream on high priority projects, particularly in the infrastructure space as well as university housing.

Kenya’s recent political reform stemmed from the passage of a new constitution in 2010 that introduced a bicameral legislative house, devolved county government, a constitutionally tenured Judiciary and electoral body. The first election was in 2013. The August 8, 2017 presidential elections were nullified on September 1, 2017 by the Supreme Court, and a new presidential election was held on October 17, 2017. Kenyan President Uhuru Kenyatta was sworn in for a second and final five-year term on November 28, 2017. Devolution remains the biggest gain from the August 2010 constitution, which ushered in a new political and economic governance system. It is transformative and has promoted greater investments at the grassroots, strengthened accountability and public service delivery at local levels. Political unstability and terrosim remains a big threat for Kenya and the potential economic growth. Factors

182 that will have an impact on the political stability, includes:

x Following the re-election of Uhuru Kenyatta and acceptance of his re-election by the main opposition leader, political tensions have been tempered. This lull is expected to continue at least until the next election cycle x The stability is expected to be a key factor in Kenya’s economic growth as investors’ confidence increases Other terrorism factors which will also have an impact on the political stability of Kenya, includes:

x Concerns have been heightened after the continuous terrorist attacks in January 20202 by Al- Shabaab. The main reason for the attacks by Al-Shabaab is Kenya’s military intervention in Somalia as part of the African Union Mission in Somalia in battling al-Shabaab. This is follows major attacks in 2019, 2017, 2015, 2014 and 2013. The result of these attacks have major impact on the following: o The country’s tourism as fewer people travel to Kenya o Ability to attract direct investments o Retailers are also affected as footfall reduces in shopping centres that are seen as possible targets for terrorist attacks x Kenya’s continued military presence in Somalia means some risk of further attacks exists

(d) Demographics and Income

(1) Overview and Summary Kenya's population will grow rapidly over the forecast period, reaching almost 92 million people by 2050. There will be growth across all age groups, with the young adult population remaining the largest adult category and representing an attractive opportunity for potential investment. Those younger than 20 years old also represent a significant opportunity, with these age ranges boosted by high birth rates and continued growth. A potential challenge is the low level of urbanisation in the country, with the rural population remaining the majority in 2050, despite strong growth in the urban population.

183 (2) Population Size Kenya has one of the larger populations in East Africa, at 53.8 million in 2020. This will increase rapidly towards 2050, reaching 91.6 million.

[Source: Fitch Solutions estimate/forecast. (UN, Fitch Solutions)] Figure A-6 Population Size Estimation

Kenya’s population growth will be boosted by high birth rates and increasing life expectancy, especially near the beginning of the period. Kenya will therefore offer an increasingly attractive environment for consumer- facing companies as the target market size expands rapidly.

(3) Population Age Adult Population Trends Kenya's rapid population growth will result in increases across all age ranges. While some age categories will see their proportions of the population change, this will mainly be due to rapidly changing differing growth rates between these categories. For example,young adults (20-39 years old) will remain the largest category with the total number increasing from 17.1 million in 2020 to 28.5 million by 2050. As a percentage of the total population, this group will remain around the 31% mark. The number of Kenyans in the 40-64-years-old range will almost triple, from 8.6 million to 23.4 million over the course of 2018 to 2050. The pensionable population will also experience strong growth as people live longer and the middle-aged group ages up. It is forecasted for this segment to grow from 1.3 million in 2020 to 6.2 million in 2050, remaining the third largest category at 6.7% of the population, but still far smaller than the middle-aged population of 25.6%.

184

[Source: Fitch Solutions estimate/forecast. (Source: UN, Fitch Solutions)] Figure A-7 Adult Population Breakdown Estimation

Babies, Children and Teenage Population Trends As of 2020, Kenya's youth population (younger than 20 years old) represents approximately 49.8% of the total population. While this group will see population growth over the long term (from 26.8 million in 2020 to 33.4 million by 2050), it will see its proportion of the total population fall to 27.4%, as the population gradually ages. High birth rates will keep the 0-4-years-old bracket the largest non-adult bracket, accounting for 9.3% of the population in 2050. As this large swathe of new babies ages up, the teenagers bracket (15-19years old) will grow the fastest, increasing by almost 2.2 million to 2050, reaching 8.2 million in total. However, in absolute terms, it will be the smallest non-adult group in 2050. Pre-teenagers (10-14 years old) will experience the second-fastest growth, adding an additional 1.6 million people by 2050. Young children (5-9 years old) will still be the second largest category at 9.2% in 2050, ahead of pre-teenagers at 9.1% and teenagers at 9.0%.

185

[Source: Fitch Solutions estimate/forecast. (UN, Fitch Solutions)] Figure A-8 Minor Population Breakdown Estimation

Median Age Trends The median age of Kenyans will increase by eight years over the forecast period, from 20 years old in 2020 to 28 years old by 2050.This ageing will mean that Kenya will have the second-oldest median age in the East Africa region, only behind Ethiopia, but older than Mozambique, Tanzania and Uganda.

(4) Urbanisation The population of Kenya is urbanising at a rapid rate: the urban population will almost triple in size between 2020 and 2050, from 15.1 million to 42.4 million. Despite this, the majority of the population will remain rural throughout the long-term forecast period, with the urban population reaching 46.3% of the total population in 2050.

[Ssource: Fitch Solutions estimate/forecast. ( UN, Fitch Solutions)] Figure A- 9 Population Breakdown by Region

186 While this is an immense shift from 28% in 2020, it is not particularly attractive by regional or global standards. Much of the population growth will stem from rural areas over the coming decades, keeping the rural population the majority at 49.2 million in 2050, or 53.7% of the total. The largest city by population is the capital city, Nairobi, boasting a population of 3 million. Other large cities include Mombasa, Nakuru and Eldoret. Mombasa is the second largest city in Kenya, with a population of more than 1 million and is a prominent business hub due to the presence of a port on its border along the Indian Ocean. Nakuru, Eldoret (the fastest growing city) and Kisumu (another port city and trading hub on the west), all have reasonably large sizes and will grow exponentially over the next 35 years.

A-1.2 Zambia

(a) Economy

(1) Economic growth It is expected that economic growth will be relatively low from 2020 to 2024 considering the Zambia's long- term economic growth potential. The main factors that prevent its growth are i)a slow start in the copper-mining industry, ii) shrinking private consumption, and iii) slowdown in business investment. Additionally, the electricity tariffs were increased sharply in January 2020 (by 200% for household consumptions and 49% for commercial consumptions). The increase in electricity cost was caused by the increase of power imports to supplement the supply gaps. In the past, hydroelectricity was predominantly used to supply power to country. However recent droughts have limited the hydroelectricity supply, thus increasing the required imported power. In addition, while food inflation in 2020 is likely to occur due to a weak harvest forecast for 2019/20 and increased food production costs, overall growth is forecast to rise from an estimated 0.8% in 2019 to 1.1% in 2020 given the increase of the electricity imports and a rise in copper prices. Furthermore, Real GDP growth ratio is derived by a rise of copper prices in the mid-term and is expected to rise up to 3.3% in 2021. The growth in 2021 will be assisted by increasing public infrastructure investment as well as spending related to election activity. According to EIU (Economist Intelligence Unit), it is predicted that growth will decrease to 2.9% in 2022, as the effects of investment and spending in relation with the election activity which will drive growth in 2021 fade and the government is compelled to implement sharp budget cuts. Construction and services will be negatively affected, however mining growth with soften the impact due to monetary loosening and high copper prices. Overall, growth is expected to average 3.4% a year from 2023-2024, in line with increases in copper production and its international soaring prices.

187

[Source:Country Report – Zambia, Ecomoist Intelligence Unit(2020)] Figure A-10 GDP Estimation in Zambia

Inflation The EIU forecasts that “inflation will rise from an annual average of 9.2% in 2019 to 9.9% in 2020, well above the BoZ's target range of 6-8%”. The inflation forecasts is attributed to a steep depreciation of the kwacha followed by several concerns such as drought-related jumps in the price of food, rising electricity tariffs, and fuel costs as mentioned above.

Exchange rates It is forecasted that the Zambian Kwacha (ZMW) will depreciate severely against the US dollar from ZMW12.89 per US$1 in 2019 to ZMW14.43 per US$1 in 2020, due to rising inflation and the exit of foreign investors driven by a growing sovereign debt risk. However the rise of copper price will contribute to slowings the pace of depreciation down in 2021.

188

[Source: Country Report – Zambia, Ecomoist Intelligence Unit(2020)] Figure A-11 Exchange Rate Estimate in Zambia

(b) Political stability

The ruling Patriotic Front (PF), led by the President Edgar Lungu, is expected to retain power. Zambia will face substantial threats to its political stability in 2020-2024 and frustration over economic and political protests could quickly turn violent. In the past, a protest first started in the Northern Copperbelt Province in January 2020, and spread to at least four of Zambia’s 10 provinces by the end of February which prompted the U.S. to issue a security alert.

Demographics and Income

(1) Population Size

Zambia's population is set for rapid growth through to 2030 and expected to become twice as big as it was in 2015 due to high birth rates and rising life expectancies. Importantly, Zambia will exceed Zimbabwe on a regional comparison basis by 2030, giving Zambia a clear population growth advantage over its neighboring countries including Zimbabwe, Botswana, and Namibia.

(2) Adult Population Trends

Adults in Zambia will increase rapidly between 2015 and 2030, as life expectancy in the country increases steadily. Consequently, adult age groups will increase their shares of the total population. Remarkably, the number of people in the middle-aged (40-64 years old) and pensionable (65+) populations will climb up, each more than 4 times larger in nominal terms between 2015 and 2030, as people reaching these age cohorts experience greater chances of survival than before. This will give significant business opportunities for consumer-centric companies.

189 (3) Urban/Rural Split

Zambia will experience a shift from a predominantly rural population to a predominantly urban population between 2015 and 2030. In 2015, 41.9% of the population lived in towns and cities, representing 6.6mn people; by 2030, this will increase to 50.5% of the total, representing 12.28mn. The rural population, despite its sharply diminishing share of the total, will also record growth in nominal terms, representing the strong overall population growth in Zambia.

[Source:United Nations, 2020] Figure A-12 Population Estimation

A-1.3 Mozambique

(a) Economy

(1) Economic growth Two cyclones and a severe drought at the beginning of the year slowed real GDP growth to an estimated 1 percent in 2019. The economy is expected to regain momentum in 2020, and some growth is expected due to ongoing reconstruction assistance, construction activity, and monetary easing. However, the growth rate is estimated to grow at 4.2% despite cyclones and droughts recovery in the agriculture industry. It is because coal production falls in 2020 because mine site plans to be closed. The economic recovery will continue in 2021-22 as accelerating real GDP growth to an average of 6.5% per year thanks to investment inflows will surge from 2020 and the gas industry will be a key driver of economic grwoth. Inward investment in gas-related support services (including financial and legal services and construction) is expected to increase with wider economic momentum generated and overall growth led. Starting output of coastal gas fields in 2023 will directly raise real GDP, rising to 8.1 per cent in 2023 and 9.9 per cent in 2024.

190 Real GDP Growth and Consumer Prices Growth 25

0 2015 2016 2017 2018 2019 2020 2021

Real GDP Growth (%) Consumer Prices (end-period; %)

[Source: The Economist Intelligence Unit (2020)ࠊ The World Bank Group (2020)] Figure A-13 Real GDP Growth in Mozambique

Percentage of GDP by industry (% real change) 25

0 2015 2016 2017 2018 2019 2020 2021 -5

Agriculture Industry Services

[Source: The Economist Intelligence Unit (2020)] Figure A-14 Percentage of GDP by Industry in Mozambique

(2) Inflation Inflation dropped in 2018 to 3.9 per cent and in 2019 to 3.4 per cent, reversing the high rates reached in 2016 and 2017. Since June 2017, currency fluctuations have been minimal, while stable food prices and currency tightening have been supporting low inflation. The Bank of Mozambique has relaxed its monetary policy gradually, bringing down the basic interest rate by more than 1,000 basis points after hitting its peak of 23.25

191 per cent year-on-year in 2016. Owing to the effects of the high interest rate on debt repayments, the fiscal deficit remained relatively large at 6.4 per cent in 2019. Currently the IMF (International Monetary Fund), World Bank, and Bank of Mozambique remain in line with forecasts of Mozambique's remaining low and stable inflation in 2020.

(3) Exchange rates It is expected that the metical will weaken to an average of MT63.8:US$1 in 2020, and to depreciate further to an average of MT68.1:US$1 in 2022 (estimated by Economist Intelligence Unit), owing to the sustained deficit on the current account. The metical, however, will improve over the remaining forecast period, hitting an average of MT64.2:US$1 in 2024, in line with the start of gas output and the subsequent boom in exports.

Exhange rate MZN: USD (end-period) 80

0 2015 2016 2017 2018 2019 2020f 2021f

[Source:The Economic Intelligence Unit(2020) ] Figure A-15 Exchange Rate Estimation

(b) Political stability87

Political instability in Mozambique appears to be growing following the 2019 presidential, legislative, and regional elections marred by accusations of widespread fraud and violence. A decisive win was won by the former President, Filipe Nyusi, and the governing Frente de Libertação de Moçambique (Frelimo). The Resistência Nacional Moçambicana (Renamo), an armed opposition group, challenged the result however. Subsequently tensions remain strong between the two sides. Besides the conflict between the parties, the construction of proposed on-shore gas facilities in northern Mozambique has been threatened by the growing involvement of militant Islamist groups, Ansar al̺Sunna and, gradually, Islamic State (IS) affiliates. In 2019, insurgent attacks grew in intensity and frequency, and are expected to continue as state security forces struggle to counter them. Several countries (such as Russia and the US) have been calling for greater foreign intervention in the region's security. The growing conflict around

87 Ecomonic Intelligence Unit “Country Report – Mozambique”(2020)

192 Renamo will draw attention away from combating the jihadi networks, thereby reducing the capacity of the government to curb the violence.

(1) Population Size With a population of about 28 million (INE, 2017), of which 68 per cent live in rural areas and 60 per cent live along the coastline, Mozambique's livelihoods are largely dependent on natural resources, such as rain-fed farming and fishing. However, three strategic seaports in the cities of Nacala (north), Beira (centre) and Maputo (south) as well as regional transportation corridors serving its neighboring landlock countries offer many opportunities for regional trade and development. While seven out of ten Mozambicans live in rural areas, growth in the urban population is faster than growth in the rural population. Women are actually more frequent than males (51.3% vs. 48.7%, respectively). For Mozambique, GDP per capita dependent on PPP was USD 1,244 in 2017 (from USD 407 in 1998, with an average annual growth rate of 6.08 per cent). Low-income market groups, however, dominate Mozambique: in addition, the benefits of such expansion-mainly generated by a series of mega-projects-were primarily limited to resource boom enclaves and urban areas, benefiting only a tiny minority of Mozambicans, leaving the bulk of the rural population in a condition close to that of ten years ago. The poverty level remains high, with up to 46.1 per cent of the population living below the national poverty line in 2014/15, down from the levels existing at the beginning of the 2000s by just 6.7 per cent points: 52.8 per cent in 2002/3. Despite the decline in the rate of deprivation from previous deprivation estimates, the number of impoverished people in Mozambique has remained largely constant in absolute terms. Many critical well- being metrics such as maternal mortality (489 deaths per 100,000 live births in 2015), child mortality (53.3 deaths per 1,000 live births in 2017), primary completion rates (46.4% in 2007) or access to electricity (24.2% of the population in 2016) still remain troublesome and below national levels, following significant social sector investments in Mozambique. In fact, changes in living conditions have not been distributed equally across the country, with changes clustered primarily in industrial areas and in the southern half of the country.

193 Adult Population Trends 40000

35000

30000

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20000

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0 2000 2005 2010 2015 2020 2025 2030

Total Adult

[Source: Instituto Nacional de Estatistica(2017)] Figure A-16 Adult Population Trends

Urban Area Population Trends 40000

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0 2000 2005 2010 2015 2020 2025 2030

Total Popolation Urban Population

[Source:Instituto Nacional de Estatistica(2017)] Figure A-17 Urban Area Population Trends

194 A-1.4 Côte d'Ivoire

(a) Economy

(1) Economic growth

GDP growth is projected to remain steady, at an annual rate of 6.7 per cent from 2020-2024, according to the Economic Intelligence Report. Economic growth would benefit from recent pro-business changes, as well as major public and private infrastructure projects. Enhanced transport links and power and water services will help to sustain competitiveness in the agriculture and industrial sectors. The industries that process the country's raw materials will continue to grow, particularly in the cocoa sector, which is the country's largest sector. A new cocoa-milling plant was inaugurated in March and capacity will be gradually doubled by 2022. The authorities have aggressive plans to raise oil and gas production, but unless oil prices increase more rapidly than we currently foresee, exploration activities are likely to stay subdued. Nevertheless, the growth rate will remain below the annual average of 8.6 per cent reported in the post- conflict period 2012-18. Provided that the production of cocoa has been exceptionally high by historical comparison in recent years, there is little room for substantial further increase in output during the forecast period. Plans to increase the substitution of old crops infected with swollen shoot viruses with new crops over the next three years would delay growth. In fact, there have been studies of decreases in the use of fertilizers and pesticides over the past year, as a result of which the occurrence of crop disease has increased. Approximately six million Ivorians (about one-quarter of the population) rely on the cocoa industry, and the slower growth in this sector will strip the bottom of what has sometimes been a double-digit rise in private consumption in recent years. The biggest danger to these estimates comes from the political situation; an escalation in election uncertainty will lead to a downward adjustment of these predictions.

Real GDP Growth and Consumer Prices Growth 10

0 2015 2016 2017 2018 2019 2020f 2021f -2

-4

Real GDP Growth (%) Consumer Prices (end-period; %)

[Source:The Economist Intelligent Unit(2020)] Figure A- 18 Real GDP Growth and Consumer Prices Growth

195 Expenditure on GDP (% real change)

0 2015 2016 2017 2018 2019 2020 2021 Private Consumption Government Consumption Gross Fixed Investment Exports of Goods & Services

[Source: The Economist Intelligent Unit(2020)] Figure A-19 Expediture on GDP in Côte d'Ivoire

Origin of GDP (% real change) 15

0 2015 2016 2017 2018 2019 2020 2021 -5

-10

-15

Agriculture Industry Services

[Source: The Economist Intelligent Unit(2020)] Figure A-20 Origin of GDP in Côte d'Ivoire

(2) Inflation

Côte d'Ivoire saw a mild deflation in 2019, primarily reflecting favorable market conditions that contributed to a decline in food and energy prices, which is expected to give way to optimistic yet weak inflation in 2020-. Côte d'Ivoire's inclusion in the CFA Franc Group would help to mitigate inflationary pressures, with the strengthening of the CFA franc against the US dollar over the projected period adding to the stabilization of

196 induced inflation. Domestic demand will put some downsides on consumer prices, especially later in the forecast era. While that will boost inflation, the trend is projected to stay small, with only an annual level of 1.2 per cent in 2020-, according to the Economist Intelligence Unit. Risks to this forecast could arise from shortages of local food supplies caused by erratic rainfall patterns.

(3) Exchange rates

The CFA franc is fixed to the euro at CFAfr655.96:€1 and thus fluctuates in accordance with the fluctuations of the currency US dollar. The Economist Intelligence Unit forecasts that the euro will increase only marginally relative to the dollar in 2020, helped by a decline in US economic growth as US companies continue to face higher supply costs (owing to higher import tariffs and increasing labor costs), after weakening in 2019 owing to the looming breeze and the continuing effect of US commercial tariffs on automobile exports. In fact, the Federal Reserve (the US Central Bank) has embarked on a policy-enhancing program that would place downward pressure on the US currency. In 2021-2024, the euro, and hence the East African franc, will be boosted on a sustainable basis against the US dollar. This strengthening will be accompanied by enhancing the macroeconomic conditions of the euro area and the monetary tightening of the ECB. Following these trends, the Economist Intelligence Unit expects the CFA franc to rise marginally from the expected CFAfr585.5:US$1 in 2019 to CFAfr583.1:US$1 in 2020 and to strengthen more significantly CFAfr529:US$1 in 2024.

Exhange rate XOF: USD (end-period) 640

620

600

580

560

540

520

500 2015 2016 2017 2018 2019 2020f 2021f

[Source: The Economist Intelligence Unit(2020)] Figure A-21 Exchage Rate XOF-USD Estimation

(b) Political stability

Côte d'Ivoire was praised as a model of stability, but the armed revolt of 2002 split the nation into two,

197 with the insurgents retaining control over the north of the region, and the government looking to peace in the south. Since then, peace talks have alternated with increased aggression, as the world has gradually progressed towards a diplomatic settlement to the conflict. Preventing this possibility though, the army — which proved to be very unpredictable during the 2011 conflict — remains vulnerable to instability. Nevertheless, the former rebels who participated in the war have been largely absorbed and many have more to lose than to recover from future aggression. The chief of them is Guillaume Soro, a popular former guerrilla chief of the Forces Nouvelles, who is now serving as an opposition figure after resigning as President of the National Assembly in February 2019, and is still currently in negotiations with Mr. Gbagbo. Further security risks derived from terrorism include the weakening of stability in the greater Sahel region and the expansion of jihadist groups southward to coastal African nations, including Côte d'Ivoire. As the largest French-speaking West African country, with a heavy French influence, Côte d'Ivoire will remain the focus of jihadi groups. The continuing downsizing of the army raises the susceptibility of the nation to the jihadist challenge.

198 Appendix 2. Overview of Major Retailers in Each Country

A-2.1 Kenya

(a)

Company Name Tuskys Supermarket Ltd

Parent Company Privately owned by family members of founder Joram Kamau Found in 1990 #Stores 60 stores in Kenya 7 Stores in Uganda ~6000 employees Value Tuskys aim to be a successful brand on every street and corner, that offers feasible Proposition solutions to their customers. “Pay Less, Get More, Everyday” is Tuskys’ slogan and the focus is on satisfying the local consumer’s needs with innovative and relative product options. Key x Stores across the country creates significant brand presence and has a strong local differentiators following x Innovative and solution orientated in online, cash management and payments (including layby offering) x Understand and appealing to the local consumer Product Range x Groceries (incl. Fresh, frozen, canned, dry foods, etc.) +Health and Beauty x Homeware and Hardware (indoor & outdoor) x Apparel (Mavazi Lifestyle clothing ) Operations x In partnership with DTB Bank, the supermarket chain has been progressively & Supply Chain installing the intelligent Cash Deposit Machines (iCDM) at its branches x Flexpay to provide online payment security x E-commerce option on Glovo as well as their own dedicated e-commerce site x Current scale of the business allows for centralized distribution centre to be investigated and invested in. Bakery is already centralized

(b)

Comoany Name Carrefour Ltd

Parent Company Carrefour Group Public Co, franchise held by the Emirati Majid Al Futtaim Group LLC #Stores 8 Stores in Kenya, all in Nairobi

199 1 Store in Uganda

Value Provide the best quality and most diverse selection of household goods. Proposition Products are considered the core business. Product offerings are based on a number of unchanging principles – a broad selection, the lowest prices, the highest quality, compliance with manufacturing conditions and a balanced diet for all – and promotes responsible consumption. Key x Aggressive pricing strategy, offering 10x difference refund on items found at a differentiators lower price x Diverse selection of local, international and own-branded products x Continuous customer feedback & interactions through surveys x Easy returns and home delivery of major appliances x High awareness rate by the top tier LSM in Nairobi

Product Range x Groceries (incl. fresh, butchery & bakery) x Home, appliances & electronics x Beauty, Apparel & Footwear Operations x No central warehouse, all products are delivered to the stores where cold chain & Supply Chain requirements and quality are checked x French store managers are employed to ensure a consistent international brand is adhere to x Very limited products are imported by Carrefour itself, local suppliers and brokers are being used x Allocated Aisle Captains and merchandising crew to ensure flawless shelving

(c)

Company Name Quick Mart Ltd

Parent Company Quick Mart Group (Private)

#Stores Quick Mart Supermarkets has 11 branches operating in Nairobi, Nakuru and Kiambu counties while Tumaini has 13 branches in Nairobi, Kisumu and Kajiado counties. Quick Mart merged with Sokoni Retail at the end of 2019. Through the merger, the company is set to create a network of 30 stores by the end of 2019 all located in the urban and peri-urban residential areas. Value x Delivering an exceptional customer experience every time a customer comes to Proposition store while providing their customers with variety of goods at an affordable price. x Ensuring a unique value proposition for their clients by always guaranteeing price Key x Meets flexibility demand of high-income shoppers by providing 24/7 services differentiators

200 x Offers convenience though product variety, express tills and opting out of traditional malls and town centres to bring services closer to their customers x Clear focus on fresh vs frozen goods in terms of shelf space allocation Product Range x Groceries (incl. Fresh, frozen, canned, dry foods, snacks, health) x Household & Hardware x Apparel Operations x Bakery, Butchery, Fish fresh offerings & Supply Chain x Small frozen section to focus on fresh x Separate in-store wine shop

(d)

Comapny Name Shoprite Checkers (Pty) Ltd

Parent Company Shoprite Holdings Limited (South Africa)

#Stores 4 stores, of which 3 stores are located in Nairobi

Value x Accessible and affordable retailer with variety of products and brands Proposition x Shoprite strives to generate long-term sustainable growth for their equity investors through their established food retail business operations in 15 economies on the African continent x They are focused on cost-effective operational performance throughout their large footprint of leading technology-enabled retail operations and distribution channels x Big drive for lowering prices and giving their customers the best products at the best possible price. In recent years, their focus has shifted from low prices to affordability, as they provide a range of options to people who may not be able to afford the lowest prices in the market x Ultimate focus stays on a low-price promise for their customers Key x High end shopping experience with low cost offerings differentiators x Multiple diverse grocery products and brands x Scale of economies & cashflow to invest in Africa and expand Kenyan branches & offerings Product Range x Groceries (incl. fresh, butchery, deli & bakery, home, etc) x Prepacked meals Operations x Fully stocked with multiple local and international brand options & Supply Chain x Not enough scale to warrant a centralized DC yet x Aims to source all products locally

201 (e)

Company Name Naivas Ltd (privately owned company)

#Stores 63 stores

Value Propostion x Key focus and drive on what their customers wants. x Giving their customers convenience is also a cornerstone of their value offering - they have strived to offer as much of this as possible in as many ways as they can, including establishing branches in easily accessible locations, designing interiors for better navigation, shelf arrangements for easier reach and payment processes that are fast and secure, as well as a fully-fledged e-commerce site Key x Bulk sales available (procurement service to hotels / corporates / restaurants differentiators delivering 7 days a week) x Wide variety of products under one roof with efficient omni-channel services x Categories stocked on shelves are based on customer needs per survey results Product Range x Groceries (incl. Fresh, frozen, canned, dry foods, etc.) x Health and Beauty x Homeware and Hardware Operations x Certain stores are open 24h for a convenience offering & Supply Chain

A-2.2 Zambia

(a)

Conaonay Name Shoprite Checkers (Pty) Ltd

Parent Company Shoprite Holdings LTD (South Africa)

#Stores 48 in Zambia

Nine strategic focus areas: 1. A truly customer-first culture/ 2. Develop future-fit channels/ 3. Enable precision retailing/ 4. Trusted, profitable private labels/ 5. Grow share in premium food Value Proposition and fresh/ 6. A stronger franchise offer/ 7. Preserve African advantage/ 8. Refocus capital allocation/ 9. Unlock alternative revenue LSM target group: the mass middle to high income market

Product Range Fresh, Non-perishable, Frozen food, Beverages, Liquor, Flowers,

202 house hold products, Apparel & Footwear etc.

x Primarily corporate-owned store base coupled with centralised supply chain x IT integration throughout planning, procurement, logistics Operations & Supply Chain and sales. x Its supply chain includes 2,779 stores, 30 distribution centres, 837 trucks and 1,211 trailers in our fleet.

(b)

Company Name THE SPAR GROUP LTD

Parent Company THE SPAR GROUP LTD (South Africa)

#Stores 412 in Botswana, Malawi, Zambia, Zimbabwe

Value Proposition Purpose: To inspire people to do and be more Six strategic focus areas: 1. Embed diversity and transformation/ 2. Provide nutritious and affordable food/ 3. Grow and inspire employees/ 4. Put consumers at the heart/ 5. Drive future voluntary trading model/ 6. Build brands in hearts and minds LSM target group: all income groups in all territories depending on the retailer’s positioning, changing consumer buying trends and seasonal impacts.

Product Range Fresh, Non-perishable, Frozen food, Beverages, Liquor, Flowers, house hold products etc.

Operations & Supply Chain According to the 2019 annual report of SPAR, their distribution centres, warehouses and depots constitute the network of facilities where they source, receive and deliver from in all territories (in South Africa) and in some cases cross border. Also, their business model enables independent retailers operate under SPAR branded store formats in all territories while SPAR also has corporate stores, and investments in wholesalers (food and pharmaceuticals).

(c)

Company Name Choppies Supermarkets Limited (Zambia)

203 Parent Company Choppies Enterprises Limited (Botswana)

#Stores 14 in Zambia

Value Proposition Corp Strategy: To be the best service provider of FMCG in Sub-Saharan Africa. LSM target group: semi- urban and rural areas.

Product Range Bakery, deli, butchery, fruit and vegetables, clothing, and private label products, including fresh, frozen, canned, dry foods, snacks, ethnic specialties, health and beauty care, household, and laundry products, and financial services

Operations & Supply Chain NA

A-2.3 Mozambique

(a)

Company Name Shoprite Checkers (Pty) Ltd

Parent Company Shoprite Holdings (South Africa)

#Stores 15 stores

Value Propostion x Accessible and affordable retailer with variety of products and brands x Shoprite strives to generate long-term sustainable growth for their equity investors through their established food retail business operations in 15 economies on the African continent x They are focused on cost-effective operational performance throughout their large footprint of leading technology-enabled retail operations and distribution channels x Big drive for lowering prices and giving their customers the best products at the best possible price. In recent years, their focus has shifted from low prices to affordability, as they provide a range of options to people who may not be able to afford the lowest prices in the market x Ultimate focus stays on a low-price promise for their customers Key x High end shopping experience with low cost offerings differentiators x Multiple diverse grocery products and brands x Scale of economies & cashflow to invest in Africa and expand Kenyan branches & offerings Product Range x Groceries (incl. Fresh, frozen, canned, dry foods, etc.) x Health and Beauty

204 x Homeware and Hardware

Operations x Certain stores are open 24h for a convenience offering & Supply Chain

(b)

Comapny Name Jumbo Cash & Carry Ltd

Parent Company COGEF Group

#Stores 8 stores

Value Propostion x Offering high volume, affordable, wholesaler offering a wide range of products to traders and consumers, particularly big families and resellers x Key x With the advantage of offering bulk quantities at reasonable prices, in convenient differentiators sizes x Located all around Mozambique x Offering 8000 imported and local products, such as groceries, cleaning, soft drinks, dairy and frozen products Product Range x Groceries (incl. Frozen, canned, dry foods, etc.) x Homeware and Hardware Operations x & Supply Chain

(c)

Company Name Mozambique Terramar Trading Lda

Parent Company Terramar Nacala

#Stores 3 stores

Value Propostion x Offering full range valuable products in the warehouse style shops

Key x Its largest capability of distribution in this country enables to offer low price to differentiators shoppers Product Range x Groceries (incl. Frozen, canned, dry foods, etc.) x Homeware and Hardware Operations x Distributed points are located in Maputo, Beira, and Nacala

205 & Supply Chain

(d)

Company Name Premier Superstar Lda

Parent Company Premier Group

#Stores 5 stores

Value Propostion x Offering High-end full range products

Key x Easy for shoppers to access with being located in the large shopping centers differentiators Product Range x Groceries (incl. Fresh, frozen, canned, dry foods, etc.) x Homeware and Hardware Operations x Directly distribution from local suppliers to shops & Supply Chain

A-2.4 Côte d'Ivoire

(a)

Company Name Bon Prix Ltd

Parent Company Prosuma

#Stores 56 (half in Abidjan, half in locl. they are typically between 350 m² and 450 m²)

Value Propostion x Supplement local markets with providing valuable Processed food

Key x A wholesale centre open for direct purchases by wholesalers differentiators x An average of 2 shops is opened per month throughout the country in order to cover Ivory Coast small cities’ demand in its entirety Product Range x Groceries (incl. Canned, dry foods, etc.)

Operations x With a fleet of 60 trucks and vans, the Bonprix network is totally independent in & Supply Chain terms of logistics x A huge storage facility is dedicated solely to this part of the business: 14,500 m² under cover and 15,000 m² open-air x The fleet of 50 or so vehicles is operated by this department

206 x With responsibility for supermarket distribution strategy, it supervises wholesale sales made direct to the public and monitors local suppliers on a daily basis.

(b)

Company Name Cash Ivoire Ltd

Parent Company Prosuma

#Stores 22

Value Propostion x Supplement local markets with providing Processed food x Working in partnership with the Ivory Coast Chamber of Commerce and Industry, the purpose of this company is to enable Ivorian retailers to access the mass retail sector with the support of an experienced partner : Prosuma Key x Cash Ivoire stores are small supermarkets located in major population centres and differentiators smaller communities. Those in Abidjan are often located at the heart of individual communities, and act as local mini-markets. By operating this way, they benefit from help with setting up their businesses, as well as assistance with administrative issues and sales policy. In terms of communication, they also take part in many of the Group’s sales and advertising campaigns Product Range x Groceries (incl. Canned, dry foods, etc.)

Operations x PROSUMA brings strong assistance to Ivorian storekeepers who want to develop & Supply Chain their own business. Its the occasion for them to join a modern distribution channel with an experienced collaborator.

(c)

Company Nmae Sococo Agency Ltd

Parent Company Prosuma

#Stores 8

Value Propostion x Offering high-end fullranged products

Product Range x Groceries (incl. Canned, dry foods, etc.) x Home, appliances & electronics x Beauty, Apparel & Footwear Operations x Sococé-trademarked stores employ 495 staff and are operated by S2P & Supply Chain

207 (d)

Company Name CDCI Inc.

Parent Company CDCI

#Stores 26

Value Propostion x Offering products that supplement local markets with providing processed food

Key x CDCI focuses mostly at the value and mid level, targeting middle class Ivorians differentiators with opening large numbers of brunches (17.2% of modern retail space) Product Range x Groceries (incl. Canned, dry foods)

Operations n/a & Supply Chain

208