Logistical challenges for SMEs in East Africa

Retailers and wholesalers are the largest customers for logistics companies across the globe. In Africa specifically, these sectors have seen strong growth due to a rising middle class. In Kenya for instance, multinational retailers such as Carrefour, Choppies and LC Waikiki have set up shop in recent years.

However, structural issues persist that make serving this market a challenge. This has translated to a higher cost of goods. In East Africa, more than 60 per cent of product cost consists of the cost of moving the product to consumers. There are a number of reasons for this.

  1. Fragmentation of Kenyan logistics

The informal sector services most of the logistics needs for SMEs in East Africa. This sector consists of thousands of vehicle owners ranging from motorcyclist to pickups and lorries of various sizes. Often, these providers have specific parking areas within specific locations and wait for orders to come in. Providers eventually develop relationships with small businesses and deliver their goods on demand. There are a number of problems with this model. First is the downtime. Vehicle drivers spend most of their time parked waiting for businesses. The contacts they have accumulated do not need deliveries made all the time. To make up for the downtime, drivers overcharge the few customers they do get.

Even then, these drives only have access to a limited number of businesses often restricted to their locality. Another issue is the uneven distribution of delivery service providers. Some localities have more providers than other. You might expect more vehicles to be available on Kirinyaga Road for instance due to a large number of businesses needing deliveries. The concentration of delivery providers reduces as you move further away from the main the city’s economic hubs. This leaves small retailers and distributors, scattered across different neighbourhoods, underserved.

  1. Poor quality logistics

A fragmented logistical sector lacks accountability. It is the experience of many Kenyan small businesses to have someone they trust accompany the drivers that transport their goods. These business owners are afraid the drivers might mishandle or make away with the goods causing losses. Up to now, the approach to mitigate this risk has been building relationships with drivers and to create trust over time. Although this solution helps, it is not scalable. You can only build so many relationships. The number of trusted drivers would be limited and the time it would take to cultivate these relationships also make it uneconomical. A lack of accountability has created room for rogue elements within the sector. It is not uncommon to hear of drivers arriving with goods damaged in transit and refusing to make good on the damage.

  1. Infrastructure and home addressing

Do you know your home address? Do you know the name of the street you live in? For most Kenyans, the answer is no. Home addressing in mostly non-existent in the country. Although an initiative spearheaded by the Communication Authority is looking to solve this issue, its efforts are far from complete. This has made it hard for retailers to implement door to door delivery of their products.

Home addressing has been the foundation for e-commerce in more developed countries. This system provides a consistent referencing point which delivery services can use to reach their consumers efficiently. As it stands, landmarks and an understanding of the locale are a necessity for finding anyone in a Kenyan urban area, especially in its estates.

What next?

This is not to say that all is lost. On the contrary, the rapid expansion of Kenya’s retail and wholesale sector presents an opportunity to build logistics further. Kenya and East Africa at large have a number of other things going for them.

The logistics sector itself is expanding rapidly. Euromonitor estimates that in this decade, the sector would have grown by 34 per cent. Investors are setting up their logistics hubs within the country. According to the World Bank, Kenya has stayed in the top 5 logistics hubs in Africa over the past 5 years.

Mobile telephony has grown exponentially and this has changed the face of business in the region. According to Communication Authority numbers, 90 per cent of Kenyans had access to mobile phones. Kenyan’s move a fifth of their GDP using mobile money. There were 30 million internet subscriptions in the country in 2017. Here lies an opportunity to connect delivery service providers and their customers at little cost and make the logistics sector more efficient. Already, tech companies such as Sendy have created platforms small businesses can use to carry out their logistics more effectively.

All this portends a bright future for logistics on the continent.


Article by Glenn Ogolah